Will the market leader blink as rivals trade margins for market share?

Competition in the paint industry has intensified with Birla Opus and JSW Paints entering the market and Berger Paints announcing that it is open to compromising margins to protect its turf.

Asian Paints will face its strategic test at a time when the festive period around Diwali, the most important business window of the year for paint manufacturers, has been wiped out by rains in some parts of India.

Paint companies generate nearly one-fifth of their annual sales in the weeks leading up to Diwali. If the results of rivals Berger Paints and Kansai Nerolac are any indication, this year’s festival season was a complete bust.

“Ideally, we would like to increase both our profits and sales,” said Abhijit Roy, managing director and chief executive officer of Berger Paints. Mint in a recent interview. “But if things get tougher, we would prefer to maintain our market share even if there is some reduction in profits,” he said.

Roy’s logic was that if the company’s market share remained the same, profits would eventually return.

Asian Paints, on the other hand, said it would fight to maintain its market share, warning that it would prioritize maintaining margins of 18-20%.

Aditya Birla-backed Birla Opus has shaken up the long-stable industry since its entry in 2024. The new entrant, with its aggressive pricing and heavy investments in marketing, made established companies nervous.

Despite its deep distribution network and decades of brand power, Asian Paints was not immune to this disruption. The brand’s share, which once dominated more than half of the market, approached 50% following the entry of new competitors.

The company also faced pressure on margins due to constant discounting and aggressive expansion of new entrants into the market. How Asian Paints will progress in this period will be the main clue that investors will pay attention to.

So far investors have lost confidence in the company. Shares of Asian Paints have risen almost 15% since the beginning of this financial year, outperforming the benchmark Nifty, which is up around 11%.

Against this backdrop, Mint It highlights important factors to look out for in Asian Paints’ upcoming results.

Revenues

The Mumbai-based paint maker is expected to see revenue growth of 1% in the second quarter. ₹8,107.8 crore due to lack of meaningful improvement in demand, especially in urban markets, according to analysts at financial services firm Motilal Oswal.

Long-term rains further affected the decorative paints segment. But Berger’s Roy said during a post-earnings interaction last week: With analysts from Asian Paints It is expected to perform “slightly better in terms of growth”, leading the street to believe there is potential for revenue growth of 3-4%.

Competition

Investors and analysts will carefully follow comments regarding the intensity of competition in the sector. According to analysts at brokerage firm Nuvama Institutional Equities, there are early signs that discount rationalization and attribution is stabilizing at Asian Paints (as rivals have previously snapped up talent).

They believe that the market leader is now back in the game and their top priority is to gain market share while maintaining an 18-20% EBITDA margin.

But analysts at financial services company B&K Securities warn that regaining market share may take time. The company also improved its performance in advertising spending. Comments on how much advertising expenditures have increased and how much more they can increase will also be important.

Asian Paints is also trying to win back small and medium-sized dealers with annual sales, according to a Sept. 1 Nuvama memo. ₹10 lakhs and ₹12 lakh, which rival companies had targeted last year by offering higher margins.

Margin-sensitive dealers were most affected by the demand slowdown. In response, Asian Paints set up a dedicated team to regain business.

Sue

According to a channel check conducted by broker Systematix Institutional Equities on at least 23-24 dealers, weak demand continues across the economy and premium segment in most regions, although trends may vary by dealer locations.

Once two-quarters of demand is impacted, investors will seek management’s views on any signs of which categories demand will revive. According to Nuvama, Asian Paints will benefit from the demand for repainting as it generates 85-86% of its revenue.

Appearance

Asian Paints is in a better position than most of its peers with its brand strength and deep distribution. But in a market where demand is weak, the challenge is maintaining margin guidance.

Time will tell how efforts to retain dealers and increase brand spend will better position them in a crowded marketplace where competitors are hungry for market share and eager to burn cash.