In today’s Finshots, we talk about Birla’s foray into the paints industry and see if it can challenge its thriving incumbents in the business.

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The Story

In the 1940s, the British imposed a temporary ban on paint imports into India. And with hardly any local paint to go around, four friends — Champaklal Choksey, Chimanlal Choksi, Suryakant Dani and Arvind Vakil — decided to do the unthinkable. They set up a homegrown paint business from a garage with just five basic colours.

Cut to today, it dominates the Indian market — it has over a 50% market share, a catalogue of 2,200 paint colours, and over 160 warehouses to distribute its products. Heck, its market capitalisation of nearly ₹2.75 lakh crores is nearly thrice that of its next 3 competitors combined.

If you haven’t guessed by now, we’re talking about Asian Paints, India’s favourite paint brand.

But after over 5 decades of absolute dominance, Asian Paints might have met its match!

On  22nd February, Grasim Industries, of the Aditya Birla Group, launched its new decorative paints brand “Birla Opus”. And that has sent some shivers down the spine of Asian Paints’ shareholders — the stock has slid over 7% since then.

Now before we try to answer the big question of whether Birla can really disrupt the paints industry, let’s tell you why paints seem to be an attractive proposition for the company.

The thing you must know about decorative paints is that it's inextricably linked to construction or real estate.

If you have developers building more housing, all of that is going to need buckets of paint. And right now, the real estate market has been seeing a boom of late. In 2023, the sector saw all-time high sales and this year is not expected to be any different — housing sales are projected to be 30% higher again.

But you don’t even need new projects to drive the growth. Because you always have repainting!

Yup, the repainting cycle in India seems to have compressed — people used to give their homes a fresh coat every 7-odd years earlier but that has fallen to 3-5 years these days. And that implies the need for more paint.

It’s no wonder that the revenues of the decorative paints segment grew by 18% by value in FY23 and it’s still expected to grow in the double digits.

But despite these tailwinds, India lags in paint consumption. We fall in the bottom 10% in the world. For context, we only consume about 3.5 kg of paint per capita as compared to 10 kg globally.

So yeah, that leaves a lot of room for growth too.

Now back to the big question — can Birla disrupt the paint industry?

Well, analysts certainly seem to think so. They’ve called it the paint industry’s ‘Jio’ moment. You know, like how Reliance stormed into telecom and wiped out the incumbents barring Airtel.

See, over the years, the paint industry has seen the entry of a lot of new players — JSW Group, JK Cement, and we even have Pidilite (that makes Fevicol) that launched its Haisha Paints brand. But no one has stirred the kind of excitement that has come with Birla’s entry. And that’s simply because no one else came in with a massive investment of this size — ₹10,000 crores to begin with!

And that big money infusion can change the game. Because almost immediately, you’ll find 1.3 million kilolitres of Birla Opus paint flooding the market each year. And that puts it in line with Berger Paints and only slightly behind Asian Paints, which can currently make 1.7 million kilolitres of paint annually.

The things money can do, eh?

It’s no wonder then that Asian Paints and Berger Paints have already begun expanding their capacities to stay ahead of this new rival.

But it’s not just about capacity. You need distribution for the paints business and Birla has that in spades.

Because it sells wall care putty under the brand Birla White. And we know that putty and paint go hand in hand — kind of like biscuits and chai. Birla could leverage the reach of its putty distributors and get them to sell its own paint. 70% of its network of over 54,000 dealers have an overlap with paints and this can give it the second-largest distributor network in the paint industry.

And then there’s the tinting disruption it’s attempting.

What’s that, you ask?

So one of the biggest challenges in the paint industry is to offer the exact colour that a customer wants. The dealer has to be able to place an order for that shade at their nearest warehouse and get it delivered at the earliest possible. And that could still take a couple of weeks.

But Asian Paints solved this problem with tinting machines. Think of them as huge machines that can mix colours to the T of the customer’s request. All that dealers had to do was instruct the machine which colours it had to put together and in what proportions. And that meant that Asian Paints didn’t have to send its thousands of colours over to warehouses for storage. It also reduced the delivery time from a couple of weeks to just a few hours.

So, Birla’s doubling down on this Asian Paints innovation. It says that it’s reduced the size of these massive machines by 40% and that will give more room to the dealers. Heck, it’s even giving these away for free.

And that means, while Asian Paints had (in FY20) a ‘tinting machine to dealer’ ratio of roughly 66%, Birla’s already eyeing a 95% ratio for itself by FY25. By virtue of handing it out for free, we guess?

Oh, and Birla can also tap into its NBFC operations to dole out working capital loans or help with credit to their dealers. That could attract more people to the Birla stable, don’t you think?

Now is this all enough to knock Asian Paints’ off of its perch and disrupt the paint industry?

Well, all we can say is that Asian Paints will definitely feel the pressure. Sure, it has a lot of things going for it — a brand built for over 8 decades, massive commercial marketing through TV advertising which it started in 1984. And a loyal customer base. But it won’t be immune to a price war should Birla go down that route.

If you look back at the Jio moment in telecom, you’ll remember that even Airtel wobbled a bit.

So maybe you’ll see Asian Paints go through a similar wobble too as Birla guns for the top spot.

And only time will tell how it all plays out.

Until then…

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