Grasim wants to make a splash in the paints market. Birla Opus is an audacious initiative aimed at a double –digit share of the Rs 80,000 crore decorative paints piece, sales of Rs 10,000 crore and an operating profit, all in just three years. Kumar Mangalam Birla may just pull it off. Although there are more than half a dozen players in the space and some well-established ones like Asian Paints, Berger Paints and Indigo Paints, many of the recent entrants—Pidilite and Astral—are relatively small. So the economics of Birla’s big-scale operations could push Opus to the number 2 spot especially since paints is largely a B2B rather than a B2C operation.
While the product promises to be top-class, the gameplan rightly focuses on building distribution. In the paints sector the distribution is as important, if not more important than the product itself. That’s because it’s the contractors and painters who decide which brand of paint is to be bought, rather than the end consumer. As Karan Bhatia, Partner, EY Parthenon, says, “The brand is important because that’s what gives consumers the thought. But often the painter can influence the consumer.”
Grasim has said it is looking to get a deep connect with the 50,000 dealers that it is targeting as part of its network by end FY25; 3,500 are already on- board, of which 95% have a tinting machine. The company plans industry-leading rewards to drive customer conversion. Dealer margins will be disclosed soon but experts believe they will be bigger than those being offered by the competition. “Given it will be critical to win over dealers, Grasim will be generous with the margins,” said an industry insider. Experts point out that the advanced and compact tinting machines, being offered free, will make dealers’ operations more profitable. “They are digitally linked to the company’s central processing hub, aiding in real-time data analytics, faster order delivery and lower inventory at dealer end will drive better RoI for dealers,” said an expert.
As Avi Mehta at Macquarie says, the four-hour delivery of its 1,200+ SKUs to dealers in key district headquarters through a network of 150+ depots integrated with the latest warehousing systems, along with Grasim’s belief of better throughput, should allow dealers to make more money.
Moreover, the company will help dealers with finance—post 8-9 months of operating history—by drawing on its in-house capabilities. Its sales force is the industry’s second-biggest.
The company’s stated intention of turning profitable in three years and indications that its pricing will match that of the competition make it clear it’s not playing the price game. Rather, its strategy to win share seems to be based on superior and differentiated products that use advanced molecular structures and formulation. The management claims that in blind tests, 98% of painters (sample size of 300+ across 11 cities) ranked Grasim’s products as no.1. Mihir P. Shah of Nomura Research believes that while this may provide Grasim with some edge versus competition in the near term, historically, paint players have launched similar products as a new launch, in quick succession via reverse engineering. “The paint category is largely a “me-too” one, where product quality and pricing may not be materially different within organised players. The key moat is the brand equity, dealer and painter relations,” Shah observes.
Nonetheless, Grasim’s portfolio will house 145 products and offer 2,300 colours including 216 unique Indian shades; the SKUs will number 1,200. While warranties are currently offered largely for premium and luxury products, Grasim intends to offer warranties for paints in the economy range too. And it will work on the brand; spends on A&P will match that of the market leader. The company can gain some cost advantage as it can source some core ingredients like resin for both solvent-based and wood-finish paints and emulsions for water-based paints, manufactured in-house. One incumbent player believes the Birla group’s cement dealer network could help Grasim reduce time-to-market. “Grasim is likely to woo dealers with bigger incentives,” he says. At the same time he is not so sure influencers will switch companies and abandon brands where the associations are long-standing. “Especially when it comes to repeat sales, incumbents might benefit,” he said.
The competition is watching the action closely. Some believe Grasim’s entry with a chunky `10,000 crore investment will result in some kind of a shake-up. “While the top three players may be safe, the remaining players could be impacted” one CEO told FE. But other incumbents are less perturbed. Hemant Jalan, CMD Indigo Paints says the paint industry has never been devoid of intensive competition. “We don’t have to do anything new. The Birlas will take time to get –established so in the next one or two years nothing much will change,” Jindal believes. He points out JSW, JK and Pidilite all entered the market five years back. “It takes a long time to move the needle, that is why the top two have remained there,” Jalan says.
Even so there’s no denying that the capacity being created, across six state –of-the-art manufacturing units, of 1,332 million litres in the first year and 500mn litres thereafter, is intimidating. As Vivek Maheshwari of Jefferies observes, the paints sector has never seen such massive capacity build-out in such a short span even from incumbents. “We expect this to reflect in industry market shares and margins,” Maheshwari says. There doesn’t seem to be much doubt about that.