Intense consolidation is expected in the highly competitive coatings industry, with new entrant Grasim Industries gearing up to enter the market early next year, smaller existing coatings companies feeling the pinch, and market leaders undercutting the market to protect their market share.
In addition to this, large players with diversified business interests such as JSW Group, JK Cement, PVC pipe and plastic product manufacturers Astral and Pidilite are also entering the decorative coating business.
For new entrants with strong brands, acquiring assets to secure a competitive advantage, such as distribution networks and strong painter connections, makes more sense than building them organically, which would be costly and time-consuming.
Acquisitions will also allow incumbents to fill gaps in their offerings. For example, Berger could benefit from acquiring an industrial coatings company or a premium coatings company. Kansai Nerolac Paints could benefit from acquiring a Southern paint company that would help Indigo build greater scale.
ICICI Securities research analyst Manoj Menon said fierce competition in the coatings industry will hurt the profitability of the industry, which has been dominated by four players for almost six decades.
Grasim recently launched Birla Pivot, a B2B portal for construction materials such as cement, paint and tiles. Currently, its paint division has a strong presence of Shalimar Paints. Shalimar, which has posted losses in eight of the past nine years, could be a potential target for Grasim, he said.
While new players entered the paint business, market leader Asia Paints shifted its strategy from ‘share the walls’ to ‘share the space’, venturing into new alliance businesses by acquiring the kitchen, bathroom and electrical segments.
Abhijit Roy, managing director of Berger Paints, said margins in the paint business had been very healthy amid strong demand and the company was not averse to giving up a little margin to retain market share.
Gaining market share in a developing country like India is far more important than just maintaining profitability, he said.
Anil More, deputy director of Crisil Ratings, said that in order to maintain a competitive advantage and enhance product offerings, incumbents have increased capital expenditures to increase production capacity, backward integration and expansion into non-coating products such as adhesives, construction chemicals and waterproofing.
The industry will incur capex of Rs 12,000 crore by the next fiscal year, compared to Rs 7,000 crore capex for four fiscal years until 2022. New entrants are expected to add nearly a third of the existing total capacity (4.2 billion liters) by the end of FY25, he added, adding that competition will intensify.