The highly competitive paint industry is expected to witness intense consolidation, with the new entrant Grasim Industries gearing up to hit the market early next year and existing smaller paint companies feeling the heat, with market leaders under-cutting the market to protect their market share.
This apart, large corporates with diverse business interests, such as JSW Group, JK Cement, PVC pipes and plastic products maker Astral and Pidilite are entering the decorative paint business.
For new entrants with strong brand names, acquiring assets for securing competitive advantages, such as a distribution network and strong painters connect, making more sense than building these organically, as it will be expensive and time-consuming.
Acquisitions will also enable incumbents to plug gaps in their offerings. For instance, Berger could benefit from the acquisition of an industrial paint company or a premium paint company. Kansai Nerolac Paints could benefit from acquiring a south-based paint company, while an acquisition will help Indigo build a larger scale of operations.
Manoj Menon, Research Analyst, ICICI Securities, said the intensity of competition in the paints business will hurt the profitability of the industry, which was dominated by four players for almost six decades.
Grasim recently started the B2B portal Birla Pivot for building materials such as cement, paints and tiles. Its paints section currently has a strong presence of Shalimar Paints. He said that Shalimar has posted losses in the eight out of past nine years, and it can be a potential target for Grasim.
While new players entered paints business, the market leader Asian Paints ventured into new allied businesses with acquisitions in kitchen, bath and electrical segments as it changed its strategy from ‘share of wall’ to ‘share of space’.
Abhijit Roy, Managing Director, Berger Paints, said the margins in the paints business have been very healthy amid strong demand, and the company is not averse to letting go a bit of margin to retain market share.
He said that gaining market share in a developing country like India is far more important than just maintaining a profitability ratio.
Anil More, Associate Director, Crisil Ratings, said to maintain a competitive edge and enhance product offerings, existing players have stepped up capex to enhance capacity, backward-integrate and expand into non-paint products such as adhesives, construction chemicals and waterproofing.
The industry will incur a capex of ₹12,000 crore through the next fiscal against ₹7,000 crore spent in four fiscals through 2022. With new players expected to add nearly one-third of total existing capacity (4.2 billion litres) by FY’25 end, competition will intensify, he added.