Paint stocks recover some losses incurred after Birla Opus launch

Paint stocks came under pressure as Grasim Industries entered the space with the launch of Birla Opus on February.

The flagship Aditya Birla Group company put on stream three paints manufacturing plants – in Panipat, Ludhiana, and Cheyyar – on stream the same day. Group Chairman Kumar Mangalam Birla shared the group’s ambition to secure a profitable second position in the paints market in the coming years.

Also Read | Grasim’s Birla Opus aims for Rs 10,000 crore revenue within 3 years, expand distribution to 6,000 towns this FY

At 2pm, the shares of Asian Paints and Berger Paints pared their intraday losses of more than 2 percent. While Berger Paints was flat, Asian Paints gained 0.7 percent on the NSE, trading at Rs 3,022.05.

Kansai Nerolac shares gyrated between the red and green. The stock price was last quoting Rs 307.35 per share, down 0.15 percent, while Indigo Paints sank 2.5 percent into the red to Rs 1,455.25.

The biggest cause for concern for the paints makers has been the Rs 6,000-crore capex that Birla Opus has come with. Grasim Industries has tapped major advertising firms to market the product and may also tap into their pre-existing distribution network for offerings such as Birla White and UltraTech Cement.

Amnish Aggarwal of Prabhudas Lilladher noted that 25 to 30 percent of the paints market belongs to the unorganised sector, which will be “easy prey” for Birla Opus to snap up. However, even the large, established players will feel the brunt of the increased competition.

For paint players, volume growth as well as margins can be impacted. There could be pressure on profitability, as other paint companies increase A&P, raise spends on distribution and trade incentives.

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The current underperformance of Asian Paints is likely to continue, Aggarwal said. The paints major has limited scope to increase prices, while margins will see no expansion due to Asian Paints’ ongoing capex to develop new vertical. With the high valuation, there seems to be little to no room for further growth and therefore, no chance for a re-rating.

Birla Opus aims at a revenue of Rs 10,000 crore within three years of commencing full-scale operations. Birla, in his speech, announced plans to expand the paints business by setting up 120 depots that will reach out to all cities and cover one lakh people by July. By the end of 2024, an additional 50,000 people will be covered under the company’s plan. Birla intends to replicate the successful distribution model of UltraTech in the paints business.

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