Grasim’s big-ticket paints entry adds new colour to the stock

Grasim Industries has invested around  ₹6,000 crore in the paints division, intent on making its mark in the market. (Image: Pixabay)
Grasim Industries has invested around 6,000 crore in the paints division, intent on making its mark in the market. (Image: Pixabay)

Summary

  • The move into the paints sector is seen as a strategic gamble by Grasim to capture significant market share in a competitive industry, likely leading to a rerating of the Grasim stock

"Birla Opus" is poised to become a familiar name. Indeed, if Grasim’s plans work out, you could soon, quite literally, be seeing Opus plastered all over walls, since Birla Opus is the newly-minted paints brand of Grasim Industries.

Grasim, the Aditya Birla Group's chemical flagship, has been planning to enter the paints segment for a while now, and the scale of ambition is impressive. Grasim has already invested around 6,000 crore in the paints division, intent on making its mark in the market.

The company has set up three major production facilities in Panipat (Haryana), Ludhiana (Punjab), and Cheyyar (Tamil Nadu), expected to be operational by March 2024. Plans include three additional plants in Chamarajanagar (Karnataka), Mahad (Maharashtra), and Kharagpur (West Bengal), aiming for all six to be functional by fiscal year 2025 (FY25). 

Grasim has also stitched together a large dealer network, and completed the branding exercise. Starting Q4FY24, it will produce, brand and market decorative paints across an entire range of price-points. This expansion is part of Grasim's strategy to establish a nationwide presence, initially focusing on selected regions in the northern and southern markets, and eventually reaching every town with a population over 100,000 by the end of Q1FY25. The goal is to have Birla Opus available in 6,000 towns by the end of FY25.

At full capacity, its six facilities will produce around 1332 million litres per annum. For perspective, Grasim would single-handedly add over 40% to the aggregated capacity of the paints industry. At full capacity, Grasim would produce more paint than the current top three in the industry combined.

In addition to manufacturing, Grasim is looking to build a robust dealer network of over 50,000 by the end of FY25, supported by more than 150 depots. The company is committed to assisting dealers with financing, providing advanced compact tinting machines at no cost, with over 2,300 colour selections, and promising a rapid four-hour delivery time from depots to dealers. Moreover, it has also enrolled some 300, 000 painting contractors.

Birla Opus will offer a wide range of water-based paints, enamel paints, wood finishes, waterproofing, and wallpapers. The company says it will commit to longer warranties than the norm, including warranties on enamels and wood finish for the first time in India. The Birla Opus range will offer price-points across categories like economy, premium, luxury, and designer finishes, targeting individual consumers and institutional clients.

Grasim has set a target of 10,000 crore in annual revenue from its paints division within three years of full operations (Grasim’s standalone FY23 turnover was 26,840 crore), aiming for profitability within the same timeframe. 

This move into the paints sector is seen as a strategic gamble by Grasim to capture a significant market share in a competitive industry, potentially securing around 20% market share by the end of FY26.

The paint industry has been growing steadily, with demand driven by new housing starts, and office and commercial complexes. Unlike other chemical categories where Grasim is an established player, such as viscose staple fibre, caustic soda, viscose filament yarn, etc., decorative paints are not commodities. Hence, the whole branding exercise.

India's per capita paint consumption stands at 3.5 kg per annum versus a global average of 10 kg (25 kg in developed countries). There’s a correlation between higher per capita income and growth in paint demand, and India’s fast growth is one reason why Grasim opted to enter this market.

However, the top players, like Asian Paints, Berger, Kansai Nerolac, among others, are all well-managed and they have excellent dealer networks and good reputations. It’s not a “soft market" and Birla Opus will have to fight for market share against aggressive, established players.

Analysts are optimistic about Grasim's potential to make a significant impact, possibly leading to a positive rerating of Grasim's stock, with some seeing a 20% upside or more in the next year or so. The other side of the equation is that the paints industry as a whole is likely to be downgraded due to stiffer competition and the possibility of over-supply.

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