Paint Industry's Growth Shrinks Owing to Increased Competition

The Indian paint industry, which experienced significant growth during FY'22 and FY'23, is now confronting a more challenging environment characterized by intensifying competition and shrinking profit margins, as highlighted in a recent report by CareEdge Ratings.

Revenue growth for well-established players such as Asian Paints, Berger Paints, Kansai Nerolac, Akzo Nobel, and Indigo Paints slowed to 4% in FY'24, a marked decline from the compound annual growth rate (CAGR) of 14-15% recorded between FY'19 and FY'23. This deceleration has been linked to price reductions driven by falling raw material costs and a shift in sales toward lower-value products.

Despite over 10% volume growth, the industry's revenue moderation stems from price cuts to pass on reduced raw material costs and an evolving product mix favoring less premium offerings. These challenges persisted into the first half of FY'25 (H1FY'25), exacerbated by stiff competition, prolonged monsoon conditions, the impact of general elections, and the ongoing effects of earlier price reductions.

Market dynamics have been further disrupted by the entry of new players like JSW Paints and Grasim Industries. These entrants have aggressively expanded their manufacturing capacities, dealer networks, and sales teams, prompting intensified promotional campaigns and increased advertising expenditure. Established players have been forced to ramp up their own capital expenditures and marketing efforts, escalating the competitive pressure.

The report also predicts that advertising and sales promotion expenses will rise by 100-200 basis points as a percentage of revenue, compounding the strain on operating margins. Average operating margins, which stood at 18% between FY'20 and FY'24, declined to 16% in H1FY'25. CareEdge Ratings forecasts a further contraction to around 14% by FY'26, driven by persistent pricing pressures and heightened competition.

As the industry navigates this increasingly competitive and cost-sensitive landscape, both incumbents and new entrants are expected to face significant challenges in sustaining profitability while balancing growth initiatives.