India’s second-largest paint maker is chasing market share at the expense of profitability, why that may not paint a good hue on the stock
Berger Paints India is discovering that winning the volume war doesn’t necessarily translate into shareholder value. The country’s second-largest decorative paints company delivered 8.5% volume growth in the December quarter, yet revenue barely budged—rising just 0.3% year-on-year. That stark disconnect tells a troubling story about an industry willing to sacrifice pricing power for the optics of growth.
The problem isn’t unique to Berger. Rival Asian Paints reported similar patterns, suggesting the entire sector is caught in a race to the bottom. But for Berger shareholders who’ve watched the stock tumble 20% since mid-November, the pain is particularly acute. Trading at 472 rupees, the stock offers limited upside even by Nirmal Bang’s calculations, which peg fair value at just 520 rupees—a mere 10% premium.
Cutting to Stand Still
The volume-value gap—industry parlance for the difference between how much paint is sold versus what it fetches—has widened to 8 percentage points at Berger. “The management believes 3.5% out of the total increase in the volume-value gap is attributed to mix shift, 2-2.5% to the price drop in economy emulsions, and 1-1.5% to increased painter spends to tackle competitive pressures,” notes Centrum in its analysis.
Management insists the gap will normalise to 400-500 basis points once price cuts anniversary and competitive intensity eases. But will it happen? The Indian paint industry faces structural headwinds that won’t dissipate quickly. Core paint demand remains subdued even as companies pile into adjacencies like waterproofing, wood coatings, and construction chemicals to build volumes.
Margin Illusion
There’s a silver lining, though? Gross margins expanded 143 basis points to 43.1%—the highest in 17 quarters, according to Centrum. Benign raw material costs and some traction in premium products offset the economy segment discounting.
Yet this margin expansion disappeared by the time profits were tallied. Employee costs jumped 91 basis points as a percentage of sales, while other expenses rose 59 basis points. The result? EBITDA margins actually contracted 7 basis points to 15.8%. As Nirmal Bang observes, “Higher employee cost (up by 90bps YoY) along with higher other expenses (up by 60bps YoY) meant that EBITDA margin declined by 10bps YoY to 15.8%.”
Berger is spending heavily on “strategic manpower deployment”—corporate speak for hiring salespeople and expanding distribution in hopes of capturing share. In a booming market, that’s smart. In the current environment, it looks like throwing good money after bad.
The Luxury Mirage
Management is pinning hopes on premium products like Kolor Plus, Silk Metallics, and Luxol Metallics. The affluent are still renovating and building, even if the broader middle class has pulled back. Centrum notes the “management call out regarding the segment’s solidarity” despite a “subdued luxury paint cohort.”
International operations offer little respite. Polish subsidiary Bolix returned to profitability, but Nepalese joint venture BJN is “hit by political unrest and instability,” according to Centrum. These aren’t businesses that will move the needle for a company generating nearly 30 billion rupees in quarterly revenue.
Downgrades All Around
Both Centrum and Nirmal Bang have slashed estimates. Centrum “cut EPS estimates for FY26-28 by 5-8%” and now expects Berger to clock just 5.5% topline growth through FY28. Nirmal Bang is even more pessimistic, noting that “double-digit sales unlikely in FY27” after the company guided for merely 7-8% growth.
These aren’t the growth rates that justify Berger’s valuation. Even after the recent selloff, shares trade at roughly 42 times forward FY27 earnings and 37 times FY28 estimates by Nirmal Bang’s math. That’s a premium multiple for a company delivering single-digit sales growth and contracting margins.
Centrum assigns a neutral rating with a 500 rupee target based on 45 times March 2028 earnings of 11.2 rupees per share. Nirmal Bang’s hold rating and 520 rupee target tell the same story.
