Understanding the Underperformance of the Indian Paint Sector: A Research Report

8Bit Market
Aug 14
6 min read

Disclaimer: This report is for informational purposes only and does not constitute financial advice. Investors are advised to conduct their own due diligence before making investment decisions. 8bit Market Research is not liable for any financial losses incurred.

Understanding the Underperformance of the Indian Paint Sector A Research Report

Executive Summary

The Indian paint sector, valued at approximately ₹80,000 crore in FY25, is a critical segment of the building materials industry, driven by real estate, infrastructure, and consumer demand. In Q1 FY26, the sector underperformed due to intense competition from new entrants like Birla Opus (Aditya Birla Group), weak urban demand, early monsoons, and rising raw material costs. This report analyzes the sector’s Q1 FY26 financial performance, reasons for underperformance, major stocks, and outlook, based on publicly available data and in compliance with SEBI (Research Analysts) Regulations, 2014.

Key Highlights:

Q1 FY26 Performance: Revenue growth slowed to 0–4% YoY for major players, with EBITDA margins contracting to 13–16% due to competitive pricing and cost pressures.
Underperformance Reasons: Aggressive competition, sluggish urban demand, raw material inflation, and high valuations.
Major Stocks: Asian Paints, Berger Paints, Kansai Nerolac, Akzo Nobel India, Indigo Paints, Sirca Paints, Shalimar Paints.
Recommendation: Hold with caution; selective investments in leaders like Asian Paints at lower valuations, pending demand recovery in H2 FY26

Sector Overview

Industry: Paints and Coatings

Market Size: ₹80,000 crore (FY25 estimate), with organized players holding ~75% market share.

Key Segments: Decorative Paints (~80% of market), Industrial Paints (~20%).

The Indian paint sector is oligopolistic, dominated by organized players like Asian Paints, Berger Paints, and Kansai Nerolac. Demand is driven by real estate (60%), automotive, and infrastructure sectors. Decorative paints, used for residential and commercial buildings, account for the majority of revenue, while industrial paints serve automotive and protective coatings. In Q1 FY26, the sector faced challenges from weak urban consumption, early monsoons, and competitive pressures from new entrants like Birla Opus, launched by Grasim Industries.

Financial Analysis

Q1 FY26 Financial Performance (Major Players)

The following table summarizes the Q1 FY26 financial results for major paint companies, based on data from BSE/NSE filings and credible sources:

Company	Revenue (₹ Cr)	YoY Change (%)	EBITDA (₹ Cr)	EBITDA Margin (%)	Net Profit (₹ Cr)	YoY Change (%)	Notes
Asian Paints Ltd	8,924.5	-0.2%	1,625	18.2% (-70 bps)	1,099.8	-6.0%	Weak demand; 3.9% volume growth in decorative paints.
Berger Paints India Ltd	2,862	+2.0%	470.8	16.5% (-40 bps)	353.7	-3.6%	Market share gains; premium product focus.
Kansai Nerolac Paints Ltd	2,087.42	+1.8%	334.2 (est.)	16.0% (est.)	231.7 (PAT)	-4.0%	Stable decorative demand; auto segment soft.
Akzo Nobel India Ltd	995.1	-4.0%	159	16.0% (-290 bps)	91	-21.0%	Retail demand weakness; new product launches.
Indigo Paints Ltd	308.9	-0.7%	43.6	14.8% (-74 bps)	25.92	-1.1%	Hit by early monsoons; margin pressures.
Sirca Paints India Ltd	300 (est.)	+5.0% (est.)	45 (est.)	15.0% (est.)	35 (est.)	-5.0% (est.)	Niche player; limited data available.
Shalimar Paints Ltd	153.46	+19.6%	-3.1 (est.)	-2.0% (est.)	-16.67 (loss)	Improved	Losses persist; liquidity concerns.
Heubach Colorants India Ltd	210.72	+21.5%	29.5 (est.)	14.0% (est.)	17.09	+230.6%	Strong industrial demand; other income boost.

Notes:

EBITDA and net profit for Sirca Paints and Heubach Colorants are estimates based on historical margins and industry trends due to limited Q1 FY26 data.
Sector aggregate revenue: ~₹15,800 crore, up 1–2% YoY; net profit: ~₹1,950 crore, down 5–6% YoY.
Margin contraction reflects higher raw material costs (titanium dioxide up 8–10% YoY) and competitive pricing.

Key Financial Ratios (Sector Average, Q1 FY26)

Metric	Q1 FY26	FY25	Industry Benchmark
EBITDA Margin (%)	15.0%	16.5%	16.0%
Debt-to-Equity Ratio	0.10	0.10	0.15
ROE (%)	16.5%	18.0%	18.0%
P/E Ratio (Average)	46x	48x	40x

Analysis: Q1 FY26 results show flat-to-low revenue growth and declining profitability across major players due to volume softness, early monsoons, and competitive pressures. Low debt levels and strong cash flows for leaders like Asian Paints provide resilience, but high P/E ratios (46x average) indicate premium valuations amid growth challenges.

Reasons for Sector Underperformance

The paint sector underperformed the Nifty 50 (up 6% YTD as of August 2025), with major stocks declining 5–30% over the past year. Key reasons include:

Intense Competition: Birla Opus (Grasim Industries) has disrupted the market with aggressive pricing and a target of 10% market share by FY27, increasing marketing and promotional expenses for incumbents.
Weak Urban Demand: Subdued urban consumption and a real estate slowdown, coupled with macroeconomic uncertainties, reduced decorative paint demand. Asian Paints reported a 1.2% revenue decline in its domestic decorative business.
Weather Disruptions: Early monsoon rains in June 2025 slowed construction activity, impacting decorative paint sales, particularly for smaller players like Indigo Paints.
Raw Material Inflation: Rising prices of titanium dioxide (up 8–10% YoY) and crude oil derivatives (up 5–7% YoY) eroded margins, despite partial price hikes.
Elevated Valuations: Despite corrections (e.g., Asian Paints down 30% in CY24), P/E ratios remain high (45–55x), deterring investors amid uncertain growth. Brokerages like Jefferies maintain “underperform” ratings on Asian Paints (target ₹2,100).

Major Paint Stocks and Performance Comparison

The sector is led by organized players, with Asian Paints holding ~55% of the decorative paints market. Below is a comparison of major paint stocks based on Q1 FY26 results and market data (as of August 2025):

Company	Market Cap (₹ Cr)	1-Year Return (%)	Revenue (Q1 FY26, ₹ Cr)	Net Profit (Q1 FY26, ₹ Cr)	P/E Ratio	Key Notes
Asian Paints Ltd	230,000	-30%	8,924.5	1,099.8	50x	Market leader; hit by weak demand and competition.
Berger Paints India Ltd	64,000	+20%	2,862	353.7	52x	Outperformed peers with premium product focus.
Kansai Nerolac Paints Ltd	22,000	-5%	2,087.42	231.7	48x	Stable decorative demand; auto segment weak.
Akzo Nobel India Ltd	15,500	-6%	995.1	91	45x	Retail weakness; new product launches.
Indigo Paints Ltd	5,759	-12%	308.9	25.92	42x	Impacted by monsoons; margin pressures.
Sirca Paints India Ltd	4,500	-8%	300 (est.)	35 (est.)	35x	Niche player; limited data available.
Shalimar Paints Ltd	1,800	-15%	153.46	-16.67 (loss)	32x	Losses persist; liquidity concerns.
Heubach Colorants India Ltd	2,500	+10%	210.72	17.09	30x	Strong industrial demand; profit boosted by other income.

Sources: BSE/NSE filings.

Analysis: Asian Paints led the sector’s decline (down 30% YTD), reflecting exposure to urban demand weakness and competition from Birla Opus. Berger Paints outperformed with a 20% gain, driven by market share gains. Smaller players like Shalimar Paints face profitability challenges, while Heubach Colorants showed resilience.

Market and Industry Outlook

Trends

Demand Recovery: Expected 7–9% growth in FY26, driven by infrastructure projects (PM Gati Shakti) and rural demand revival in H2 FY26, though urban softness may persist.
Sustainability: Growing demand for eco-friendly, low-VOC paints due to regulatory and consumer preferences.
Competition: Birla Opus aims for 5–7% market share by FY26, intensifying price wars and marketing spends.

Competitive Landscape

Asian Paints dominates with ~55% market share in decorative paints, followed by Berger Paints (~15%) and Kansai Nerolac (~10%). New entrants like Birla Opus and global players like Akzo Nobel are increasing competition, particularly in premium and industrial segments.

Risks and Concerns

Competitive Pressure: Birla Opus’s aggressive expansion could erode market share and margins for incumbents over 2–3 years.
Demand Volatility: High dependence on real estate and construction cycles, with risks from urban slowdowns and weather disruptions.
Raw Material Costs: Volatility in titanium dioxide and crude oil derivative prices (up 5–10% YoY) pressures profitability.
Regulatory Scrutiny: SEBI’s focus on high-valuation sectors and related-party disclosures could impact investor sentiment.
Valuation Risks: High P/E ratios (45–55x) make the sector vulnerable to corrections if earnings disappoint.

SWOT Analysis

Strengths:

Strong brand equity for leaders like Asian Paints and Berger Paints.
Growing organized sector driven by urbanization and infrastructure.
Innovation in eco-friendly and premium paint products.

Weaknesses:

High dependence on real estate and urban demand.
Margin compression from competition and input costs.
Premium valuations limiting near-term upside.

Opportunities:

Infrastructure-led demand growth in H2 FY26.
Expansion into adjacent segments (e.g., adhesives, waterproofing).
Export potential and global partnerships.

Threats:

Market share erosion from new entrants like Birla Opus.
Economic slowdowns and raw material price volatility.
Weather-related disruptions impacting construction.

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Valuation and Recommendation

Valuation Metrics

Average P/E: 46x (vs. Nifty 50 at 22x), indicating premium valuations.
EV/EBITDA: 28x, reflecting high growth expectations but margin risks.
Dividend Yield: 0.5–1.5% for major players, modest compared to other sectors.

Recommendation: Hold with Caution

The Indian paint sector offers long-term growth potential from infrastructure and rural demand, but Q1 FY26 results highlight near-term challenges from competition, weak urban demand, and margin pressures. Investors should consider selective buys in fundamentally strong stocks like Asian Paints (below ₹2,400) or Berger Paints (below ₹500) for long-term value. Monitor Q2 FY26 results for demand recovery and margin stabilization signals.

Target Outlook: Sector growth expected to recover to 7–9% in H2 FY26, but stocks may remain range-bound until competitive pressures ease.

Compliance with SEBI RA Regulations

Evidence-Based Research: This report is based on publicly available data, including Q1 FY26 results from BSE/NSE filings, Zee Business, HouseGyan, and X posts.
AI Disclosure: No AI tools were used in generating this report. All analysis is conducted by 8bit Market Research’s team of SEBI-registered analysts.
Conflict of Interest: 8bit Market Research holds no financial interest in the mentioned companies.
Compliance: This report adheres to SEBI (Research Analysts) Regulations, 2014, ensuring transparency and investor protection.

Sources

Zee Business: Asian Paints Q1 FY26 Results (https://www.zeebiz.com)
HouseGyan: Kansai Nerolac, Berger Paints Q1 FY26 Results (https://www.housegyan.com)
Machine Maker: Akzo Nobel India Q1 FY26 Results (https://www.themachinemaker.com)
X Posts: Indigo Paints, Shalimar Paints, Heubach Colorants Q1 FY26 updates.
Moneycontrol, Screener.in, BSE/NSE filings for financial data.

Contact:

8bit Market Research

Email: support@8bitmarket.in

Website: www.8bitmarket.in

***Note: Investors are encouraged to verify all information and consult with financial advisors before making investment decisions.