Asian Paints Q2 preview: Will the market leader blink as rivals trade margins for market share?

Competition in the paints industry has intensified after the entry of Birla Opus and JSW Paints, and with Berger Paints declaring that it is open to sacrificing margins to protect its turf.

Asian Paints will face its strategic test at a time when the year's crucial business window for paints makers, the festive period around Diwali, was washed out due to rains in some parts of India.

Paint companies garner about a fifth of their annual sales during the weeks leading up to Diwali. If the results of rivals Berger Paints and Kansai Nerolac are any indication, the festive period this year was a washout.

“Ideally, we would love to grow both profit and sales," Abhijit Roy, managing director and chief executive officer of Berger Paints had told Mint in a recent interview. “But if push comes to shove, we will prefer to have our market share protected even if a little bit of profit dilution happens," he said.

Roy's reasoning: if the company's market share remained intact, profits would return sooner or later.

Asian Paints, on its part, said it will fight to preserve its market share, with the caveat that it would prioritize maintaining 18-20% margins.

Aditya Birla-backed Birla Opus has shaken up what was long a stable industry since its entry in 2024. With its aggressive pricing and heavy investments in marketing, the new entrant has unsettled incumbents.

Asian Paints, despite its deep distribution network and decades-old brand strength, was not immune to the disruption. The household name, which once commanded well over half the market, has seen its share slip closer to 50% following the entry of new rivals.

The company has also faced pressure on margins amid sustained discounting and aggressive expansion by newer entrants. How Asian Paints navigates this period will be the key cue that investors will be looking out for.

So far, investors have reposed their faith in the company. Shares of Asian Paints have gained almost 15% since the beginning of this fiscal year, outperforming the benchmark Nifty which rose about 11%.

Against this backdrop, Mint highlights key factors to watch in Asian Paints’ upcoming results.

Revenue

The Mumbai-headquartered paint maker is expected to see a 1% revenue growth in Q2 to ₹8,107.8 crore as there was no meaningful improvement in demand, particularly in the urban markets, according to analysts at financial services firm Motilal Oswal.

Extended rainfall has further impacted the decorative paints segment. However, Berger's Roy said during a post-earnings interaction last week with analysts that Asian Paints is expected to do “slightly better in terms of growth", which led the street to believe there was a scope for a revenue growth of 3-4%.

Competition

Investors and analysts will watch out for commentary on the competitive intensity in the sector. According to analysts at broking firm Nuvama Institutional Equities, there are early signs of discount rationalization and attribution at Asian Paints has stabilized (as competitors poached talent earlier).

They believe that the market leader is now back in the game, and their top priority is gaining market share while maintaining 18-20% Ebitda margin.

However, analysts at financial services firm B&K Securities warn that regaining market share may take time. The company has also upped its game in advertising spending. Any comments on how much ad spending has increased and how much more they can increase will also be important.

According to a Nuvama note dated 1 September, Asian Paints has also been trying to win back small and medium dealers with annual sales between ₹10 lakh and ₹12 lakh, which rival companies targeted last year by offering higher margins.

These margin-sensitive dealers were hit hardest by the demand slowdown. In response, Asian Paints has set up a dedicated team to regain its business.

Demand

According to a channel check of at least 23-24 dealers by brokerage firm Systematix Institutional Equities, weak demand persists across the economy and premium segments in most regions, though trends vary depending on dealer locations.

After two quarters of demand being impacted, investors will look for management’s views on any signs of demand revival and in which categories. According to Nuvama, Asian Paints will leverage repainting demand as it drives 85–86% of revenue.

Outlook

With its brand strength and deep distribution, Asian Paints is better positioned than most peers. However, in a weak demand market the challenge is to maintain the margin guidance.

It remains to be seen how their efforts to retain dealers and increase brand spending position them better in a crowded market where rivals are hungry for market share and willing to burn cash.