Grasim Industries Limited is now planning to invest 10,000 crore in the paint industry by FY25. Note that it’s double of 5,000 crore investment plan to set up its paint business, which was announced last year.
Clearly, once the competitive intensity in the elite Indian paint sector is heating up, there are growing concerns of business disruption for Asian Paints Ltd and Berger Paints India Ltd. Responding to this development, the shares of these two companies have each declined about 3%. The National Stock Exchange is opening deals on Wednesday. Asian Paints is the market leader in the decorative paints segment, followed by Berger.
Grasim has also accelerated the execution of its paint capacity of 1,332 million liters per annum with the commissioning of the plants starting from the fourth quarter of FY24. It aims to become the number two decorative paints company over time. Analysts note that this compares with 1,700 MLPA for Asian Pants and is significantly higher than Berger and Kansai Nerolac India Ltd.
Certainly, the paint industry has high barriers to entry and history shows that many newcomers have not tasted great success here. Analysts say scalability is one of the key challenges that newcomers to the sector often face. For example, the international paint companies Nippo and Jotun.
Still, Grasim’s pumping in more funds comes as a sentiment to existing companies. “We believe the threat from new competitors is greater than ever before, as the new entrants are domestic players who have an understanding of the Indian commodity industry and have a strong balance sheet and drive to be among the top players.” Morgan Stanley India Company Pvt. Ltd said in a report on 24 May.
Analysts at Jefferies India Pvt Ltd agreed, saying Grasim may go for an aggressive strategy (pricing or otherwise) and disrupt the market structure which may have a greater impact on smaller players, but Asian Paints also risks exposure. Maybe in. “This is reminiscent of Jio’s entry into the telecom industry with significant capacity additions, which ultimately resulted in lower industry tariffs,” said a May 24 Jefferies report.
Remember that after Reliance Jio Infocomm Ltd entered the market in 2016, some firms entered the telecom sector with cut-off pricing and heavy investments.
Meanwhile, the paint industry continues to grapple with input cost inflationary pressures weighing on its gross margins. Paint makers have hiked prices several times in FY22 and have guided for more to offset this impact.