What’s Happening?
The paints industry in India has 70% organised players with a business of about Rs 68,000- 70,000 crore. It’s not an easy industry to be in because big names are already dominating the market. Asian Paints is the most significant player in this industry, with a production capacity of 1,700 million litres per annum (MLPA). It is so well-placed that there is hardly any material disruption because it has a significant market share of dealer networks. In 2007, global paints company Sherwin Williams forayed into the Indian market but soon exited within one year as it couldn’t grab market share.
Looking at the high competition, Grasim has accelerated its execution of the paint capacity of 1,332 MLPA. After its entry, Grasim can emerge as a significant competitor to Berger Paints and Kansai Nerolac. Grasim holds stakes in key Birla companies – UltraTech and Aditya Birla Capital. The paints industry is known to be notorious for having high entry barriers, but big players like JSW Group and Grasim cannot be stopped from entering this space.
Should This Concern You?
Analysts expect demand for paints to be robust in the medium term due to lower penetration of paints and opportunities in new segments and services. Listed paint stocks seem to be in danger as big players join this space.
What Lies Ahead?
Since Grasim’s announcement, share prices of Asian Paints and Berger Paints have come under pressure, falling 9-10% each in the past five sessions. With more entrants in the paints business, it will be interesting to see how Asian Paints, Berger Paints and Kansai Nerolac continue to reap profits.
