CHENNAI: Steady end-user demand and healthy volume growth are expected to offer some support to India’s organised paints industry, but intense competition and sustained pricing pressure are likely to cap revenue growth at a modest 3–5 per cent in the current fiscal and the next, according to an analysis by Crisil Ratings.
The assessment indicates that the sector has firmly entered a volume-led but highly competitive phase, where market share protection has taken precedence over aggressive price increases, limiting the ability of companies to translate demand momentum into faster topline expansion.
The organised segment, which accounts for about three-fourths of the domestic paints market, continues to be dominated by decorative paints, contributing nearly three-fourths of overall demand, while industrial and other non-decorative coatings make up the rest. Crisil’s study of 13 players representing more than 90 per cent of the organised market shows that revenue growth was subdued at around 2 per cent in the previous fiscal, primarily due to aggressive competition from new entrants and capacity additions by incumbents. This trend has persisted in the current year, despite steady consumption across housing, real estate and automotive segments.
Pricing pressure is expected to remain a key constraint on both revenue and profitability. Companies are increasingly relying on higher trade incentives, promotional rebates and discounts to defend market share, a strategy that is weighing on realisations. For established players, such incentives are estimated at 17–18 per cent of gross sales, significantly limiting pricing power. As a result, even with volume growth projected at a healthy 7–8 per cent, revenue expansion is likely to stay in the low-to-mid single digits.
According to Anuj Sethi, senior director, Crisil Ratings, large capacity additions by incumbents and new entrants, alongside recent consolidation, are pressuring prices as players rely on higher trade incentives and promotional rebates to protect market share.
"For established players, these incentives are estimated at 17-18% of gross sales. Consequently, revenue growth would be capped at 3-5% this fiscal and next, even as diversified demand from housing, real estate and automotive segments supports steady volume growth of 7-8%, limiting downside risk to volume,” Sethi says.
Operating profitability is also expected to remain range-bound. Margins of leading players had already declined by about 300 basis points to around 15 per cent in the previous fiscal, and while softer crude-linked input costs offer some relief, these benefits are being offset by structurally higher marketing and brand-building expenditure. Marketing spends are now estimated at 4.5–5 per cent of revenue, compared with 3–3.5 per cent earlier, reflecting the heightened competitive intensity in the market. Crisil expects operating margins to stabilise at roughly 15 per cent through fiscal 2027.
Capacity dynamics are further shaping industry economics. Large expansions by both incumbents and new entrants, along with recent consolidation, have lifted installed capacity to about 6.5 billion litres per annum, outpacing volume growth. This has capped capacity utilisation for established players at around 65–70 per cent, reducing the urgency for aggressive new capital expenditure. Consequently, capex by incumbents is expected to remain limited at around Rs 2,500 crore over the current and next fiscal, largely directed towards product portfolio expansion and technology upgrades rather than greenfield capacity.
Despite muted growth prospects, credit profiles of established paint manufacturers are expected to remain stable. Near-debt-free balance sheets, with gearing below 0.05 times, and strong liquidity of over Rs 8,500 crore provide a substantial buffer. At the same time, new entrants are likely to witness gradual improvement in profitability as losses narrow with rising volumes, better utilisation of installed capacity and the financial backing of large parent groups.
Structural demand drivers continue to offer medium-term support to the industry. India’s low per capita paint consumption and longer repainting cycles of five to six years compared with the global average of four to five years leave room for sustained growth. In addition, ongoing premiumisation, with consumers shifting from distempers and economy products towards higher-value emulsions and enamels, is improving the product mix and supporting realisations, although intense competition is limiting the full benefit of these trends.
Going ahead, Crisil notes that key factors to watch include volatility in crude-linked input costs, demand conditions in housing, construction and automotive sectors, and the evolving competitive landscape as new entrants and recently acquired entities focus on ramping up capacity utilisation. While steady volumes are expected to cushion the downside, the sector is likely to remain characterised by modest growth and tightly contested market share in the near to medium term.