HomeIndustry TrendsPaints industry awaits Grasim’s entry

Paints industry awaits Grasim’s entry

Grasim’s decision to enter India’s decorative paints sector has already alerted the existing players to rework their strategy and strengthen their marketing resources. Though it may take another two years for the flagship company from the Aditya Birla Group to do the needful, the industry has already started reacting to the possible future disruption of the market.

Grasim, on its part, has started giving some clues about its action plan for the industry. First, the company plans to have its production facilities near to the market to avoid logistic issues and reduce the cost. Grasim is planning to have 5-6 plants spread all over India and expects to start production from the fourth quarter of 2023-24.  The civil construction has already commenced at Panipat and Ludhiana, and is expected to start shortly at Chamarajanagar. The remaining three plants for manufacturing paints are at different stages of the government approval processes. Thus, Grasim will be manufacturing paints from its own facilities and is not going to outsource them.

Grasim wants to among top two

Grasim’s goal is to be among the top two decorative paints manufacturers in the country, a goal  which can’t  be achieved unless it is able to grab some market share of others, including that of the market leader. Grasim’s announced production capacity will be 1,332 million litres per annum as against 1,700 mlpa od Asian Pants and much higher than Berger and Kansai Nerolac India Ltd. In fact, Grasim’s proposed capacity is almost equal to the present capacity of Berger, Kansai Nerolac and Indigo Paints put together.

Finance is not an issue

The inflation pressure on account of commodity prices increase has been mitigated by change in the plant configuration, and Grasim is very well capitalized for next course of phase of growth, given its strong financial position. In fact, Grasim has decided to accelerate capacity commissioning from Rs. 5,000 crore capex plan last August to Rs 10,000 crore and set up the facilities within threeyears, because the market at this point in time is extremely buoyant. The company is planning to raise upto Rs 2,000 crore through debentures to fund its capital expenditure programme.

The group is known in the building industry

Grasim feels already at home with the paints industry as the company is a leading brand in white cement and putty business. The company (through its subsidiary, Ultratech) presently has more than 90,000 dealers with rural share at 61% and urban at 39%. The company plans to leverage this distribution network strength to market paints. But Grasim is not going to bring Ultratech’s white cement business under its umbrella.

In terms of sales, cement and paints are similar on channel mix. In cement, retail sales have a 70% salience and in decorative paint, 75-80%. Further, white cement and putty brands are largely sold via paint channel – 60-70% of putty sale is via the paint channel. From this angle Grasim enjoys a strong backward integration. Also, Grasim has been dealing with smaller SKUs through white cement and putty.

On the other hand, attracting paint dealers will be a challenge for the newcomer since white cement and putty are sold via a distributor model while paint is sold through dealer network. No doubt Grasim is recognized amongst painters, but the brand is still need to build a painter network and incentivize them as they also act as influencers. This cannot happen overnight and may take many years.

Meanwhile, the incumbents are not resting on their laurels but have already started protecting their market share. For example, Asian Paints, the market leader, has been aggressive recently, focusing on gaining market share. The company is expected to remain aggressive given the entry of many players in the paint category. Further, if past is any indication, Asian Paint focuses on volume growth and market share even during high input cost inflation scenario as had happened in 2004.

However, the emerging scenario is good for the consumer, both individual home buyer and the real estate industry as the manufacturers will be more focused in market share expansion less on margins. Also, intense competition will force the leading players to come out with new and innovative products regularly which is good for market expansion in the long run.

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