Paint Makers Remain Unfazed By Birla Opus Entry, Flex Pricing Power To Fatten Profit

Asian Paints has increased prices by roughly 1% at the portfolio level with effect from July 22, according to its stock exchange filing.

Rival Berger Paints, too, confirmed to NDTV Profit that they have implemented a price hike of about 1.5% for enamel, distemper primer and putty. However, they haven't raised prices for emulsions and wood coatings yet.

While price increases in the third quarter should not come as a surprise as paint companies typically raise prices before the festive season, the fact that it has occurred even before the start of the monsoon season and amid a muted demand setting is what sets this price hike apart, said analysts.

"These [price increases] show that the pricing power of paint companies remains intact even after the entry of a major player, Birla Opus," said Abneesh Roy, executive director, Nuvama Institutional Equities. "It will help companies keep margins healthy, paving the way for premium offerings."

Asian Paints dominates India's paints market with a substantial 59% share. Other key players in the industry include Berger Paints Ltd., with an 18% market share; Kansai Nerolac Paints Ltd., with 15%; and AkzoNobel India Ltd. (Dulux), with 7%. The remaining 1% is held by other players.

Earlier this year, Grasim Industries Ltd. launched its new paint brand, Birla Opus, at a price point that was 5–6% below the market leader. In fact, the leadership of the Aditya Birla Group's flagship company announced a promotional offer of an additional 10% quantity for free on all its products. This takes the total price discount to approximately 15%.

Grasim is banking on its distribution network and war chest—Rs 10,000 crore at the outset—to secure the second position in the Rs 62,000-crore decorative paints market, which is expected to grow to Rs 1 lakh crore in the next four years.

"Just because one can put pricing pressure, or one can put muscle in terms of looking at and saying that I want to do a launch all across, I think it doesn’t really impact the market because the market is pretty seasoned and they have seen so many new players in the last two decades, which have kind of come and gone,” Asian Paints' Managing Director and Chief Executive Officer Amit Syngle told analysts, while discussing the company’s March quarter results.

Between November and January, the incumbents implemented price cuts of around 3–4% in tranches as raw material prices softened. However, the recent price hikes will give them headroom to boost their advertising and promotion strategies so as to compete against Birla Opus, said Nuvama's Roy.