Grasim, JSW, Reliance face off in paint world

Grasim, JSW, Reliance face off in paint world

Morgan Stanley considers Grasim's foray a positive development as it will help improve value within the standalone business and address capital allocation concerns

India's paint manufacturing landscape is set to be another battle zone for the India's corporate biggies. After Mukesh Ambani and Sajjan Jindal, the latest entrant in the paint world is industrialist Kumar Mangalam Birla. Aditya Birla group company Grasim Industries says it will invest Rs 5,000 crore in the next three years to build a paint business from scratch. The paint business will derive synergy from the group's chemicals manufacturing at the backend, while tapping its existing cement and industrial customers for new business at the frontend.

"The foray into paints is a strategic portfolio choice for Grasim as it looks to identify new growth engines," says Kumar Mangalam Birla, chairman, Aditya Birla Group.

More recently, industrialist Sajjan Jindal made a foray into the business with JSW Paints. Led by Parth Jindal, son of Sajjan Jindal, JSW Paints has launched a new range of products such as antibacterial paints to take on giants in the industry - Asian Paints, Berger Paints and Nerolac. With new launches and expansion of distribution network, it targets to achieve a revenue of Rs 2,500 crore by 2023.

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JSW group is in the steel and cement business, which connects them to paints. "You need steel and cement to build a house and finally you need to paint it," Parth Jindal told Business Today. JSW Paints supplies industrial paints to the customers of JSW Steel and JSW Cement. JSW is also ramping up its retail presence and plans to open 500 Colourvista Senses retail stores across the country in two to three years.

Billionaire Mukesh Ambani also has his fingers in the paint business as Reliance Industries owns 4.9 per cent stake in India's largest paint maker Asian Paints through Teesta Retail Pvt. For Reliance, paint is a natural extension of its petroleum and petrochemicals business. The Ambani firm bought the stake in 2008.

Grasim's entry into the paints business will raise the stakes in the competitive sector, say analysts. Grasim wants to add size, scale and diversity to its existing business portfolio with the foray. Morgan Stanley considers the foray a positive development as it will help improve value within the standalone business and address capital allocation concerns. Cash flow profile will become less cyclical once paints business stabilises, it added. ICICI Securities said the entry into paints business is a strategic choice. The event may lead to de-rating of all paint stocks, it said.

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The paints industry presents a high-growth option for Grasim. The sector has recorded a revenue CAGR of around 11 per cent from FY14 to FY19. Given the value migration from the unorganised to the organised market, the outlook remains robust.