Billionaire Kumar Mangalam Birla-controlled group has outlined a plan to launch a paints unit to enter a large and growing market. But that means taking on entrenched incumbents, including No. 1 Asian Paints Ltd. Something none of the new entrants has had much success with in the last decade.
Asian Paints has a 42% share in India’s Rs 42,300-crore decorative paints market, according to data cited by Indigo Paints Ltd. in its red herring prospectus. While Kansai Nerolac Ltd. is a distant second, others haven’t still broken into double digits.
A third of the market, however, is unorganised. And that’s what the Aditya Birla Group flagship firm will target, investing Rs 5,000 crore in the next three years to build the business.
Grasim expects the shift from the unorganised to the organised sector to accelerate with its entry in the segment, Ashish Adukia, chief financial officer, said in a concall with investors and analysts. “We strongly believe that we have all the ingredients of being successful in executing our paint strategy.”
Citing 11% growth in five years through 2019 for the sector, Adukia said the pace is expected to accelerate “owing to demographics-led demand, urbanisation, shortening of repainting cycles and other important factors like ‘housing for all’ vision of our Prime Minister”.
Indigo Paints, which recently went public, in its prospectus forecast the market to grow at an annualised rate of 13% by value and 10.2% by volumes through 2024.
Grasim wants a pie of that growth to become a “strong No. 2 player over a period of time”, according to Adukia. And the company sees the distribution network of its two cement units—Birla White and UltraTech Cements Ltd.—as its biggest advantage.
Grasim has a pan-India presence through Birla White, Adukia said. The unit has 100,000 influencers and 54,000 dealers across 6,000 towns. Around 70% of its dealers also sell paints.
The group flagship will also engage with UltraTech to discuss ways to gain access to this distribution network through an arrangement at an arm's length, he said.
Market leader Asian Paints has a pan-India distribution network of 70,000 dealers, according to Motilal Oswal. And it also leads by providing tinting machines to 66% of its dealers. The machines allow companies to provide a wider product portfolio, and help Asian Paints maintain its dominance.
Using a tinting machine allows a paint company to offer a greater number of shades without keeping multiple stock-keeping units except for the pigments. That could pose a problem for a new player.
The existing network of tinting machines by incumbents could make it difficult for any fresh entrant to increase distribution, according to Vishal Gutka, vice president-research for consumer and retail at Phillip Capital India. The problem will be more pronounced in urban markets where space is a bigger issue, and available space would have been taken up by incumbents, he said.
While space is available in smaller cities, competition from unorganised players poses a challenge there, Gutka said. Also, companies that install tinting machines set sales targets for dealers, leaving less headroom for a new entrant, he said.
Indigo Paints, with a 2% share, outlined how growing the paints business is a gradual process. A new player will take a few years before building a network in the paints sector with a direct relationship from manufacturers to the end retailers, Hemant Jalan, chairman and managing director at Indigo Paints, told BloombergQuint in an interview. “It will take time for any new entrant, no matter how large or how strong they are.”
Prabhudas Lilladher, in a report, cited the example of Nippon Paint India Pvt. and Sherwin-Williams Co. that have found India's decorative paints market tough to crack. Akzo Nobel Ltd. is No. 4 despite being early entrant, it said.
Other challengers too failed to make a dent in the last 10-12 years because of the strong brand recall and product innovations of incumbents, Motilal Oswal said. Grasim will also find it difficult to gain market share, it said.
Grasim has yet to respond to BloombergQuint's emailed queries.
The Aditya Birla Group flagship, however, is not alone to consider the market for a fray. In 2019, JSW Group also entered the market with an initial investment of Rs 600 crore to set up two plants—at Vijayanagar, Karnataka and Vasind, Maharashtra. And it aims to be in the top three brands, starting with southern and western Indian and slowly building a presence in the rest of the country
For Jalan, the industry is large enough to accommodate more players. “I don’t think there is anyone in this industry who is concerned or worried about the entry of any new player.”
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