With the production capacity of India’s organised paints industry expected to nearly double to 7.8 billion litre per annum (blpa) between FY24 and FY27 with investments of ₹19,000 crore lined up, including by one large entrant [Aditya Birla Group], the profitability of players would be impacted due to intense competition and higher marketing spend, Crisil Ratings said in a study. A large part of capacity, around 2.4 blpa will be operational this fiscal, with the new player alone adding 1.3 blpa, primarily in the decorative segment, which accounts for 75-80% of the total production. “While volume will continue to rise at 10-15% annually in line with past trends, sizeable capacities coming onstream will lead to increased competition for market share,” CRISIL said. “Consequently, manufacturers could price products aggressively to draw customers and utilise their expanded capacities, especially in the value segment, which accounts for over half of the total revenue,” it added. Thus, the overall revenue growth would moderate to 7-10% this fiscal. Even operating profitability would moderate to 15-17% due to increased marketing spends and pressure on realisations, the rating agency said. Poonam Upadhyay, Director, Crisil Ratings said, “The volume growth of 10-15% this fiscal will be driven by steady demand from retail and business-to-business segments — catering to construction, real estate and automobiles — which is salutary.” “Rising disposable incomes, increasing consumer preference for quality and branded products, rising home sales and an expected recovery in rural demand will be supportive. However, pressure on realisations will partially offset the benefit of higher volume, empering revenue growth this fiscal,” she said. Anil More, Associate Director, Crisil Ratings said, “We expect the credit quality of existing manufacturers to be largely stable despite high capex. They are likely to fund capex through cash surplus and accruals, while new entrants will utilise a mix of debt and fresh equity.”
