Demand for paints sees uptick, competition heats up as Birla Opus, Asian Paints double-down on growth: JPMorgan

Asian Paints shares have crashed 25 percent over the past 12 months.

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There is a marginal improvement in demand trends for the paint sector in January and February, noted international brokerage JPMorgan. The leading paint players recorded flat volume growth during the quarter ended December, amid a muted consumption environment, shorter festive season and Birla Opus scale up, which now boasts of mid-single-digit market share.

The brokerage noted that primary paints sales were further weighed down by trade de-stocking and high channel discounting, amid demand uncertainty and sustained competitive intensity. However, pricing should start to get better with the lapping of price cuts.

Birla Opus is on track to exit FY25 with high-single digit market share, with a reach of ~around 50,000 dealers. However, JPMorgan noted that increasingly Birla Opus would need to manage intra-dealer dynamics with an expanded base.

As a result, many dealers noted enhanced aggression from Asian Paints on channel incentives, better quality product launches and even higher on ground engagement intensity with
dealers/contractors.

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After a period of moderation, paints margins are starting to stabilize with companies mitigating increased competitive spends (at the channel level) via optimizing overheads and benign raw material costs, though currency volatility will be key to monitor.

JPMorgan said, "We stay on the sidelines on Asian Paints as we believe the improvement in visibility of volume/revenue growth will be crucial for the stock to reverse its performance." Shares of Asian Paints have tumbled 25 percent over the past 12 months, as muted demand and rising competition weighed.

The brokerage, however, remained constructive on Pidilite Industries, which is clocking better volume-led revenue growth and healthy margin. Going ahead, the developments on Akzo Nobel India's decorative business stake sale would be another key aspect to affect competitive dynamics in the sector.

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