Intense competition hurts paint companies' profitability; more pain in the offing

Mint

29-05-2025

Competition in India's paints sector is becoming cut-throat amid subdued demand. To protect their market share, incumbent paint companies are enhancing brand visibility and distribution, hurting the sector's profitability.
The aggregate Ebitda margin of five key listed paint makers fell year-on-year for the fifth consecutive quarter in Q4FY25, showed IIFL Securities data. The reading declined 123 basis points (bps) year-on-year to 15.9%. This means the benefit of benign input cost, which aided gross margin expansion, was offset by higher operating costs. Other expenses and staff costs in Q4FY25 increased almost 110bps and 50bps year-on-year, respectively, according to IIFL.
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Asian Paints Ltd led the decline in the sector's profitability. Its Ebitda margin eroded by 219 basis points year-on-year in Q4FY25, hurt by higher marketing expenses. Operating margins of Kansai Nerolac Paints Ltd and Akzo Nobel India Ltd also contracted. With competition expected to remain intense, Asian Paints has said it will focus on strengthening brand salience.
New kid on the block
Grasim Industries Ltd's Birla Opus is catching up quickly. Grasim's management claims Birla Opus has become the third-largest brand in the Indian decorative paints industry less than six months after it began pan-India operations. So far, Birla Opus has launched a range of 176 decorative products with more than 1,250 stock keeping units (SKUs) across categories.
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With the launch of its fifth plant at Mahad in Maharashtra, Birla Opus's overall capacity has risen to 1,096 million litres per annum (mlpa) – representing a 21% share of the organised paints sector – of the planned total capacity of 1,332 mlpa. Grasim has maintained its revenue guidance of ₹10,000 crore within three years of full-scale operations – that is, by FY28. Birla Opus achieved its target of high-single-digit market share and is targeting double-digit market share in FY26. Besides, the recent acquisition of Akzo Nobel India Ltd by JSW Paints Ltd could fuel competition further.
Some are bucking the trend – but for how long?
On the other hand, Berger Paints India Ltd and Indigo Paints Ltd saw their Q4FY25 operating margins expand year-on-year. Cost control measures helped Berger, while Indigo's margin got a boost from a reduction in ad spends, but this is not sustainable in a dynamic industry.
Berger's management acknowledged an increase in competitive intensity. Now, despite Birla Opus opening a plant in east India – a key market for Berger – the latter doesn't expect any major change in its market share. Grasim's sixth plant at Kharagpur in West Bengal will be commissioned in the first half of FY26, with trial production likely to commence in Q1FY26.
Paint companies are defending their turf with price cuts, but more is required. 'Dealers' checks show that Grasim has priced products 5-10% lower than peers in some categories, so incumbents will need a lower pricing to beat that. Paint companies took around 5-12% price cuts in FY25 and we expect more price cuts in FY26," said Amit Agarwal, senior vice president, fundamental research, Kotak Securities. Profitability for the sector could remain under pressure in FY26 and FY27, with competition likely to peak in FY27, he cautioned.
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'In FY25, operating margin of established paint companies at an aggregate level is estimated to have declined by 300 basis points year-on-year to around 17%," said Poonam Upadhyay, director, Crisil Ratings. She anticipates an additional compression of 100-150 bps in FY26.
Another round of de-rating?
Meanwhile, paint stocks have delivered mixed returns over the past year. Asian Paints and Berger stocks both trade around 50 times estimated FY26 earnings, showed Bloomberg data. Valuations have moderated, especially since Grasim's entry led to a de-rating in paint stocks.
Demand for decorative paints is likely to remain muted in H1FY26, owing to an earlier-than-expected monsoon. If demand fails to improve in H2FY26 (the festive season), paint stocks could see another round of de-rating.