Why paints companies are applying new coats of growth

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₹10,000 crore and, by its estimates, add about 40% to industry capacity. Even as stocks of major paint companies took a hit in recent days, their long-term trajectory explains this beeline to get into the business. Since March 2015, an index of paint stocks has delivered a compounded annual return of 16%, against 11% delivered by the Sensex.

This is despite the price-earnings ratio of paint stocks being well ahead of the Sensex, thus being more expensive. The new players say this is an expanding industry. Announcing its foray late last year, the Aditya Birla Group said: “The paints industry is witnessing double-digit growth year-on-year driven by rising consumer aspirations and the government’s push towards ‘housing for all’." JSW Paints has a revenue target of ₹2,000 crore for 2023-24.

Like most other industries, the paints sector saw a major bump after the pandemic, with net sales growing 63% between 2019-20 and 2022-23. However, higher raw material costs for much of 2021 and 2022 pulled down net profit margin, which ranged between 8.9% and 11.9% in these two years for the set of listed paints companies. This forced market leaders such as Asian Paints to raise prices.

In the December 2023 quarter, net margin rebounded to 14.3%, against 11.5% a year ago. In 2022-23, the paints industry in India recorded revenues of about ₹70,000 crore. The dominant player was Asian Paints, with a revenue share of about 51%.

One of the 30 stocks in the Sensex, the company’s revenue share has grown by about seven percentage points in the last 10 years. Its net profit margin in 2022-23 was ahead of the industry average by about three percentage points, and it is valued at about ₹2.73 trillion. Then, there are Berger Paints and Kansai