Berger Paints, Indigo Paints To Shine In H2, Urban Slowdown To Drag Asian Paints: Nuvama

Berger Paints India Ltd. and Indigo Paints Ltd. are expected to outpace segment leader Asian Paints Ltd. in the second half of fiscal 2025, according to Nuvama Institutional Equities.

Amid the urban slowdown and entry of new players in the paints segment, Nuvama said it continues to "prefer" small paint players. "Berger Paints and Indigo Paints are our preferred picks (both rated ‘buy’)," it stated in a Dec. 17 note.

The ongoing slump in consumption in urban India, as flagged by several fast-moving consumer goods companies, will hurt Asian Paints more as compared to the smaller players, Nuvama said.

Asian Paints has a higher indexation to big cities, which have borne the "brunt of an urban slowdown due to food inflation, higher housing rentals, low wage growth and high interest payments", it pointed out.

Nuvama expects Asian Paints' volume growth to be dragged down to 1% year-on-year in the December quarter, whereas the sales are estimated to decline 3% YoY.

On the flip side, Berger is expected to log a 6% YoY growth in volume and 5% YoY climb in sales in the third quarter, the brokerage said.

Apart from urban slowdown, Asian Paints is expected to post a weak quarter due to a high base. In the December quarter of fiscal 2024, the company's sales were up 7.4% sequentially, whereas Berger had logged a 4% quarter-on-quarter growth, Nuvama noted.

Meanwhile, Indigo Paints is expected to retain the momentum it has shown over the past one-and-a-half years. The company has been "constantly outpacing the industry for the past six quarters and expects to continue to outstrip the industry growth", Nuvama said.

Over the past few quarters, Indigo Paints has grown at 2–3 times the industry growth rate, the brokerage said. The key reasons for this growth has been the "proactive steps" by management to increase penetration, foray into more segments, such as construction chemicals and waterproofing and a low base, it added.

The entry of new players, like Birla Opus, is expected to hit Asian Paints more as compared to Berger Paints and Indigo Paints, according to Nuvama. This is due to the fact that Asian Paints is a "pan-India player, while other players have a regional presence". As a result, the company gets affected the most initially by new competition, it added.

Birla Opus has entered even big cities, but that "currently has a limited impact on Berger and Indigo", which have a stronger presence in tier-3 and tier-4 cities.

Berger Paints, in particular, has a higher presence in East and Central India, which is comprised more of small cities or rural areas rather than big cities, Nuvama explained.

Notably, Birla Opus is yet to share the key statistics on its performance so far. However, Nuvama estimates the company to have captured a 2-3% market share following its launch in February this year. "Importantly, these are shipments to distributors, which initially can be high for a new company. End consumer demand will be known later," it stated.

Birla Opus' management has given a guidance of "high-single digit exit market share" in fiscal 2025, which means 5–9% market share in March, Nuvama mentioned in the note.

On Wednesday, shares of Asian Paints closed 0.47% lower at Rs 2,345.7 apiece on the BSE, Indigo Paints settled 1.39% down at Rs 1,441.5, and Berger Paints ended 2.17% lower at Rs 453. In comparison, the benchmark Sensex declined 0.62%.