The paint sector is expected to see a revenue growth of 10–12% in the current fiscal year, as compared to the 18% growth estimated in the previous fiscal year. The sector will benefit from the steady demand in the construction, real estate, and automobile industries, PTI reported, citing a Crisil report.
Paint companies are expected to maintain healthy balance sheets despite the rising capital expenditure as the volume expansion and increased cash generation will act as a buffer for their credit profiles, it said.
The top five companies have planned to invest ₹12,000 crore in capex in fiscal years 2023 and 2024, which is in addition to the ₹7,000 crore they have already invested in the previous four fiscal years, the report said.
As per the report, new players are expected to contribute almost one-third of the current capacity of 4.2 billion litres by the end of the fiscal year 2025.
Along with healthy volume growth, moderating crude-linked input prices will ensure operating margins remain stable at 15–16% in fiscal 2024, almost similar to the last fiscal, as per the report.
The report also noted that their near debt-free balance sheets will support credit risk profiles despite all major paint companies being on an aggressive capex spree. The domestic paints sector also comprises the decorative segment, which commands 80% of the market, it added.
“Paints demand normally grows at 1.6x-2x of GDP. Decorative paints are likely to see a revenue increase of 11-12% this fiscal, driven by increasing renovation and construction activity and a greater preference for branded products,” Anuj Sethi, a senior director at Crisil, was quoted as saying in the report.
On the other hand, industrial paints will see 8–9% revenue growth on the back of higher government spending on infrastructure and steady demand from the automotive segment, Sethi added, as per the report.
Since the key raw materials are crude-linked derivatives, the 30% fall in crude oil prices from a high of $115 per barrel in June-July 2022 to $85 per barrel now will help boost the operating margins, the report stated.
However, this will be largely offset by higher selling expenses due to an aggressive sales push and an increase in ad spend by industry leaders to counter competition from new entrants, it added.
Another margin risk is the falling rupee, which the agency sees trending at 82-83 a dollar, up from 80.2 in FY2023, impacting the cost of imported materials, which account for a third of overall their raw material requirements, the report stated.