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The overall paints industry took a beating in Q2FY26, primarily due to the incessant rains in the quarter, along with a shorter pre-Diwali season. The unfavourable weather patterns led to a pause in the recovery that was visible in early Q1FY26. The mix was also unfavourable for most players, as heavy monsoons impacted the sale of higher-margin exterior paints. Premium decorative categories saw divergent trends—some players reported sustained softness in higher-end emulsions, while others saw selective resilience depending on region. Newer businesses such as waterproofing and construction chemicals, wood coatings and projects continued to see robust traction and continue to remain key catalysts in the medium term. Industrial coatings also displayed divergent performance across categories and players. Despite the divergence across product categories, most management commentaries indicated improving demand trends post the monsoon season. Margin performance was a mixed bag, with APNT seeing a solid 218 bps YoY EBITDA margin improvement owing to a low base, KNPL seeing largely stable margins and Indigo Paints gaining 106 bps YoY due to improving volumes and mix. On the other hand, Berger Paints‘ EBITDA margins suffered (-319 bps YoY) due to unfavourable mix, lower volumes, and brand investments.

Outlook

* Softer industry demand weighed on decorative offtake, though October-November showed early signs of recovery. Near-term momentum should improve, supported by a strong marriage season, better rural sentiment after a good monsoon, and a pickup in discretionary consumption aided by GST rate cuts. Competitive intensity, while still elevated, has begun to stabilise and firms are sharpening innovation, execution and regional initiatives.

* Management commentaries indicate a firmer recovery through the rest of FY26E. October was muted due to an early Diwali. November is tracking well on pent-up demand and healthy inventories. Industrial coatings remain modest with pockets of outperformance. Overall, Q3FY26E is expected to mark an unambiguous recovery, with further acceleration in Q4FY26E.

Performance divergence across players

Among companies, APNT emerged as the top performer in the quarter, posting industryleading revenue and operating profit growth, aided by a lower base and internal initiatives to ramp up growth. This kind of performance from the market leader was seen after 6 quarters of revenue declines. INDIGOPN followed in terms of decent performance uptick. Berger Paints, which was leading the pack in terms of performance for the last 3 quarters, suffered with slower growth and margin pressure owing to brand investments and mix deterioration. KNPL performance remained muted, while AKZO’s numbers were not directly comparable due to the divestment of its powder coatings and international research centre businesses.

* Gross margins expanded YoY for APNT and, to a lesser extent, INDIGOPN and KNPL, supported by softer input costs on account of lower crude oil prices. In contrast, BRGR and AKZO experienced margin contraction, with BRGR’s decline primarily driven by an adverse product mix.

* EBITDA trends largely mirrored gross margin movements. APNT reported a strong 21.3% YoY increase, followed by INDIGOPN at 12.1% YoY. KNPL posted a modest 1.6% YoY expansion, reflecting operating deleverage, while BRGR saw decline of 18.9% YoY, underperforming its peers.

* Adjusted PAT also broadly tracked EBITDA trends, except for KNPL, where PAT growth exceeded EBITDA growth due to a higher effective tax rate in the base quarter.

Company-wise view

We retain our BUY rating on BRGR, KNPL and INDIGOPN as we expect improving macros, uptick in demand and stabilising competition to lead to a growth uptick and some rerating for these players.

BRGR should see growth going ahead owing to its investments to improve presence in urban India, traction in the WPCC segment, along with its presence in the industrial paints segment

KNPL will be a beneficiary of the demand uptick expected in the auto sector, post-GST rate rationalisation. In the medium to long term, the company’s strategic focus on expanding and premiumising its industrial portfolio and improving overall margins should drive performance.

INDIGOPN has seen the first signs of revival, and strong optimism in management comments. With discount to historical PEs, improving performance should lead to a rerating. We remain constructive on APNT due to stabilizing competition and internal initiatives bearing results now. However, limited upside led to downgrade to “ACCUMULATE”. AKZO remains Under Review as the future strategy will be clear only post the JSW Paints takeover.

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