Foreign investors reduce stake in paint stocks amid growing competition

The announcement of Grasim Industries’ entry into the paints sector is touted as the catalyst for FIIs to reduce their exposure.

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Foreign investors cut their holdings in paint stocks in the March quarter due to the anticipation of increased competition. The announcement of Grasim Industries’ entry into the paints sector is expected to intensify competition, according to analysts.

Asian Paints, Kansai Nerolac Paints Ltd, Indigo Paints Ltd, and Berger Paints India have seen substantial reduction in foreign investors’s stake during the quarter, according to shareholding pattern data on BSE.

The foreign institutional investor (FII) stake in Asian Paints decreased to 17.02 percent from 18.11 percent in the previous quarter. Similarly, Berger Paints India witnessed a reduction in FII stake to 10.64 percent compared to 11.11 percent in the last quarter. This marks the third consecutive quarter in which FIIs have reduced their stake in both Asian Paints and Berger.

In the case of Indigo Paints Ltd, the FII stake has declined to 8.8 percent from 10.19 percent sequentially. Meanwhile, Akzo Nobel India and Kansai Nerolac Paints experienced a marginal increase in FII holdings during the period.

These stocks had already been under pressure since the beginning of the year due to lower profit margins and decreased sales volumes resulting from concerns over inflation and declining demand. In the March quarter, Asian Paints fell 11 percent, Indigo Paints declined 22 percent, and Kansai Nerolac lost 12%. Shalimar Paints was up 4 percent while Berger Paints stood flat.

According to a recent Jefferies report, Grasim Industries’ Rs 10,000-crore investment plans are being referred to as the “Jio moment” for the Indian paint industry. The report anticipates significant disruption in the industry with the introduction of Grasim’s paint brands. It also highlights that the Aditya Birla Group is perceived as the driving force behind this aggressive move.

Grasim Industries, the flagship company of Aditya Birla Group, has revealed its intention to invest Rs 10,000 crore in its paint venture by FY25. This amount is twice the initial earmarked investment when the company first announced its entry into the sector in January of the previous year. The plan involves establishing plants with a production capacity of 1,332 million litres per annum (MLPA) and commencing operations by the fourth quarter of FY24.

Similarly, in 2019, the JSW Group led by Sajjan Jindal made its foray into the paints segment. They initially focused on coil coatings and subsequently expanded their offerings to include a comprehensive range of decorative paints.

Currently, Asian Paints possesses a production capacity of 1,700 million litres per annum (MLPA), whereas Kansai Nerolac Paints has a production capacity of 583 MLPA. JSW Paints holds a production capacity of 125 MLPA, while Indigo Paints has a capacity of 110 MLPA.