Grasim Industries Ltd is now planning to invest ₹10,000 crore in the paint industry at FY25. Note that this is twice as much ₹5,000 crore investment plan to set up its paint business, which was announced last year.
It is clear that the intensity of competition in the once oligopolistic Indian paint sector is heating up, giving rise to concerns about business disruptions for the established Asian Paints Ltd. and Berger Paints India Ltd. In response to this development, the shares of both of these companies fell by about 3% each on the National Stock Exchange opening trading on Wednesday. Asian Paints is the market leader in decorative paints, followed by Berger.
Grasim has also accelerated the execution of its paint capacity of 1,332 million liters per year with the commissioning of the facilities to start Q4FY24. It aims to become number two in decorative colors for a period. Analysts note that this can be compared to 1,700 mlpa for Asian Pants and is much higher than Berger and Kansai Nerolac India Ltd.
To be sure, the paint industry has high barriers to entry and history shows that not many newcomers have tasted great success here. Scalability is one of the most important challenges that new companies in this sector have often faced, said analysts. For example, international paint companies Nippo and Jotun.
Nevertheless, Grasim will pump in more money, as a dampener for existing companies. “We believe that the threat from new competitors is higher than before, as the new players are domestic players who have an understanding of the Indian raw materials industry and have strong balance sheets and the drive to grow to become among the top players,” said analysts. at Morgan Stanley India Company Pvt. Ltd. said in a report on May 24.
At the same time, analysts at Jefferies India Pvt Ltd said, Grasim may go for an aggressive strategy (pricing or otherwise) and disrupt the market structure that may have a greater impact on smaller players, but Asian Paints may also be at risk. “This is reminiscent of Jio’s entry into the telecommunications industry, with significant capacity additions, which ultimately resulted in lower industrial tariffs,” the Jefferies report, dated May 24, said.
Remember that in the telecom sector, a lot of companies declined after Reliance Jio Infocomm Ltd. entered the market in 2016 with tough prices and huge investments.
At the same time, the paint industry has struggled with inflationary pressures for input costs that weigh on their gross margins. The paint manufacturers have taken several rounds of price increases during FY22 and have guided more to compensate for this impact.
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