Grasim Makes An 'Interesting' Move In Its Paints Foray
The company will face an uphill task as it aims to be the second-largest player in the paints market, says Jefferies.
Grasim Industries Ltd. test-launched its painting services in three cities as it eyes the second spot in the sector dominated by Asian Paints Ltd.
The flagship company of the Aditya Birla Group is testing its 'Sparkle' service in Mumbai, Pune, and Bengaluru, Jefferies said in a report, calling it an "interesting" move.
That comes even before Grasim is scheduled to commission its first paints manufacturing facility in March 2024. Sparkle, which uses products procured from authorised dealers of rival paint companies, is currently open only to employees of Aditya Birla Group and their friends and family.
Grasim will face an "uphill task" in its paints foray, Jefferies said citing interactions with investors. While smaller players may be impacted, the brokerage said in a report, Asian Paints is likely to remain unscathed.
Success may not be guaranteed but the company's Rs 10,000-crore investment will likely push new entrants to adopt an aggressive stance to ramp up production.
That would likely entail steps like channel push, higher discounts, and promotions for dealers and even painters, which could impact the industry's profitability, at least in the medium term, Jefferies said. The issue is exacerbated by small- to mid-sized players that are also eyeing the opportunity and may adopt a regional strategy, the brokerage said.
Like Grasim, JSW Paints Ltd., JK Cement Ltd., Pidilite Industries Ltd., and Astral Ltd. are looking to leverage their brand recall in the building material space, along with a distribution network that overlaps with paints, to enter the industry.
Over the next two to three years, the paint industry is expected to increase capacity by 25%. The total industry outlay is expected to be Rs 22,000 crore, of which Grasim is investing nearly 50%. Asian Paints will also invest close to Rs 10,000 crore, increasing its capacity by 50%.
Shares of Grasim Industries rose 0.10% to Rs 1,704.15 apiece as of 11:15 a.m., compared with a 0.15% gain in the benchmark Nifty 50.
