|
The paint sector is expected to face a further decline in operating profitability, with margins forecasted to drop by around 200 basis points (bps) by FY26, according to a report by CareEdge.
The entry of new players has sparked a surge in capital expenditure and heightened competition within the sector. To counter competition and secure market share companies are expanding their capacities, growing dealer networks, ramping up sales teams and increasing ad spends. All these are putting pressure on cost, which may go up by 100-2000 bps as a percentage of revenue in the medium term. Operating profitability have already reduced from approximately 20 per cent in FY24 to ~16 per cent in the first half of FY25, and the operating margins are anticipated to moderate to about 14 per cent by FY26 due to rising competition and pricing pressures. After witnessing substantial revenue growth in FY22 and FY23, long-established players saw a significant slowdown, with their revenue growth moderating to mid-single digits in FY24 and turning negative in the first half of FY25. But, despite these challenges, the credit risk profile of established players in the sector remains strong, supported by a conservative capital structure and healthy liquidity. This robust financial position is expected to help these companies navigate the competitive pressures in the near term. However, CareEdge Ratings anticipates a revenue rebound in the second half of FY25, driven by price hikes implemented in July and August 2024 to offset rising input costs. The report highlights that while the demand for decorative paint, which constitutes 70-75 per cent of total paint demand, remains resilient, the competitive landscape is intensifying. The repainting segment, driven by population growth, rising incomes, and an increasing number of rental homes, is expected to see continued growth. The real estate sector, buoyed by government housing and infrastructure initiatives, is also likely to support demand for decorative paints. The sector's industrial paint demand, accounting for 25-30 per cent of the total, remains stable, with key contributors being the automotive, oil and gas, aerospace, marine, and electronics industries. With organised players continuing to expand their production capacity--expected to increase by 70 per cent over the next three to four years--their market share is projected to rise to 80 per cent. This shift, alongside continued investments in product innovation and branding, will likely shape the future growth trajectory of the sector. (ANI)
|
