Can JSW disrupt the paints industry?

Can JSW disrupt the paints industry?

The “present” of the industry is however, slightly uncertain due to user industry for both the segments, that is, automobiles and real estate are not in pink of their health. While automobile industry during past few quarters showing signs of fatigue after successive years of robust growth, India’s real estate industry is in a transitional  phase by moving from opaque operational style to more transparent way of doing business

Like bees to honey, growth is to an entrepreneur. Reasonably good growth, both in value and volume, is an important factor for an industrialist to set up a new unit or venture into new business. That applies to JSW group, a well-known name in steel business and now wants to repeat the same success story in paints industry. One may wonder why the group chose paints business which has least commonalities among other products. Further it also means moving from commodity sphere to an area where branding plays the most important role.

Future perfect

Perhaps, the answer for this conundrum lies in industry’s past, present and the future. If you look at the past, the domestic paints industry having registered steady CAGRs of about 14% in revenue and 10–11% in volume over is one of the bright spots of Indian manufacturing sector. It’s one of the rare industries which has created Indian MNCs while at the same time some MNCs have struggled to find a find a foothold in the domestic paints market. It’s also a sector where organised sector dominates the industry due mainly to its branding power.

The “present” of the industry is however, slightly uncertain due to user industry for both the segments, that is, automobiles and real estate are not in pink of their health. While automobile industry during past few quarters showing signs of fatigue after successive years of robust growth, India’s real estate industry is in a transitional  phase by moving from opaque operational style to more transparent way of doing business.

However, it’s the future (for the industry) that makes it one of the most attractive one for the newcomers. Rising population of aspirational youth with growing income level and fast paced urbanisation make this industry’s prospects brighter than many other industries. Also, according to some reports, 70% of India’s housing needs will be created in next ten years.

Success mantra of the industry

Having said that one should also bear in mind that Indian paints industry is one of such rare sectors where even MNCs have found it difficult to gain foothold. Though JSW’s selection of the industry for future expansion is perfect one, at least from size and future prospects’ point of view, breaking into the oligopolistic paints industry may be far-fetched as entry barriers are stiff. Though the deep pockets are must to win the battle in this sector, that alone may not guarantee any success as has been found out by many MNCs who are operating in this sector since many years but still struggling to dominate. A strong brand value through huge/continued spending on advertisements and publicity, constant R&D and product innovation also play a dominant role in a manufacturer’s success in this industry. And above all, it’s the dealer network which is the most important thing for survival and also to prosper.

JSW’s goal is set

But JSW is entering the field with clear cut strategy in place. JSW has set aside a sum of Rs 600 crore for investment initially in this venture and aims to achieve sales of Rs 600 crore in the first year, that is, 2019-20, itself. By 2022 the company has set a sales target of Rs 2000 crore. The company aims to storm into top 3 paint manufacturing companies by 2025 by capturing a market share of 10%. The company would manufacture and market both industrial coatings and decorative paints. It has already made a debut in Karnataka and plans to complete the rollout in southern and western markets by the first half of current financial year. It would then expand pan-India by financial year 2022.

Unique marketing strategy

JSW Paints has already announced that it would offer the entire palette of shades in a particular range at the same price. This practice is in contrast to the practice followed by the competitors who fix prices by shade. JSW would be selling paints at the rate of Rs 477/litre for all shades at the lowest range. It has introduced three ranges, Halo, Aurus and Pixa, offering 1,808 shades to begin with. However, some of the established brands are of the opinion that there is nothing unique in this pricing strategy as their dealers too have the freedom to sell most of the shades of a particular range at uniform prices to customers.

At dealers level, JSW is adopting a strategy where they can carry on with minimum capital requirement. It will install ‘tinting spokes’ near dealer locations, thus relieving the dealers from the burden of doing tinting. From this point, JSW will either supply to dealers or directly to customers thus reducing the dealers cost considerably. It may be noted that one of the biggest problems faced by the dealers nowadays is the lack of availability of working capital at reasonable rates due to ongoing liquidity crisis. The company plans to have five hubs in each state; each hub would service 100–200 dealers in paint tinting. However, the success of this strategy would largely depend upon the efficiency/speed at which customers’ orders would be delivered.

However, its too early to judge the impact of this new strategy on existing players. Remember, the existing players already have huge network of dealers and they have shown that wider/larger the network of dealers, the better. On the other hand, JSW is focusing more on dealer cost minimisation and competitive and simple pricing to make inroads into industry where top 3 players enjoy around 3/4th of the market share. It’s interesting to see whether the newcomer would be able to change the way paint business is done in the country.

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