Crisil predicts paint companies will grow their revenue by 10-12% this fiscal year

Paint Companies

Based on a report, the paint industry is expected to grow its revenues by 10-12 percent this fiscal against an 18% increase in the just-concluded fiscal, as construction, real estate and automobiles continue to generate strong demand. Crisil said in a report on Wednesday that paint companies will maintain healthy balance sheets despite the rising capex by expanding volumes and generating cash, which will also cushion credit profiles.

On the back of Rs 7,000 crore in capex incurred in the previous four fiscal years, the top five companies announced Rs 12,000 crore for fiscal 2023 and 2024. The report stated that new players are expected to add nearly one-third of the existing capacity of 4.2 billion litres by the end of fiscal 2025.

As a result of the full impact of a 20 percent price hike effected in the third quarter of FY22, paint companies are likely to close FY23 with a robust 18 percent revenue growth.

Almost similar to last fiscal, operating margins will remain stable at 15-16 percent in fiscal 2024 along with healthy volume growth, the agency said in its report based on five companies accounting for 90 percent of the Rs 65,000-crore industry or 4.2 billion litres of annual capacity.

Despite all major paint companies being on a capex spree, their near-debt-free balance sheets will support credit risk profiles, the report said.

Domestic paints also include the decorative segment, which accounts for 80 percent of the market.

Painting demand typically grows at 1.6x-2x of GDP, according to Anuj Sethi, a senior director at the agency. With increasing renovation/construction activity and a preference for branded products, decorative paints are likely to experience a revenue increase of 11-12 percent this fiscal year.

Sethi said that the industrial paint sector will experience 8-9 percent revenue growth due to government spending on infrastructure and steady demand from the automotive sector.

Due to the key raw material being crude-linked derivatives, the 30 percent drop in crude oil prices from USD 115 per barrel in June-July 2022 to USD 85 per barrel now will benefit the company’s profitability. As a result of aggressive sales pushes by industry leaders and increased advertising expenditures to counter competition from new entrants, this will be largely offset by increased selling expenses.

A falling rupee is also a margin risk, which the agency sees trending at 82-83 a dollar, up from 80.2 in FY2023, impacting the cost of imported materials, which represent a third of their raw material requirements.

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