The scale of the cost shock
The numbers are stark. The raw material basket for paint companies has surged between 25% and 40% in March alone compared to February. Crude oil’s climb is the primary culprit, given that many key paint inputs are petroleum derivatives.
Companies have responded in phases. Small price increases of 1% to 2% were introduced in March for solvent-based products. Come April, the industry — both large and small players — has announced a more substantial round of hikes in the range of 6% to 8% across portfolios.
But Shah believes that won’t be enough. “To tide over that, they will need closer to 10% price increase,” he told ET Now. A further round of hikes is widely expected, and the industry appears to be building toward that threshold systematically rather than in one disruptive move.
Why margins will take a short-term hit — but recover
The good news for Q4 FY26 is that most companies are sitting on several months of inventory purchased at lower prices, meaning the current raw material spike won’t show up in fourth-quarter margins at all.
rThe pressure arrives in Q1 FY27. Shah pencils in a margin impact of 150 to 200 basis points in the first quarter as higher-cost inventory flows through. That is meaningful, but not alarming — and critically, it is temporary.
As price increases take full effect in subsequent quarters, the margin headwind reverses. “The benefit of the price increase will start kicking in in later quarters and overall profitable growth will also start improving,” Shah said.
The volume question — and why paints are different
The natural fear when any consumer company raises prices is that volumes suffer. In paints, that relationship is far weaker than in most other consumer categories — and the reason is structural.
Painting cycles typically run five to seven years. When a homeowner or contractor decides it is time to paint, the decision is driven by time elapsed and budget planning, not by whether paint costs 5% more than it did last year. Crucially, paint itself accounts for roughly half the total cost of a painting job — which means a 10% increase in paint prices translates to only about a 5% increase in the overall cost to the consumer. That level of increase, Shah argues, is easily absorbed.
“Unlike small ticket items of FMCG, paints work in a very different manner,” he noted.
A revenue growth inflection point
Here is the part of Shah’s analysis that should catch investors’ attention. For the past one and a half years, paint companies have been growing volumes but without any pricing power — a combination that kept overall revenue growth stuck in mid-single digit territory.
That is about to change. Shah’s model combines volume growth of 7% to 10%, a negative product mix drag of around 5% as companies penetrate lower-end segments, and a 10% price increase. The result: overall revenue growth climbing from mid-single digits back into double digits or early-teens territory.
There is also a near-term volume tailwind. Rising prices are prompting dealers to front-load their inventory purchases, which could pull forward some volume recognition into March and April.
FMCG staples: LPG pressure, but not a crisis
Shah also weighed in on the broader FMCG sector, flagging LPG supply constraints as an emerging cost concern. The government has signalled a 20% cut in gas supply to industrial consumers, which could squeeze companies with higher gas exposure.
However, his analysis of company sustainability reports and annual disclosures finds that most large listed consumer companies have relatively low direct gas dependency. Those that do have higher exposure largely operate multi-fuel facilities capable of switching energy sources. Companies are also carrying above-normal fuel and finished goods inventories — a lesson learned from COVID disruptions.
The more persistent concern is rising packaging costs alongside raw material inflation, which could add incremental margin pressure regardless of fuel exposure.
Q4 earnings: A turning point for the consumer sector
On the broader consumption basket, Shah expects Q4 FY26 to deliver a meaningful improvement in volumes, with the full benefit of the government’s earlier GST cuts finally flowing through after Q3 distortions caused by inventory stocking and destocking patterns.
The consumer sector has been recovering gradually since COVID, with volume growth improving quarter by quarter — but still running below pre-pandemic levels. Q4, Shah suggests, marks another step toward normalisation.
For investors in India’s paint and consumer sectors, Mihir Shah’s message is clear: absorb the near-term margin noise, because the structural story — pricing power returning, revenue growth reaccelerating, and volumes holding firm — is firmly intact.