Not Asian Paints, Berger and Indigo Paints may shine in H2FY25, says Nuvama

The brokerage sees brighter prospects for these emerging contenders (Berger & Indigo) in the second half of FY25 (H2FY25), citing several headwinds for Asian Paints that could limit its growth

Nuvama bets on Berger Paints, Indigo Paints: Domestic brokerage Nuvama Institutional Equities is turning its attention to smaller players in the paint industry, signaling a shift in preference from industry giant Asian Paints Ltd. (APL) to Berger Paints Ltd. and Indigo Paints Ltd. 

 

The brokerage sees brighter prospects for these emerging contenders in the second half of FY25 (H2FY25), citing several headwinds for Asian Paints that could limit its growth.

 

Abneesh Roy and Jainam Gosar of Nuvama Institutional Equities point to Asian Paints’ higher exposure to big cities as a key factor. They said, urban centres have been grappling with challenges like soaring food inflation, escalating housing rentals, sluggish wage growth, and rising interest payments—factors that have weighed heavily on demand. 

 

 

Additionally, Asian Paints faces the dual challenges of a high base effect and the pressures of being a pan-India player. This broad reach makes Asian Paints more vulnerable to new competition, such as the recent entry of Birla Opus into metropolitan markets.

 

Interestingly, these challenges have not affected Berger Paints and Indigo Paints as significantly. Their relatively smaller scale and regional focus, analysts believe, have shielded them from the immediate brunt of competition in larger urban centres. This resilience has made them Nuvama’s top picks in the paint sector, with both stocks receiving a ‘Buy’ rating.

 

However, the Nuvama note also highlights a broader preference for Pidilite Industries over any paint company. For Nuvama, the adhesives and construction chemicals leader remains the top choice, standing out in an otherwise competitive landscape.

 

So, why are Berger Paints and Indigo Paints gaining ground on Asian Paints?

 

Urban slowdown hits big players harder

 

Big cities, long considered growth hubs for the paints sector, are now facing major economic headwinds, analysts at Nuvama Institutional Equities said. High food inflation, rising housing rentals, low wage growth, and steep interest payments have dented demand. The trend isn't limited to paints but is visible across industries, including fast moving consumer goods (FMCG). As Britannia highlighted in Q2FY25, metro consumers, despite contributing one-third of the urban FMCG market, were responsible for 2.4 times the slowdown compared to non-metro urban areas.

 

Asian Paints, with its stronghold in metro cities, has borne the brunt of this slowdown. While Berger Paints holds a 20.9 per cent market share nationwide, its metro presence is limited to just 10 per cent. Similarly, Indigo Paints remains a minor player in these regions. This insulation has allowed both companies to avoid the full impact of urban economic challenges. Additionally, Berger Paints is steadily ramping up its urban footprint, while Indigo Paints continues to grow from a smaller base.

 

Growth dynamics favour Berger Paints and Indigo Paints 

 

According to analysts, Asian Paints’ dominance has also created a higher base effect, making incremental growth more challenging. In Q3FY24, Asian Paints’ sales rose 7.4 per cent quarter-on-quarter (Q-o-Q), compared to Berger’s 4 per cent Q-o-Q growth. However, as market conditions shift, analysts opined, the smaller players are catching up.

 

For Q3FY25, analysts expect Asian Paints to post just 1 per cent year-on-year (Y-o-Y) volume growth, with a 3 per cent decline in sales. In contrast, Berger is projected to achieve 6 per cent volume growth and 5 per cent sales growth Y-o-Y. Indigo Paints, though still small, continues to report steady growth.

 

The impact of new competition

 

Being a pan-India player, analysts believe, Asian Paints is more exposed to emerging competition. The entry of Birla Opus, for instance, has disrupted the market, particularly in metro cities where Asian Paints has a strong presence. New players typically hurt the market leader more during their initial entry, while regional players like Berger Paints and Indigo Paints feel a smaller impact.

 

Moreover, Berger Paints’ regional strength in East and Central India has further shielded it from the competitive pressures concentrated in urban areas. Meanwhile, rural demand, which continues to recover across consumption categories, has favoured these smaller players with a stronger foothold outside metros.

 

Birla Opus, despite being a new entrant, has already garnered a 2–3 per cent market share. The development has spurred heightened competition, benefiting smaller players who are agile enough to adapt to changing dynamics, analysts said.