Urban slowdown dims the shine of India’s paints market

India’s paints sector, traditionally a beacon of resilience, is facing an uneven growth narrative in FY25. With metro cities experiencing a pronounced slowdown, the industry is grappling with muted demand despite promising trends in rural markets.

The urban demand slump is particularly glaring. Factors such as rising housing rents, elevated food inflation, and low wage growth are weighing heavily on consumer spending in big cities. Asian Paints (APL), the dominant player with a significant presence in metro areas, has borne the brunt of this downturn. The company reported a year-on-year (YoY) decline of 3% in sales for Q3FY25, alongside a tepid 1% growth in volumes, as per a report by Nuvama Research. “The demand in urban consumption dragged amid surging housing costs and lower wage growth,” says the report. This urban slowdown is not unique to paints; other consumer sectors like FMCG have also flagged similar trends, with metro consumption contributing disproportionately to the overall slowdown.

Asian Paints’ challenges are exacerbated by the entry of new competitors like Birla Opus, whose foray into big cities has intensified market competition. While still in its nascent stages, Birla Opus has already captured a 2–3% market share through aggressive strategies, including the deployment of tinting machines and attractive dealer incentives. This has disproportionately impacted Asian Paints due to its expansive pan-India presence. “APL’s higher indexation to big cities, coupled with new competition, has made it more vulnerable to demand shifts,” notes Nuvama Research. However, the report highlights that Berger Paints and Indigo Paints are better positioned to weather this storm.

Berger and Indigo lead the pack

Berger Paints and Indigo Paints are capitalising on their limited exposure to metro markets and strategic focus on rural and Tier-3/4 cities. Berger Paints posted a robust 6% YoY volume growth and a 5% sales increase for Q3FY25, outpacing Asian Paints. Indigo Paints, meanwhile, continues to grow at an impressive 2–3x the industry rate, buoyed by its differentiated product portfolio and proactive rural expansion efforts.

Berger’s market share in big cities stands at just 10%, compared to its 20.9% pan-India share, says the report. This limited urban exposure has shielded Berger from the brunt of the metro slowdown. Indigo, on the other hand, has leveraged its innovative offerings, such as metallic emulsions and waterproofing solutions, to carve out a niche. Its focus on smaller towns has further bolstered its growth trajectory. Differentiated products now constitute 30% of Indigo’s portfolio, commanding premium pricing and higher margins.

Rural demand: A silver lining

While urban markets struggle, rural India is proving to be a bright spot for the paints sector. Rural consumption, recovering steadily across categories, is helping to cushion the impact of weak urban demand. As per the report, rural regions have shown higher growth rates in both FMCG and paints, with Berger and Indigo reaping the benefits of their strong rural presence.

Asian Paints, despite its challenges in metro cities, is also making inroads into the rural segment. Its ‘Neo Bharat’ initiative aims to strengthen its economy segment, a ₹5,000 crore market where Asian Paints already holds a 70% share. Berger is ramping up its distribution network and workforce in urban markets to boost visibility and capture a larger share of the metro pie. The company is also targeting a 15% market share in big cities within three years, up from the current 10%.

Despite the near-term challenges, the sector’s long-term prospects remain promising which is valued at approximately ₹70,000 crore. The growing penetration of organised players in rural markets, coupled with rising disposable incomes and urbanisation, is expected to drive sustained demand for decorative paints. However, the immediate challenge lies in navigating the dual forces of urban slowdown and heightened competition.