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The decorative paints sector has been a major underperformer in India over the 12 months in 2022. Inflationary pressure, reduced consumer spending on home renovation and improvement, higher raw material prices, and prolonged monsoons, are among the many reasons why paint businesses have experienced a difficult year in 2022. Asian Paints, for instance, reported consolidated revenue growth of 1.3% in Q4 2022, compared to the year before. During the same period, the net profit for the firm increased by 5.6% to reach US$131.90 million.
The firm attributed the subdued growth to extended monsoon, which affected retailing during the peak festival season. In November and December, though, the firm recorded double-digital growth in the decorative paints segment, which represents about 80% of the total revenue for Asian Paints. Berger Paints, another player in the decorative paints segment, attributed lower sales of exterior emulsions to extended profitability.
Even though raw material prices corrected significantly in H2 2022, many of the paint businesses could not benefit as they had built up inventory anticipating higher festive demand. From the near-term perspective, businesses in the segment are projected to face a difficult year in terms of revenue and sales growth due to competitive pressure and the entry of new players in the industry.
Alongside the entry of new players in the paint business, the growing investment from existing players is also driving the competitive landscape in the market. Asian Paints, for instance, has announced an investment of INR 20 billion to set up a water-based plant manufacturing facility. The largest paints manufacturer in India, Asian Paints currently has a capacity of 1,700 million liter per annum. With the new facility, the firm will add another 400,000 kiloliter per annum.
In October 2022, the firm earmarked a capital expenditure of INR 67.5 billion spread over the next three years. Of these, INR 34 billion was allocated for capacity expansion, INR 25.5 billion was earmarked for backward integration, and INR 8 billion was for acquisitions. The INR 20 billion investment for the new water-based plant is in addition to the earlier INR 67.5 billion capital expenditure plans.
Grasim Industries, the flagship company of Aditya Birla Group, has also announced an investment of INR 100 billion into its paints business. Through the INR 100 billion investment, Grasim Industries is seeking to become the second largest player in the segment. JSW Group, another new entrant in the industry, is eyeing a tenth of the market by FY 2026.
The aggressive strategy, including higher marketing spending and discounts, adopted by new entrants in the paints market can impact the industry’s profitability from the short to medium-term perspective. Consequently, despite the expanding market and growing infrastructure and housing push from the Indian government, businesses in the segment are projected to face a tough competitive landscape over the next 12 months in India. As a result, the revenue and sales growth are expected to remain subdued from the short to medium-term perspective.
