Paints sector set for 10-12% revenue growth in FY24: Report
2 min read 19 Apr 2023, 05:59 PM ISTStable operating margins of 15-16% in fiscal 2024, similar to the previous fiscal, will be supported by healthy volume growth and moderating input prices linked to crude oil, Crisil said
PremiumNew Delhi: The paints sector will see revenue growth of 10-12% in fiscal 2024, largely driven by volume expansion due to strong demand from construction, real estate, and automobile sectors, Crisil Ratings said in a report on Wednesday.
“Paint companies are likely to close FY23 with a robust 18% revenue growth, primarily led by higher realisations on the back of a 6% price hike during the year, along with the full impact of a 20% price hike effected in the third quarter of FY22," it added.
The report highlights that stable operating margins of 15-16% in fiscal 2024, similar to the previous fiscal, will be supported by healthy volume growth and moderating input prices linked to crude oil. Nearly debt-free balance sheets will continue to bolster the credit risk profiles of major paint companies despite aggressive capital expenditure and new market entrants.
A study of five paint companies, which account for nearly 90% of the organised sector revenue totalling ₹65,000 crore, indicates as much.
The report also said 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.
Anuj Sethi, a senior director at Crisil Ratings, explains that paint demand typically grows at 1.6x-2x the rate of GDP. Decorative paints are projected to see an 11-12% revenue increase this fiscal, spurred by rising renovation and construction activity, as well as a preference for branded products. Industrial paints, on the other hand, will experience 8-9% revenue growth, driven by higher government infrastructure spending and stable demand from the automotive sector.
While a 30% drop in crude oil prices from $115 to $85 per barrel will benefit operating margins, increased selling expenses and advertising spending to counter competition will largely offset this advantage. The rupee-dollar exchange rate is expected to remain high at ₹82-83 per dollar in FY24, affecting the cost of imported materials. Domestic paint companies import nearly one-third of their overall raw material needs.
“To maintain competitive edge and enhance product offerings, existing players have stepped up capex to enhance capacity, backward-integrate, and expand into non-paint products such as adhesives, construction chemicals, and waterproofing products. Existing and new players are likely to incur a total capex of ₹12,000 crore in fiscals 2023 and 2024 against ₹7,000 crore incurred in the four fiscals through 2022. With new players expected to add nearly one-third of total existing capacity (4.2 billion litres) by fiscal 2025 end, competition will intensify," said Anil More, associate director, Crisil Ratings.