Paint stocks have remained under pressure this year, with Asian Paints down 15.5% year-to-date (YTD), Kansai Nerolac falling 25.01%, and Berger Paints India declining 14.34%. However, with the festive season approaching, investors are watching for signs of a recovery in demand and margins.
According to Elara Securities, demand for paints is likely to remain muted in Q2 FY27 as dealers work through excess inventory accumulated in Q1 amid softer secondary offtake. August was particularly weak, although September saw some improvement as dealers began stocking premium paints ahead of the festive season.
The brokerage expects industry volume growth in the mid-single digits, with overall revenue growth estimated at 12–13% year-on-year during the quarter. Competitive intensity remained elevated through July and August, although Elara Securities noted some moderation in dealer schemes by Birla Opus in September.
Elara Securities’ view on paints stocks
Despite near-term demand and margin pressures, Elara Securities recommends an ‘Accumulate’ rating on both Asian Paints and Berger Paints.
The key monitorables for the sector will be festive-season demand, dealer inventory normalisation, competitive intensity and crude oil prices.
Inventory correction weighs on primary sales
Elara Securities said its interactions with paint dealers indicate that demand remained soft through the quarter. Dealer inventory is currently estimated at 2.5–3 months, compared with the normal level of 1.5–2 months.
With secondary sales yet to show a meaningful improvement, dealers reduced purchases in August. Primary sales picked up modestly in September as dealers started stocking premium paints ahead of the festive season.
Among the companies covered by the brokerage, Berger Paints is expected to lead with revenue growth of 12.8%, supported by an average price hike of around 8%. Kansai Nerolac is expected to grow 12%, while Asian Paints’ decorative business revenue is likely to increase 10%, with volume growth of around 5%.
Competition eases, but crude remains a key risk
Competitive intensity continues to be high in the economy segment. Elara Securities noted that Asian Paints’ Neo Bharat had a lower landed price at the dealer level than regular distemper, which could result in some reversal of the mix gains seen in Q1.
Meanwhile, following the recent increase in input costs, Birla Opus has reduced dealer schemes by 5–6% over the past two months, narrowing its dealer margin advantage over Asian Paints to around 5% from nearly 10% earlier.
Input costs, however, remain a key concern. Brent crude rose from around $70 a barrel in early July to nearly $97 by the end of September, which could put pressure on margins. Elara Securities said price hikes taken so far should provide some cushion against the higher input costs.
EBITDA margins likely to remain under pressure
Elara Securities expects EBITDA margins across its paints coverage universe to decline by around 70 basis points year-on-year in Q2, primarily due to elevated crude prices.
Asian Paints’ EBITDA margin is expected to decline by around 117 bps, while Kansai Nerolac’s margin could fall by around 49 bps. Berger Paints is expected to be an exception, with EBITDA margin likely to improve by around 50 bps YoY, helped by a favourable base.
The brokerage said the margin outlook will remain closely linked to crude prices. However, Q3 could see some improvement, supported by better growth and a favourable product mix.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
