Grasim Industries entry into paints business to impact industry margin by 1.5 per cent to 4 per cent depending on its success.
The company will benefit from Group’s distribution network of cement and relationships with real estate developers.
Grasim will hurt the industry’s Ebitda margin by 1.50 per cent if it achieves to gain market share of 20 per cent by FY’30 as per target, said Manoj Menon, Research Analyst, ICICI Securities.
On a moderate success of Grasim with 10 per cent market share by FY’30, the industry Ebitda margin will decline by 2.50 per cent, he said.
The company targets to be second largest decorative paint company in India.
The existing players are likely to lose market share and report Ebitda CAGR in mid-single digits till FY30, he added.
Segments such as putty, primer, distempers, entry level emulsions and enamels are likely to face maximum erosion in profitability, said Menon.
The industry may spend significantly more in brand building efforts (ad-spend and trade spends) and R&D without any material improvement in return on investments, he added.
After announcing its plans to enter paints, Grasim announced capital allocation of ₹10,000 crore to paints segment and has also hired multiple senior and middle level executives. It will also benefit from the putty business of Ultra tech and its distribution network of 55,000 outlets. Grasim is likely to launch paints by March quarter of next fiscal.
ICICI Securities has downgraded Asian Paints, Kansai Nerolac and Indigo Paints to reduce from ‘hold’ while Berger rating stays at ‘reduce’. Akzo Nobel is the only paint stock in its coverage rated buy, it said.