Indian paint players are on a hiring spree in a bid to protect whatever incremental market share they can gain amid weak growth and increased competition. Dealing with a protracted slowdown in demand and sluggish volumes, paints manufacturers are ramping up sales and marketing teams, raising their costs by as much as 15 percent.
Declining performance numbers have compelled companies like Asian Paints, Berger Paints, Indigo Paints and Kansai Nerolac to ramp up their staffing investments, taking on more sales personnel to penetrate smaller and untapped retail markets. This strategic shift highlights their battle to secure incremental market share amid heightened competition. These companies raised their employee spends by between 5 percent and 15 per cent in the second quarter of FY25.
The slowdown for most paint players likely started in Q4FY24 and intensified through the early quarters of FY25, amid rising crude prices and weakness in demand for the decorative paints segment, especially in the rural market. The second quarter results confirmed continued challenges, with most companies reporting moderate revenue and profit growth compared to prior years, as they battled rising input costs and weak volume growth.
Powering the frontline for dealers
Staff costs in Q2FY25 rose significantly for the larger paint companies, with spending on employees at Kansai Nerolac up by 15 percent to Rs 124.57 crore, 5 percent at Akzo Nobel to Rs 868 crore and 16 percent at Berger Paints to Rs 221.13 crore.
Asian Paints, which operates a direct-to-retail model, requires a robust network of dealers to reach customers effectively. Its chief executive officer Amit Syngle flagged that the company is adding 5,000 to 8,000 new retailers annually, which necessitates a significant increase in the frontline workforce to manage and support these relationships. Its employee expenses surged 13.5 percent to Rs 676.50 crore in the second quarter of this financial year.
"In Q2, the employee costs are also looking high given the fact that we have a depressed top line, which is not in league with what we had planned to that extent. And that is why the employee cost is looking higher in terms of what we see. But I think the moment the value growth comes back, I think it would fall in line in terms of what we see," Syngle said in a post-earnings call with analysts held earlier this month.
Similarly, Indigo Paints also saw a sharp year-on-year increase in costs due to a significant increase in recruiting sales personnel (35-40 percent) in Q2FY25. The country's fifth-largest decorative paints maker saw its core earnings margin for the first six months of the fiscal decline to 15.2 per cent from 16.4 percent a year earlier due to the slightly elevated employee expense pursuant to the ramp-up in our sales force in both Q1 and Q2 of this fiscal, and sharp price cuts taken by the industry", it said in an investor presentation.
Rising competition in the paint industry has led Elara Securities to maintain a negative outlook for market leader Asian Paints, as stated in its October 9 note. The brokerage highlighted that the battle for incremental market share is expected to persist in the near to medium term, driven by intensified distribution expansion efforts from established rivals like Berger Paints and new entrants. Smaller dealers are also prioritising margin-focused partnerships, further challenging the leader’s dominance. Additionally, while crude oil price fluctuations had minimal impact on margins previously, their influence is likely to grow as companies aggressively focus on capturing market share.
"New entrants, such as JSW Paints and Birla Opus, have captured a portion of the industry's incremental growth, slowing Asian Paints sales," the Elara note added.
Higher discounting activities
All major paint players—Asian Paints, Akzo Nobel, Kansai Nerolac and Indigo Paints, acknowledged the intensified competition in the quarter and flagged higher discounting activity with the entry of new companies such as Grasim, JSW Paints and Pidilite.
According to Elara, new competitors are capitalising on dissatisfaction among the smaller dealers, who are shifting their alliance in search of better returns.
"Whenever the demand scenario becomes a little weak and the underlying demand growth is not what the industry has been used to, there is a tendency to marginally up the trade channel discounts, et cetera, to try and grab a little share of the pie. And although that is not in a very large way responsible for the marginal drop in the gross margin, but it may have contributed also in infinitesimally towards that," said Hemant Jalan, chairman and managing director of Indigo Paints.
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