In May this year, Asian Paints, best-known as the country’s largest paints company, unveiled a 17,000-sq ft home decor studio in Chennai across six levels, showcasing options in lighting, furniture, fixtures, furnishings and home designs to consumers.
Billed as a go-to destination, the studio marks a new chapter in the paint major’s journey from “share of surface” to “share of space”, as the company looks to transform itself into a complete home decor and lifestyle company, playing across multiple home improvement categories. The move, said experts, is intended to help Asian Paints de-risk from a commodity business such as paints, where margins easily come under pressure with volatility in crude oil.
For instance, in the June quarter of FY24, gross margins of the company were at a nine-quarter high at 43.4%, driven by a net material deflation of 2% as crude prices remained benign. But the tide could change as crude prices begin to inch up, sector analysts said.
At the same time, the company is looking to hedge risk by stepping into areas before competitors seize the opportunity. The entry of JSW Paints and Grasim Paints is also forcing Asian Paints to take guard, sector experts said.
While the diversification exercise by Asian Paints was first put in place a decade ago when it acquired companies such as Sleek Kitchens and Ess Ess bath fittings, expansion plans have been largely small and constitute just around 2-3% of the company’s topline.
Amit Syngle, MD & CEO, Asian Paints, is looking to increase the home decor share in the coming years to 8-10% of decorative revenues (latter is 80-85% of total topline) by building an alternate distribution channel on the ground, leveraging online channels and setting up aspirational stores like the one in Chennai under the Beautiful Home Studios umbrella.
At the moment, there are 44 Beautiful Home Studios in the country, and the plan, Syngle said, in an investor call last week, was to take that number to 65-70 stores in FY24. More stores are expected to be added in the coming years, he said.
“Home decor compliments the coatings (paints) business because you are part of the consumer lifecycle, which is critical if we have to look at well-rounded growth in the future,” Syngle said.
In the last two years, for instance, the firm has sought to galvanise home decor efforts by picking up stakes in two companies – White Teak and Weatherseal – as part of its larger diversification plans. Last month, Asian Paints raised its stake by 11% in lighting company White Teak, for `54 crore, taking its total stake to 60% (49% picked up in 2022).
Weatherseal, makers of aluminium and uPVC windows and doors, was acquired for `19 crore in 2022 (51% stake). Further stake buying in Weatherseal will happen in the future, the company said, given that it has a three-year window to do so.
“Home Décor, while kitchen and bath, have been a little bit sluggish, but overall, a plethora of other categories like fabrics, lighting, uPVC, are giving us good growth. We think as a combined business this is something which is giving us strength with respect to our core business (paints). We see home decor (business) improving in the second half of the year (FY24),” Syngle said.
Analysts say that Asian Paints’s expansion plans may begin to yield results with a lag. “This is a long-term bet and not something for the next few quarters,” Kaustubh Pawaskar, deputy vice-president, research at Mumbai-based brokerage Sharekhan, said.
Time will tell whether Asian Paints has cracked the diversification code right.