Analysts’ Take On What Grasim’s Foray Into Paints Means For Incumbents

Analysts expect Grasim Industries Ltd.’s foray into the paints business to increase competition for incumbents and possibly lead to their de-rating.

The Aditya Birla Group flagship textile maker has lined up a Rs 5,000-crore capital expenditure for the paints business for three years, it told the bourses on Friday. Entry into the paints sector, Grasim said, will add size, scale and diversity to its existing business portfolio.

“The company endeavors to invest in businesses that have the potential to be a leader in the addressable markets, have the ability to achieve scale and generate consistent and attractive returns in the long term,” Kumar Mangalam Birla, chairman of Aditya Birla Group, was quoted as saying in the exchange filing.

Shares of Grasim ended 6.5% higher on Monday at Rs 1,069.05 apiece — the highest in more than two years. That compares with a 4-5% drop in Asian Paints Ltd., Berger Paints Ltd., Kansai Nerolac Paints Ltd. and AkzoNobel that currently dominate India’s paints segment. Indigo Paints Ltd. has just concluded an initial public offering and will soon list on the bourses.

“Grasim’s entry may provide impetus to volume growth over the medium to long term but it’s also likely to impact margin and profitability of the incumbents,” Emkay’s Ashit Desai said in a note.

Of the 12 analysts tracking Grasim, six each recommend a ‘buy’ and ‘hold’. The stock has crossed its Bloomberg consensus 12-month price target of Rs 1,015 apiece on Monday.

Reaction Of Incumbent Paint Stocks:

  • Shares of Asian Paints ended 3.2% lower at Rs 2,513.95
  • Shares of Berger Paints ended 3.2% lower at Rs 748.45
  • Shares of Kansai Nerolac declined 6% to end at Rs 612.6
  • Shares of AkzoNobel closed 3.2% lower at Rs 2,401.5

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