Crude Oil Price Rise May Impact Paint Company Profits

• Crude oil derivatives account for nearly one-third of paint production costs

• Higher raw material prices may impact company margins from upcoming quarters

• Competition and weak demand add further pressure on the paint industry

India’s paint industry may soon face profitability challenges as rising crude oil prices push up the cost of key raw materials used in paint manufacturing. Industry experts say the surge in crude prices could reduce margins for leading companies in the coming quarters.

Paint production relies heavily on several crude oil derivatives such as solvents, binders, resins, and titanium dioxide. These materials together make up a significant portion of the industry’s input costs. According to industry estimates, crude-linked products account for more than 60% of the raw material basket, while overall raw material costs contribute roughly one-third of total production expenses for paint manufacturers.

The recent rise in crude oil prices has been partly driven by geopolitical tensions in West Asia, which have disrupted supply expectations. Oil prices briefly surged close to USD 120 per barrel earlier this week before settling around USD 90 per barrel. For comparison, crude averaged about USD 60 per barrel during the October–December quarter, highlighting the sharp increase in costs faced by manufacturers.

Analysts believe this price rise may gradually impact the financial performance of paint companies. Poonam Upadhyay, Director at Crisil Ratings, noted that maintaining profit margin targets could become difficult if crude oil prices remain high for an extended period. Since paint companies typically maintain around two months of raw material inventory, the impact of rising costs may start reflecting in company results from the next quarter onwards.

Industry leaders have already indicated expected margin ranges. Market leader Asian Paints has guided margins of 18–20%, while Berger Paints India expects margins between 15–17%. Meanwhile, Kansai Nerolac Paints has projected 13–14% margins in the short term, with a long-term target of around 15%.

However, analysts warn that companies may struggle to offset rising costs by increasing product prices. Arun Agarwal of Kotak Securities pointed out that historically every USD 1 increase in crude prices can reduce EBITDA margins by around 25 basis points, if companies do not raise prices. With competition in the paint industry intensifying and demand remaining relatively weak, passing on cost increases to consumers may not be easy.

Industry executives have also highlighted potential supply risks for certain raw materials. Amit Syngle, CEO of Asian Paints, previously indicated that fluctuations in crude prices and potential regulatory issues affecting titanium dioxide imports could further influence costs.

The overall financial impact is expected to become more visible from fiscal year 2027, analysts say. Over the past few years, the sector has already experienced earnings volatility due to new market entrants and slower demand growth. As a result, stock prices of major paint companies such as Asian Paints, Berger Paints, and Kansai Nerolac have declined between 11% and 32% in the last three years.

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