Paint Sector Check - Operating Profitability To Drop By Another 200 Basis Points By FY26: CareEdge's Analysis

CareEdge Research Report

After showcasing significant revenue growth in FY22 and FY23 post-pandemic, the growth rate of long entrenched players moderated to mid-single digits in FY24 and slipped into a negative zone in H1 FY25 amid intensifying competition. However, revenue in H2 FY25 is expected to witness a rebound on YoY basis on the back of benefits arising from the price hike taken in July-August 2024.

The entry of new players has sparked a surge in capital expenditure and heightened competition within the sector. Players are expanding their capacities, growing their dealer network, ramping up sales teams and accelerating ad spending in a bid to counter competition and secure market shares. Amid these developments, we expect a shift in cost structures, with ad and sales promotion spending of players likely to increase by 100 bps – 200 bps (as a percentage of revenue) in the medium term.

Consequently, paints companies' operating profitability margin, which reduced to ~16% in H1 FY25 from ~20% in FY24, is expected to further moderate to ~14% by FY26.

However, strong credit risk profile characterised by conservative capital structure and healthy liquidity are expected to aid the incumbents in navigating through the increased competitive landscape whereby operating profitability margins are likely to moderate in the near to medium term.

With existing and new players going for massive capex, the share of organised players is set to go up to ~80% in the medium term.

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