Paint stocks, especially market leader Asian Paints, felt the jitters on Monday after Grasim announced its foray into the sector under the brand name ‘Birla Opus’. Stocks lost between 1% and 5% as many brokerages rushed to give a ‘sell’ call on these stocks.
In all, the paint sector lost Rs 16,000 crore in market cap, with Asian Paints losing as much as Rs 14,400 crore in a single day. Asian Paints was the biggest loser on the day, falling 5%, followed by Kazoo Nobel at 3.1% and Kansai Neola at 2.7%. Other like Berger Paints, Shalimar Paints and Indigo Paints lost between 1% and 2%.
According to data compiled by Bloomberg, Asian Paints, India’s biggest paint maker by revenue, had 16 ‘sell’ recommendations – the highest since mid-2014 while 9 ‘buys’ were the lowest for the same period. There were 12 ‘hold’ calls as well.
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On Monday, CLSA downgraded the stock to ‘Sell’ from an earlier rating of ‘Underperform’. In its review, it said that that growing competition could have an impact on the near-term growth and margins of the paint maker. Prabhudas Lilladher also cut the recommendation on Asian Paints to reduce from hold, setting the price target at 2,702 rupees, about 10% discount to the stock’s previous close.
And it’s not just the Birlas, but the potential in the sector prompted non-paint players JSW Group, JK Cement, Pidilite, and pipes and fittings manufacturer Astral to foray into the business. JSW paints entered the market in 2019 to manufacture both industrial and decorative paints. It expects to turn profitable in FY24.
Last Thursday, the cement-to-textiles conglomerate Birla Group, under its flagship firm Grasim Industries, launched its decorative paints brand, Birla Opus, marking its foray into the `80,000-crore domestic decorative paints market. The products will hit the market by mid-March starting with Punjab, Haryana and Tamil Nadu.
Grasim Industries has targeted a gross revenue of ₹10,000 crore and aims to turn profitable within three years of full-scale operations. For this, the company aims to reach a total capacity of 1,332 million litres per annum (MLPA) by FY25, which will be the second largest in the industry.
It has commissioned three fully automated, global-scale manufacturing plants and has already guided that it will exit FY25 with a high single-digit market share. It has also projected that it is looking to generate revenue of $1.2 billion in three years from its paints business.
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