Competition in the paints business is set to intensify with Grasim Industries doubling its investment in the sector to
10,000 crore. In a growing sector like paints, there is enough room for a new entrant to capture market share and offer stiff competition to mid-rung players. The domestic paint segment is estimated to be at68,000-70,000 crore with organised players cornering 70% of the market. Within the organised segment, decorative paints account for about 78-80% and industrial paint accounts for the rest.
In 2007, global player Sherwin Williams had forayed into the country but exited in 2018 as it couldn’t make much headway. Many international firms have presence through joint ventures with incumbents.
“The industry is expected to continue its growth momentum of 10-12% per annum over the medium term, driven by thrust on affordable housing, shorter re-painting cycles and up-trading by existing customer, among others. As a thumb rule, the paint segment grows at 1.5 times the GDP growth. This provides enough scope for new market entrants to establish their presence without necessarily impacting the current pecking order,” Anuj Sethi, senior director at Crisil Ratings said. “Hence, a new entrant with strong financial flexibility and pan-India dealer network in allied products may largely capture more share of the still largely unorganised segment,” Sethi said.
On May 24, Aditya Birla Group’s flagship company Grasim Industries announced plans to invest `10,000 crore for its paint foray by FY25, double of what was initially earmarked when the firm announced its entry into the sector in January last year. It intends to set up plants with production capacity of 1,332 million litres per annum (MLPA) and commission operations by the fourth quarter of FY24.
In 2019, Sajjan Jindal-led JSW Group forayed into the paints segment, starting with coil coatings and offering a complete range of decorative paints. At present, Asian Paints is India’s largest and Asia’s third-largest paints company.
Jay Gandhi, institutional research analyst at HDFC Securities, said it would be difficult for a new player to knock Asian Paints off its perch. “For the number one player, I don’t think there is any material disruption because of the significant market share of dealer networks. But for Berger and Kansai Nerolac Paints, there would be an impact due to lower dealer networks,” he said.
Asian Paints has a production capacity of 1,700 MLPA, Kansai Nerolac Paints stands at 583 MLPA, JSW Paints at 125 MLPA and Indigo Paints at 110 MLPA. “Grasim aims to become a profitable number two player in the paints industry. It intends to leverage the existing distribution infrastructure of Birla White (white cement and putties portfolio of UltraTech),” brokerage firm JP Morgan said in a report, adding the capex allocation is “significant”.
“We do see more risk to smaller paint companies though compared to Asian Paints, which has been gaining market share despite being the largest player. We note that proof of execution is quite some time away to gauge the initial consumer response to Grasim’s foray,” the report said.
Many in the industry fear this could be a “Jio moment” for the paints sector, with companies slashing prices to increase their market share and protect their turf from new players. While rivals would also be looking to “match or better” investment, product portfolio and reach (outlets), competition would definitely be stiff.
“The flexibility that companies have to slash prices goes down dramatically in inflationary times, particularly when the inflation is driven by cost-side economics, such as input and supply chain costs. In undifferentiated industries such as paint, where consumer surpluses can’t easily be funded by cheap, growth-seeking equity capital, it is difficult to anticipate a large scale and sustained price-war that doesn’t end up working more like an axe than a scalpel,” Utkarsh Sinha, managing director at boutique investment bank firm Bexley Advisors, said.
“Paints are essentially undifferentiated, with some differentiation afforded by brand value that is created. In this regard, it is similar to infrastructure markets. The dealer networks and middle-level layers are deeply … entrenched, which makes going direct to consumers expensive and difficult,” he said.
To be successful in an intensely competitive market, product range and portfolio, strong dealer & distributor network, brand awareness and ability to scale up are needed. Heavy investments in sales promotion and marketing are also required.