The Indian paint industry is likely to see slower growth in the current financial year after two years of scorching performance in FY22 and FY23, indicated an analysis by CareEdge Ratings.
After growing at nearly 20% a year in the last two years, revenue growth is likely to moderate to 9-10% this year, even as operating margins are likely to improve by 1 to 2% due to lower raw material prices.
“The price hike of 15–20% in FY23 and around 2.5% in Q1FY24 undertaken by major players in the paint industry also contributes to the anticipated increase,” noted the analysts from CareEdge Ratings.
The prices of raw materials which account for nearly 50-60% of total sales have remained high during FY22 and FY23 due to the supply disruptions during the Covid-19 pandemic followed by the Ukraine-Russia war impacting the crude oil prices.
However, the prices of raw materials have started cooling from the second half of FY 2023.
Prices of titanium dioxide, which contributes around 55-60% of the total cost of raw materials, declined by 30% year-on-year in the March-June quarter in 2023.
Further, with the decrease in the crude oil prices the raw material prices too softened.
“With the prices of paints staying firm and input costs softening, the industry is expected to witness an expansion in profit margins in FY24 in the range of 1-2%,” said analysts from CareEdge.
The Indian paint industry is dominated by organised players, constituting approximately 70% of the total market share. As of the end of FY23, the organised market is valued at Rs 62,000 crore, the report noted.
Asian Paints, Berger Paints, Kansai Nerolac Paints, Akzo Nobel, and Indigo Paints, command a substantial 90% market share within the paint industry.
The top five industry players have demonstrated remarkable growth, registering a robust Compound Annual Growth Rate (CAGR) of 14-15% over the past five years (FY19-FY23).
This growth trajectory notably accelerated during FY22 and FY23 aided by recovery in demand from key user industries, which rebounded after the initial pandemic induced setback.
Increase in competition
The paint industry has seen the entry of several new business conglomerates, including Grasim Industries, Pidilite, and the JSW Group, who have joined the competitive landscape, challenging the established players.
“Even as the newcomers are equipped with robust financial and industrial footing, it is still anticipated that they will require a significant period, estimated at five to seven years, to establish their presence in the market and secure a meaningful market share from the established industry leaders,” the report said.
The top five industry players possess a substantial dealer network spanning the entire country in terms of distribution and market outreach. For example, prominent players like Nippon and JSW Paints, Indigo Paints, allocate nearly 15-20% of their sales budget towards advertising.
Meanwhile, Asian Paints allocate approximately 5% of their sales budget.
Achieving parity will demand substantial time and investment from the new entrants.
“Housing sector growth and demand for repainting amid growing aspirations among people will be the major growth drivers for decorative paints. On the supply side, the industry is expected to augment capacity by 20% in the next three to four years, driven by the capex undertaken by the new and existing players. Hence, the competitive intensity is poised to escalate in the long haul,” said Yogesh Shah, Senior Director, CareEdge Ratings.
Increase in demand
The paint industry is expected to post a significant growth with the increase in demand from real estate.
“The real estate sector accounts for about 70% of the total paint demand. The demand from real estate is expected to be robust in FY24 on expectation of significant project completion, and increased government spending on affordable housing and infrastructure,” said CareEdge Ratings.
Residential housing sales are expected to increase by 10% in the top fifteen cities during 2024.
Demand from repainting, which accounts for 80% of total decorative paint demand, is expected to pick up due to factors such as a growing population, an increase in rental homes and growth in the income levels of consumers.