Berger Paints Lines Up Rs 2,500-Crore Capex As It Preps For Birla Challenge—Exclusive

Berger Paints Ltd. has earmarked Rs 2,500 crore for the next five years to expand capacities to consolidate its market position amid a challenge from new entrants led by the Aditya Birla Group.

The country's second largest paintmaker, following Asian Paints Ltd., earlier this year commissioned a fully automated manufacturing plant in Sandila industrial estate near Lucknow, entailing investments of Rs 1,100 crore.

"We have already expanded capacities by 45-50% to nearly 95,000 metric tonne per month," Chief Executive Officer and Managing Director Abhijit Roy told BQ Prime, adding that they won't need to spend more this year.

"However, if our sales growth is any indication, I think we would need to invest another Rs 2,500-odd crore in the next five years," he said. "We'd be spending Rs 800 crore each in the next year and the year after, with the balance in the remaining three years."

Kolkata-based Berger Paints is bracing to protect its turf when new entrants target India's Rs 62,000-crore paints sector that's growing on rapid urbanisation. While JSW Paints Pvt., JK Cement Ltd. and Astral Ltd. have also entered the market, the most aggressive push comes from Grasim Industries Ltd., the Aditya Birla Group firm that intends to wrest the second position.

Last year, the cement-to-clothing conglomerate announced its foray in the paints business with a capex of Rs 10,000 crore. It intends to begin production from the fourth quarter of FY24.

But Berger's Roy is not overtly worried. The company has its own strengths to counter the challenge from the Birlas, he said.

"Even earlier, we have seen several global paint manufacturers like Sherwin Williams Co., Hempel or Jotun enter India hoping to cash in on growth opportunities, but they failed," said Roy. "That's despite them having the right technology, quality manpower, and deep pockets."

"Now, the domestic conglomerates are eyeing the space thinking they would easily make it big in the paint industry," Roy said. "But we have our own strengths, so it doesn't really matter."

India’s big five paint companies—Asian Paints, Berger, Kansai Nerolac, Akzo Nobel and Indigo Paints—account for nearly 92% of the organised market. Berger Paints ranks second with 19.5% share. It also has a strong distribution network, which includes 25,000 dealers and retailers.

Roy, however, didn't rule out slower revenue growth after the Birlas' entry. "We have been growing at a CAGR of 14% for the last two decades ... Maybe, the entry of new players will affect our revenue growth by 2-3%," he said. However, he said, Berger Paints can do certain things better such as expanding its distribution reach to grow reasonably.

India's paint industry is likely to touch Rs 1-lakh crore in five years, according to the Indian Paint Association. While rapid urbanisation will push household demand for decorative paints, said Roy, the government's heavy spending on infrastructure will drive industrial consumption.

Demand, according to Roy, depends on two factors: GDP growth, and the weather conditions and festive season.

"If Diwali comes slightly late, which is the case this year, then we see consumption going up as people get enough time to paint their homes ahead of the festive season," Roy said.

The April-June quarter was hurt by unseasonal rains, he said. "April was good in terms of demand for exterior paints, but it slowed in May. But we saw a bounce-back in June."

The company is hopeful of clocking a double-digit value and volume growth in FY24. It expects easing raw material prices to aid profitability. "If things stand as it is, then our operating profit growth is expected to be higher than revenue growth."