The ₹10,000 crore investment of Kumar Mangalam Birla-controlled Grasim Industries Ltd (GIL) in the paint manufacturing business is likely to disrupt India's paint industry, in which billionaires Mukesh Ambani and Sajjan Jindal have interests too. Grasim plans to commission its plants with 1.3 billion litres a year aggregate capacity by March 2024.
According to officials, the company wants to speed up the construction of paint plants in Panipat (Haryana), Ludhiana (Punjab) and Chamarajanagar (Karnataka) since they got land and environmental clearances. The size of the investment and the planned capacity of 1.3-billion litre are expected to help Grasim target the second-largest spot in the sector, say industry sources.
Grasim's capacity target of 1.3 billion litres is huge, considering Asian Paints' 1.73 billion litres capacity in FY2020. The country's largest paint maker, Asian Paints has a 42% market share. It is far ahead of the second-largest player, Berger Paints, which has a 12% share. Experts think with the launch of its products in 2024, Grasim will be catapulted to the second spot.
The paint industry in India is worth over ₹62,000 crore. It is among the fastest-growing industries in the world. It has recorded consistent double-digit growth in the last two decades -- the revenue CAGR between FY2014 and FY2019 was around 11%, thanks to the migration of customers to the organised segment from unorganised.
The industry has over 3,000 paint manufacturers, including global biggies Akzo Nobel, Nippon, Kansai and Berger. It has a near 75% share of decorative paints and a 25% share of industrial paints.
Last year, Grasim announced its entry into paints, with an investment of ₹5,000 crore. But the company decided to double the investment as the demand picks up in the decorative paints segment. Because of the strong growth outlook of the decorative segment, the company accelerated the execution of its projects.
Grasim's paint foray is expected to derive synergy from the group's chemicals manufacturing. Besides, the distribution networks of cement (where Birla is the largest player in the country, with 120 million tonne capacity) and paints are identical, allowing the paints business to ride Birla's existing cement distribution network.
It will be able to tap its existing cement and industrial customers for the industrial paints business. Grasim's subsidiary UltraTech Cement is already in the paint business in a smaller way as it sells Birla White, a popular wall care putty brand. It is among the top three in the segment, along with JK Cement and Asian Paints, as it has the second-largest distribution network with 6,000 centres across India.
"The foray into paints is a strategic portfolio choice for Grasim, as it looks to identify new growth engines," Kumar Mangalam Birla, chairman, Aditya Birla Group said last year when the company announced the investment for the first time.
Recently, industrialist Sajjan Jindal also forayed into the paint business, with JSW Paints. His son Parth Jindal is in-charge of the business. In Asian Paints, the largest player in the segment, billionaire Mukesh Ambani has an indirect stake as Reliance Industries holds a 4.9% stake through Teesta Retail.
Jefferies calls the ₹10,000 crore investment plans of Grasim as the "Jio moment" for the Indian paint industry as it expects disruption, with the launch of Grasim paint brands. "Aditya Birla Group appears to be the aggressor," Jefferies' analysts say in a report.
Macquarie sees a limited threat to Asian Paints' leading position in the market. Grasim will have to spend on brand development to make a mark, they say.