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Is the Indian Paint Industry Going to Change?

ICICIdirect 10 Mins 15 Mar 2024

When it comes to the Indian paint industry, the first name that comes to mind is Asian Paints. For decades, the company has dominated the industry. But there is a new player, and with a large Capex, it plans to climb up the ladder super fast. Will the paint industry's landscape change? In this article, we look at Asian Paints, the paint industry, and the impact Birla's entry will have on the existing players.

The Journey of Asian Paints

Asian Paints was established in 1942 by Champaklal H. Choksey, Chimanlal N. Choksi, Suryakant C. Dani, and Arvind R. Vakil. The company started as a partnership firm producing paints in Mumbai. In 1945, the company began its first production facility in Mumbai. By the 1950s, Asian Paints had expanded its product range and market presence.

Asian Paints went public in 1967 and was listed on the Bombay Stock Exchange. Yes, the listing is that old! It marked a significant milestone in its journey. Throughout the 1970s and 1980s, Asian Paints focused on expanding its manufacturing capabilities, distribution network, and product offerings. 

The company invested in research and development (you may know about their investments in supercomputers) to introduce innovative products and technologies, which helped it gain a competitive edge in the market. It also expanded internationally, establishing operations in countries like Sri Lanka, Fiji, Nepal, Bangladesh, Singapore, and the Middle East.

Today, the company has over a 50% market share, 2,200 paint colors on offer, and over 160 warehouses to distribute its products. Over the years, Asian Paints has consistently delivered strong financial performance and generated significant wealth for its investors through capital appreciation and dividends. 

The New Player: Birla Opus

Last month, Grasim Industries, under the Aditya Birla Group, launched its paint brand - Birla Opus. The company aims to disrupt the Indian paint industry through six greenfield plants, three of which are already commissioned. The remaining three are in the pipeline. T

They plan to invest Rs 10,000 crore in the plants, with a total capacity of 1,332 million liters per year. In the coming years, they will aim to become a number-two player in the industry.

The Indian Paint Industry: Understanding the Potential

We need to understand the Indian paint industry before we link Birla Opus and Asian Paints. Let us start by looking at the major players of the industry - Asian Paints, Berger Paints India Limited, Kansai Nerolac Paints Limited, AkzoNobel NV, and Nippon Paint Holdings Co. Ltd., among others. 

The growth of this industry largely depends on the growth of real estate in the construction industry. The reason is simple: if more houses/buildings are built, those will require more paint. And we know that the real estate market has seen a boom recently. 

The other side of the industry is repainting. People do repaint their houses, and the good news is that the average number of years of house repainting has come down significantly - from 7 years on average to 3 to 5 years. Based on these two points, it won't be wrong to say that the paint companies have done well in recent quarters and will continue to do so.

What would be the growth rate? The size of the India Paints and Coatings Market size is estimated at $9.60 billion in 2024. It is expected to reach $15.04 billion by 2029, growing at a CAGR of 9.38% between 2024 and 2029. 

As we get closer to becoming a developed nation, the repaint cycle may further compress. And the paint usage will increase further! We have some numbers to support this. Presently, we consume only 3.5 kg of paint per capita, much lower than the 10 kg of global consumption.

The idea of this section is to show that it is a growing industry and has a place for a new player.

The Important Question: Birla Opus to Disrupt the Industry?

Before we look at what experts are saying, let us look at the impact of this news on the share price of Asian Paints, the market leader. The news of Birla Opus came last year. In the last 6 months, Asian Paints' share price has fallen nearly 10%. In the same period, Nifty50 has delivered 9% returns. So, there is a clear impact on the share price. But will Birla Opus's entry also impact the Asian Paints' topline and bottomline?



In the past, we have had many players enter the industry, but the question of disruption was never raised. What is the difference this time? There are three main points. Let us look at them one by one.

As we mentioned earlier, the group is coming with a Rs 10,000 crore investment. That is huge! A large investment can be a game changer, for sure. 

And that is not all. There is another reason - distribution. The success in this industry is dependent on distribution, and Asian Paints is a leader because of its super strong distribution channel. If you are wondering how Birla Opus will compete on this part - it does not have to start from scratch. It is in the putty segment (Birla White) and gives them direct access to the paint industry. The company can reach out to its putty distributor and ask them to sell the paint. And if they agree (no reason for them not to), Birla Opus' dream of becoming the second-largest paint company can become a reality.

Money and distribution are fine, but one of the reasons Asian Paints has been successful is because of tinting machines. Let us understand this new term. The paint companies offer you hundreds of color options, and it would be foolish to keep large buckets of each of these colors in the warehouse or shops. For that reason, they have tinting machines. It creates custom paint colors by mixing different base colors or pigments according to a customer's specifications. Now, Birla Opus plans to kill AP's this moat as well. As per the company, they have designed and created a tinting machine that is 40% smaller in size, and with it, it can reach more dealers - even the smaller ones with space constraints can have this machine. It plans to give this machine to its dealers for free!

All the points covered in this section suggest that Birla Opus will disrupt the industry - a Jio moment in the paint industry? But it won't be as easy as it seems on paper. Asian Paints has been in business for more than eight decades. It has a loyal customer base with strong brand connections. However, Asian Paints cannot slow down the game - they also need to acknowledge the competition and face it.

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