Paints sector likely to see double-digit volume growth in Q3, says Nuvama; Asian Paints, Grasim among top picks

  • Brokerage anticipates strong double-digit volume growth in Q3 for the Paints & Adhesives sector due to the upcoming wedding season, a soft base, and favourable demand. The brokerage expects YoY margin expansion and reiterates ‘BUY’ for Pidilite and Asian Paints.

Dhanya Nagasundaram
Published15 Nov 2023, 02:35 PM IST
Domestic brokerage Nuvama Institutional Equities spoke with a few dealers and carried out channel checks with respect to the Paints & Adhesives sector.
Domestic brokerage Nuvama Institutional Equities spoke with a few dealers and carried out channel checks with respect to the Paints & Adhesives sector.

Domestic brokerage Nuvama Institutional Equities spoke with a few dealers and carried out channel checks with respect to the Paints & Adhesives sector. Following the interaction the brokerage anticipates strong double-digit volume growth in Q3, driven by the upcoming wedding season, a soft base, and favourable demand.

Due to a variable monsoon and a sluggish rural recovery, Q2FY24 was a little soft, said the brokerage in its report.

Despite some inflation in raw materials, the brokerage expects YoY margin expansion. At first, Grasim (which launched in Q4FY24) primarily targets unorganised players, accounting for 25–30% of the market. The brokerage reiterates "BUY" for Pidilite and Asian Paints. With its increases in market share, Berger Paints has also impressed. Greater Grasim scale is still a risk for smaller players and an important variable to keep an eye on.

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"We argue Grasim shall gradually emerge (post-launch in Q4FY24) as a challenger to smaller players. The paints industry has seen high employee attrition—absorbed by Grasim. Grasim stands to benefit from its large distribution capability, but largely wholesale (in white cement) and is expected to offer quality and pricing comparable to industry leaders and back it up with a good marketing push. Regional depots are being set up.

By production cost, we expect Grasim to be on a par/near Asian Paints; this gives it a slight edge over smaller players, but utilisation shall take many years to ramp up," the brokerage said in its report.

Also Read: Markets rise 1% as softer US inflation print reduces risk of US rate hikes in near term, advances rate cut expectations

Following discussions with several dealers, the brokerage highlights the following three key takeaways:

Double bonanza from festivals and wedding season

The brokerage report states that most paint and adhesive makers have a bright future in Q3FY24, with volume growth of 15% YoY anticipated due to festive demand, low base, the impending wedding season, and an increase in real estate activity. Demand for most paints was weak in Q2FY24 due to an unpredictable monsoon (especially in July) and an overall downturn in rural areas. Demand trends reversed as a result of downtrading in Q2FY24; T1/T2 outperformed T3/T4 compared to an equal performance in Q1FY24.

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Lustrous wedding season likely

According to a survey conducted by CAIT Research & Trade Development Society, 3.5 million weddings are slated to take place between 23rd November 23 and 15th December, the report said. 

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Expansion plans exude strong confidence

Paints players are still planning big capital expenditures. Over the next three years, Asian Paints plans to invest approximately 87.5 billion in capacity expansion, backward integration, and acquisitions. In order to increase capacity and solidify its market position, Berger intends to invest 25 billion over the following five years. To increase its current 600 million litre capacity, Kansai would also need to spend 2.9 billion. It is anticipated that Indigo Paints' water-based paint facility will open for business by FY25, according to the brokerage. 

Also Read: Nifty IT gains 2.35% on drop in US inflation; Persistent Systems hits record high

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions. 

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First Published:15 Nov 2023, 02:35 PM IST
Business NewsIndustryPaints sector likely to see double-digit volume growth in Q3, says Nuvama; Asian Paints, Grasim among top picks

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