Paint Stocks Slump Up to 27% as Festive Season Demand Remains Uncertain
Paint stocks in India have faced significant pressure this year, with Asian Paints down 15.5%, Kansai Nerolac falling 25.01%, and Berger Paints India declining 14.34% year-to-date. As the festive season approaches, investors are closely monitoring signs of a recovery in demand and margins.
According to Elara Securities, demand for paints is expected to remain weak in the second quarter of FY27 due to excess inventory from the first quarter. August was particularly weak, although September showed some improvement as dealers began stocking premium paints ahead of Diwali. The brokerage forecasts mid-single-digit industry volume growth and overall revenue growth of 12-13% year-on-year for the quarter.
Despite near-term challenges, Elara Securities maintains an 'Accumulate' rating on Asian Paints and Berger Paints. Key factors to watch include festive-season demand, dealer inventory normalization, competitive intensity, and crude oil prices. Inventory levels are currently higher than usual, with dealers holding 2.5-3 months of stock compared to the normal 1.5-2 months.
Berger Paints is expected to lead revenue growth at 12.8%, supported by an average price hike of around 8%. Kansai Nerolac is projected to grow by 12%, while Asian Paints' decorative business revenue is likely to increase by 10%, with volume growth of around 5%. Competitive intensity remains high, particularly in the economy segment, but there are signs of moderation in dealer schemes by Birla Opus.
Input costs, particularly crude oil prices, pose a significant risk. Brent crude rose from around $70 a barrel in early July to nearly $97 by the end of September, which could pressure margins. Elara Securities expects EBITDA margins to decline by around 70 basis points year-on-year in the second quarter, with Asian Paints and Kansai Nerolac facing the most significant drops.