Can Grasim challenge Asian Paints’ market domination?

Grasim Industries Ltd., a flagship company of the Aditya Birla Group, is gearing up for a major disruption in the Indian paint industry with the launch of its Birla Opus brand. The company has set an audacious target of achieving Rs 10,000 crore in revenue within three years of full-scale operations, aiming for around 5-6 per cent revenue market share in its first full year, FY2026.

The question is: Can Grasim's entry shake the stronghold of Asian Paints, the industry leader with over half of the market share?

Grasim is adopting an expansive approach, planning a wide-scale launch in North and South India, specifically targeting markets in Punjab, Haryana, Rajasthan, Delhi, Karnataka, and Tamil Nadu in the initial phase. The company plans to cover 100,000 towns by July, making it the fastest and widest pan-India launch by any paint brand.

Birla Opus is set to roll out with a portfolio of 50-60 products initially, with plans to expand its range later. The company intends to position itself competitively by pricing its products substantially lower than the market leader, Asian Paints, with a dealer pricing list expected to be 15-20 per cent lower, including schemes and discounts.

With a massive capital expenditure plan of Rs 10,000 crore, Grasim has committed to spending on capacity expansion, distribution network, and marketing strategies. The company has invested Rs 5,000 crore and plans to exit FY2026 with a high-single-digit market share. The revenue target of Rs 10,000 crore within three years signals Grasim's ambition to become a major player in the decorative paints market.

Grasim’s entry into India’s paint industry is not the first attempt by a strong brand. Past examples, such as Indigo Paints and Nippon Paints, have made a mark by focusing on niche products and strategic geographical expansion. Grasim's intense competition, especially against Asian Paints, may lead to margin pressure in the medium term, as new entrants offer higher incentives to influencers and dealers.

The company plans to install a substantial capacity of 1,332,000 kilo litres per annum (KLPA) by the end of FY2025, indicating its commitment to market presence. However, Asian Paints is not resting on its laurels. It has embarked on an aggressive capital expenditure, eyeing an installed capacity of 26,70,000 KLPA by the end of FY2027. Additionally, Asian Paints leverages 27 outsourced processing centres, showcasing a multifaceted approach to production and distribution.

Source: Company Filings

A moat too wide?

Asian Paints’ success story dates to the 1970s when it invested significantly to acquire a supercomputer. By eliminating distributors from its supply chain, Asian Paints revolutionised its logistics. The strategic move enabled the company to stock dealers four times a day, creating a formidable distribution network that remains a key moat today. Grasim, in its quest for market share, must contend with the enduring strength of Asian Paints’ distribution prowess.

The medium-term outlook for the paint industry foresees potential margin pressure starting from FY2025. The influx of new entrants, including JSW, Grasim, JK Cement, Astral, and Pidilite, offering higher incentives to influencers to secure market share, might compel even market leaders to adopt a similar structure. This competitive landscape could lead to increased margin pressure across the entire industry.

However, the Aditya Birla Group's strategy suggests they are not entering the competition unprepared. Grasim has enlisted 5,000 dealers and aims to reach 50,000 dealers by March 2025. The company plans to provide free tinting machines, digitally linked to a control hub and 40 per cent smaller in size compared to existing machines. Improving working capital for dealers is a priority, coupled with strengthening the warehousing network with over 150 depots integrated with the latest warehousing systems. Grasim also offers preferred financing through its financial services arm, Aditya Birla Capital.

Source: Company Filings and Motilal Oswal

A June report from brokerage Nuvama reveals that, as of 2023, Asian Paints commands a lion's share of the Indian paints industry, boasting an impressive 53 per cent market share. In contrast, Birla Opus is setting a target of around 5-6 per cent revenue market share in its inaugural full year. While Grasim's aspirations are commendable, the market landscape is dominated by Asian Paints, followed by Berger (approximately 19 per cent) and Kansai Nerolac (about 12 per cent).

Conclusion

Grasim Industries’ foray into the paint industry represents a daring challenge to Asian Paints’ dominance. While the company has outlined a meticulous strategy, including capacity expansion, distribution network enhancement, and comprehensive dealer support, it faces an uphill battle against the established might of Asian Paints. Grasim's substantial investment signals a determination to carve a significant market share, yet the competition for dominance is expected to be fiercely intense.

The anticipated intense competition in the medium term, coupled with potential margin pressure industry-wide, raises concerns about the sustainability of profit margins for all players, including Grasim. Despite Grasim's ambitious target of achieving a revenue of Rs 10,000 crore and operational profitability by FY2029, the projected 10 per cent market share comes with a considerable financial commitment of Rs 10,000 crore. The industry's growth to an estimated Rs 1 lakh-crore by FY2029 signals potential success, but challenges like burning cash in the initial years and the competitive landscape warrant a cautious perspective.

As the industry navigates these challenges, Grasim's aggressive approach and substantial investment may face hurdles in achieving the envisioned market impact. The unfolding dynamics of the Indian paint industry will only become clear with time, and the path ahead seems to be laden with uncertainties that could temper initial optimism.

Parimal Ade (X: @AdeParimal) is Founder, and Gaurav Jain (X: @gaurav28jain) is Co-Founder, Investyadnya.in.

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH).