WHY THE PAINT INDUSTRY IS FACING A CRACKED SURFACE?
The Indian paints industry, long admired for its steady growth and consistent margins, is entering an unfamiliar territory. Once insulated from macroeconomic shocks, the sector is now feeling the heat from multiple stress points, waning consumer demand, aggressive new entrants, and a narrowing cost advantage. What was once a dependable, colourful business is now navigating through a storm of market shifts. One of the most telling signs of this shift is the change in consumption sentiment. Traditionally, paint sales peak during festive periods or home renovation booms. But over the past year, this cyclicality has weakened. According to a report by Crisil, the overall volume growth of the decorative paints segment slowed to 6-7% in FY24, compared to a double-digit run in the previous years. This softening is attributed largely to urban sluggishness, a consumer belt where discretionary spending has taken a hit amid inflationary pressures and job-market uncertainty.
Another key factor disrupting the sheen of the industry is the emergence of deep-pocketed challengers. Grasim Industries, with its brand Birla Opus, has fundamentally altered the market structure. In less than 18 months, it’s already claimed a noticeable share by capacity and pushed incumbents to rethink pricing strategies. According to Motilal Oswal, Grasim’s targeted pricing, 10–15% lower than peers in some regions, has unsettled the dominance of companies like Asian Paints and Berger. And this isn’t just a pricing play; Grasim is investing heavily in dealer networks, branding, and customer outreach. This has led to an unexpected shift in price wars in a segment once defined by brand stickiness and margin stability. As a result, companies that typically saw consistent pricing power are now cutting rates to protect volumes. Asian Paints, for instance, has introduced promotional schemes and discounts that, while shielding its market share, have eroded its margins. In its recent Q4 FY25 results, the company reported flat revenue growth and a YoY net profit decline, citing promotional pressures and heightened competition as key reasons. While rural demand is showing signs of resilience, buoyed by monsoon optimism and improved farm output, it hasn’t been sufficient to offset urban decline. Moreover, competition in rural markets is intensifying as well, particularly with regional brands offering budget-friendly alternatives. Paint firms that once could rely on tier-2 and tier-3 cities to cushion metropolitan softness now face thinning buffers.
Adding to the complexity is the cost equation. Input prices, especially for crude derivatives like monomers and solvents, have cooled. Yet, the benefit from this softening is being absorbed by a rise in marketing and distribution expenses. As firms ramp up advertising to retain visibility and push premium products, the overall cost structure remains high. According to ICRA, while gross margins are slightly better YoY due to input cost normalisation, EBITDA margins have stayed under pressure for most mid- and large-cap players due to higher selling costs. The premiumization trend, once a safe path to margin expansion, is also facing hurdles. Consumers are opting for lower-end emulsions or even whitewash alternatives, reversing the industry’s focus on innovation-led upselling. Dealers, too, are being courted by multiple brands offering lucrative incentives, making loyalty hard to sustain. Meanwhile, JSW Paints, a relatively smaller player, is reported to be eyeing acquisitions, including a potential bid for Akzo Nobel’s India operations. If successful, this could add further momentum to industry consolidation and intensify competitive churn. With so many moving parts, analysts are cautious in their forecasts for FY26. Some expect marginal improvements if the infrastructure push and housing projects gain speed. But much of the optimism depends on how companies navigate this shifting landscape without compromising profitability. From subdued consumer confidence to capital-heavy entrants altering the competitive balance, the industry must now trade predictability for agility. For an industry that long prized stability, the next phase could be as much about strategic reinvention as it is about colour palettes.
