Paint industry to grow 9-10% in FY24, says report

September 11, 2023: The Indian paint industry is expected to witness expansion of 9-10% in the financial year 2024 (FY24), following two consecutive years of growth in FY22 and FY23, according to a report by Credit rating agency CareEdge. This moderation is accompanied by anticipated improvements in operating margins, ranging from 100 to 200 basis points attributed to the decline in prices of critical raw materials and the price increase undertaken by key industry players during FY23 and first quarter Q1FY24.

The report adds that the Indian paint industry is dominated by organised players, constituting nearly 70% of the total market share. The organised market is valued at Rs 62,000 crore, as of the end of FY23. The top five industry leaders, namely Asian Paints, Berger Paints, Kansai Nerolac Paints, Akzo Nobel and Indigo Paints, have a substantial 90% market share.

In terms of consumption, the decorative paints hold a majority share, contributing to around 70% of the market while the industrial paints account for the remaining 30%. The report further said that the demand dynamics are largely shaped by the real estate sector, which commands around 70% of the total market demand. The remaining demand is generated from other sectors such as automotive, oil and gas, aerospace and marine, among others.

Sales growth of top industry players likely to moderate

According to the report, the top five industry players recorded a Compound Annual Growth Rate (CAGR) of 14-15% over the past five years (FY19-FY23). This further accelerated during FY22 and FY23 driven by recovery in demand from key user industries, which rebounded after the initial pandemic-induced setback. The report said that historically, the demand for paints tends to expand at a rate 1.5 to 2 times higher than the GDP growth rate. However, the report adds that this growth is expected to temper in FY24. As per CareEdge Ratings, the sales of the industry’s top five players are projected to increase by around 9-10% in FY24.

The prices of raw materials used in paint manufacturing, such as titanium dioxide, phthalic anhydride, solvents, pigments, resins, and other crude oil derivatives, account for 50-60% of total sales. The prices remained high during FY22 and FY23 on account of supply-related disruptions during the pandemic and then the Russia-Ukraine war in turn impacting crude oil prices. However, prices of raw materials have started cooling from the second half of FY23, the report said.

Competitive intensity likely to increase in long term

According to the CareEdge report, the paint industry had seen the entry of several new business conglomerates, including Grasim Industries, Pidilite and the JSW Group, in recent years, challenging the established players. However, it is anticipated that they will require an estimated five to seven years to secure a significant market share from the established leaders.

Demand from key end-user industries to drive growth

The real estate sector accounts for about 70% of the total paint demand. The report said that the demand from real estate is expected to be robust in FY24 on the expectation of significant project completion and increased government spending on affordable housing and infrastructure.

As per CareEdge Ratings estimates, residential housing sales are expected to rise by 10% in the top 15 cities during CY2024. Demand from repainting, which accounts for 80% of total decorative paint demand, is also expected to pick up due to factors such as a growing population, an increase in rental homes and growth in the income levels of consumers.

Furthermore, the repainting cycle has reduced as consumers have started to paint their houses at frequent intervals. The industrial paints account for around 30% of the total paint demand. This demand comes from industries such as automotive, oil and gas, aerospace, marine and electronics. The majority of the industrial paint demand is derived from the automotive industry which is expected to witness significant growth in FY24.

Capex planned in next three-four years to increase competitive intensity

The capacity of the top five players is pegged at around 4.22 million kilolitre (mn kl) per annum as of the end of FY23. The industry has a planned capex of Rs 20,000-22,000 crore over the next three to four years with Rs 10,000 crore planned by Grasim Industries and Rs 8,750 crore by Asian Paints. This is expected to rise the overall capacity by 20% in turn increasing the competitive intensity and restricting the margins for top players over the long term.

Yogesh Shah, senior director, CareEdge Ratings, said, “Housing sector growth and demand for repainting amid growing aspirations among people will be the major growth drivers for decorative paints. On the supply side, the industry is expected to augment capacity by 20% in the next three to four years, driven by the capex undertaken by the new and existing players. Hence, the competitive intensity is poised to escalate in the long haul.”