Nuvama Recommends 'Buy' On Paint Incumbents Despite Rising Competition

The first quarter of fiscal 2025 saw firm volume growth across the paint industry, although margins disappointed due to factors like prior price cuts and a lack of operating leverage. Asian Paints reported a soft quarter, while Berger Paints outpaced the industry in the decorative segment but faced challenges in its industrial business. Pidilite, on the other hand, showed strong growth, with a significant YoY gross margin expansion of 479 basis points.

The paint industry reported robust volume growth in the first quarter ended June 2024, with companies like Berger Paints leading the charge with a 10% year-on-year increase, followed closely by Pidilite at 9.6% and Asian Paints at 7%. Despite this positive volume performance, the industry's margins were under pressure. Companies had previously reduced prices in fiscal 2024 to reflect lower raw material costs, impacting their profitability in the recent quarter. However, Pidilite managed to stand out by expanding its gross margins by 479 basis points year over year, demonstrating strong cost management.

On the revenue front, Indigo Paints outperformed its peers, registering 7.8% year-on-year growth, despite the overall industry's challenges. Asian Paints, in contrast, saw a 2% decline in top-line growth, while Berger and Pidilite posted modest revenue increases in the low single digits. Adverse factors like price cuts, an unfavourable product mix, and external challenges such as weather conditions and manpower shortages during election periods contributed to this mixed revenue performance.

Gross and Ebitda margins reflected the industry's struggles, with most paint companies experiencing either flat or slightly reduced margins compared to the previous year. Pidilite once again emerged as a leader, with a significant 235 basis point expansion in Ebitda margins, while Asian Paints faced the steepest decline, attributed to higher operational costs. The divergence in international business performance also highlighted the varying impacts of global economic conditions on these companies.