CHART OF THE WEEK 📈
Grasim (Aditya Birla Group) has announced an aggressive entry into the paints business. Why is this a big deal?
Asian Paints dominates the market and controls more than 50% of the decorative paints business. Berger Paints, the second player, is far behind with half the capacity of Asian Paints.
With Rs. 10,000 crore being invested, Grasim will become the second largest player, posing a threat to the current monopoly of Asian Paints, and the existing challengers.
But capacity doesn't necessarily equal sales, right? Sure, but let’s not forget that this is the same group of companies that also has Ultratech Cement (India’s largest cement player), and access to its distribution network.
Plus, Grasim has deep pockets and nothing to lose in the market since it is just entering it. It can very well play on pricing, and garner market share.
The current scenario isn’t really great for existing players. There are cost pressures because of higher crude prices and a strong growth track-record puts pressure on meeting expectations.
Will Grasim be a massive success? We don’t know. Will it move and break things around? For sure. Paint stocks have massively outperformed over the last decade, and with this development, their premium valuations, and growth trajectory are both at risk.