Grasim’s entry paints ‘not so rosy picture’ for established players

Grasim Industries, the flagship company of Aditya Birla Group, launched its much-awaited paint business under the “Birla Opus” brand. Yesterday, the company commissioned three fully automated, global-scale manufacturing plants in Panipat (Haryana), Ludhiana (Punjab), and Cheyyar (Tamil Nadu), and plans to start three more plants by FY25.

The company first announced its foray into the paints business in 2021 with an initial investment of ₹5,000 crore. This amount has now been doubled to ₹10,000 crore. The company aims to reach a total capacity of 1,332 million litres per annum (MLPA) by FY25, which will be the second largest in the industry (Asian Paints’ capacity is 1,750 MLPA).

₹0 to ₹10,000 crore in three years

Grasim Industries targets gross revenue of ₹10,000 crore and aims to turn profitable within three years of full-scale operations. The company is betting on India’s rapidly expanding decorative paint market, which currently stands at ₹80,000 crore and is expected to reach ₹3,00,000 crore by 2034.

To achieve this ambitious goal, the company will build the second-largest dealer network. It has already enrolled over 300,000 painting contractors and is starting the largest-ever paint sampling program.

Experts believe Graism has an advantage over other players as it already has an existing dealer network for Birla Wall Putty and UltraTech Cement. For instance, Birla Wall Putty is sold across 60,000 to 70,000 outlets. At the same time, UltraTech Cement has a dealer and retail network of 1,00,000+ channel partners across the country.

The company intends to replicate the distribution reach of its cement and wall putty business. As per the company, Birla Opus products will be available in Punjab, Haryana and Tamil Nadu from mid-March 2024 and in towns with populations of at least 1 lakh by July 2024. Besides this, the company will also offer direct painting services to its consumers under PaintCraft.

Will Grasim gain ground in the paint industry?

Graism’s big-ticket entry into the paint business will further intensify competition within the industry. As per experts, the immediate threat will be to unorganised and smaller tier-2 and tier-3 players as 20 to 25% of the paint industry is still unorganised. Grasim is expected to gain initial market share from this pool.

Earlier, corporate giant JSW Group successfully foray into the paint business with the launch of JSW Paints. The company saw a consistent rise in revenue from ₹204 crore in FY20 to ₹1,616 crore in FY23. This indicates the organised paint industry is still underpenetrated, and new entrants will likely gain ground.

Impact on other players

Grasim is likely to take a pie out of the existing profit pool of the paint industry. Also industry players will be forced to increase their advertising spending to protect market share as Grasim will foray into the market with an aggressive pricing strategy and a value proposition for consumers and dealer network.

Established paint companies are already feeling the heat. So far this calendar year, shares of Asian Paints, Kansai Nerolac Paints and Berger Paints India are down in the range of 6 to 8% as Grasim commences operations across three plants.

Conclusion

Amid Grasim’s high profile foray into the industry, seeing how other paint companies make moves would be interesting. Some have already started the prep work. For instance, Berger Paints has earmarked ₹2,500 crore capex for the next five years to expand capacity and retain market share.

This article is written by senior equity analyst Sreenivas Ajankar. Views expressed are the author's own.