Whalesbook
Crude Oil's Shadow Looms Over Paint Sector
Soaring crude oil prices, now over $116 a barrel due to rising tensions in the Gulf, are a major challenge for India's paint makers. Oil derivatives are a key part of their raw material costs, directly affecting profits for companies like Asian Paints and Berger Paints. This price increase comes as companies already battle intense competition and slow growth in sales value.
Divergent Performance in Q3FY26
Asian Paints reported consolidated revenue of about ₹8,867 crore for the third quarter of fiscal year 2026, a modest year-on-year increase of 3.7–4%. In contrast, Berger Paints posted revenue of about ₹2,984 crore, achieving only 0.3% growth. Both companies recorded comparable volume expansion, with Asian Paints' decorative segment volumes growing by 7.9–8% and Berger Paints reporting 8.5% standalone volume growth. However, how much they earned per unit sold showed a clear difference. Asian Paints' decorative revenue grew by 2.8–3%, while Berger Paints experienced only 0.4% value growth. This gap, especially at Berger Paints, suggests a bigger shift towards cheaper, lower-margin products within its portfolio.
Margin Resilience vs. Economic Headwinds
Despite revenue pressures, margins showed different strengths. Asian Paints achieved gross margins of 44.4%, expanding about 197 basis points year-on-year, with EBITDA margins standing at a strong 20.1%. This was helped by lower raw material costs previously, a mix of higher-end products, and efficient operations. Berger Paints reported EBITDA margins of 15.8%, flat year-on-year, with gross margins improving to 43.1%, also benefiting from stable input costs and mix improvements. Yet, its overall revenue growth lagged far behind, showing more trouble capturing value. Berger Paints mentioned that heavy monsoon rains in October slowed things down, but demand picked up later. Amit Syngle, MD & CEO of Asian Paints, noted that lower repainting frequency and consumers diverting spending to travel and hotels are dampening demand, expecting competition to remain very high.
The Valuation Gap and Competitive Landscape
Asian Paints currently trades with a trailing Price-to-Earnings (P/E) ratio of about 55x, while Berger Paints commands a P/E of around 48x, reflecting high investor expectations. These valuations are much higher than competitors like Kansai Nerolac (P/E ~22x) and Indigo Paints (P/E ~24x). The Indian paint industry, valued at about $15.78 billion in 2024, is projected to reach $27.93 billion by 2030, driven by urbanization and incomes. However, the sector faces intense competition, notably from Grasim Industries' Birla Opus brand, challenging the market share of established companies. Asian Paints, with about 50-52% market share, has raised prices by 6-8% across its products since mid-April. Berger Paints has only increased prices by 1% on its decorative products, with more increases possibly coming. Historically, a 10% rise in crude prices each quarter has cut Asian Paints' gross margins by about 1.3 percentage points.
The Bear Case: Margin Squeeze and Demand Volatility
Rising crude oil costs clearly risk profits, especially for Berger Paints, which has a wider volume-value gap and relies more on cheaper products. Passing on price hikes is difficult due to intense competition and potential customer price sensitivity. Asian Paints' higher-end products might offer some protection, but consistently high input costs have historically reduced gross margins. Also, consumers are spending less on paint and more on travel or hotels, and people are delaying repainting jobs, which slows demand. Analysts are concerned. MarketsMOJO gave a 'Sell' rating to both Asian Paints and Berger Paints in mid-March 2026. They cited flat financial trends and negative technicals for Berger, and cautious investor sentiment for Asian Paints. While the construction sector is growing and helps demand, projected cost increases of 3-5% for construction in 2026 due to labor and regulations might indirectly affect housing demand and renovations.
Future Outlook: Navigating Uncertainty
Asian Paints expects near-term volume growth of 8-10%. Value growth is likely to lag due to the volume-value gap. They maintain an EBITDA margin forecast of 18-20%. Berger Paints forecasts volume growth of 12-13% for FY27, with value growth around 7-8%. They aim to keep EBITDA margins between 15-17%. Berger Paints also plans significant investment, earmarking Rs 1,800–2,000 crore for new factories over the next two to three years. However, paint companies must now focus on managing rising input costs and keeping demand strong in a competitive market.