Asian Paints’ dominance in India’s paints industry remains intact, despite a wave of new entrants with deep pockets, according to Saurabh Mukherjea, founder of Marcellus Investment Managers.
This is despite the fact that the paints major has been losing market-share rapidly and seeing profitability erode considerably in recent quarters. “It’s very difficult to challenge it. You can put up lots of factories,” he said, adding that the true value of a moat in investing is captured in the return on capital employed (ROCE). Unless a competitor can take meaningful market share in a sustainable way, the financial strength of the incumbent remains unshaken. Mukherjea was in conversation with Moneycontrol's N Mahalakshmi on The Wealth Formula podcast.
To mount a credible challenge, Mukherjea argued, rivals would need to sustain massive cash burn. “Can the competitor burn through Rs 5,000 crore of capital every year for 10 years? Because that’s what you need to do. If you really want to take on Asian Paints on a sustainable basis, remember Asian Paints is making money hand over fist. This is a 30% ROCE business. Even if it becomes a 20% ROCE business, they’ll be making massive amounts of cash.”
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In FY25, Asian Paints made an operating profit of close to Rs 6,000 crore; it’s ROCE stood at 26%, down from 38% in FY24. A decade ago, in FY14, the company earned a ROCE of 45%.
Even so, Mukherjea argued that most challengers don’t have that staying power. Instead, they rely on discounts, media publicity, and higher dealer margins to gain short-term traction. Asian Paints, flush with reserves, can respond with what he called a 'scorched earth strategy' - temporarily lowering margins, being 'nicer to the dealer', and making it harder for new entrants to achieve profitability.
Mukherjea said Asian Paints may have ceded 3-4% market share, but the bigger drag on earnings is the cyclical downturn in demand, not competitive threats. One large entrant even bought an existing paint manufacturer rather than build scale organically — a sign, he said, that the challenge isn’t sustainable. Mukherjea was referring to JSW Paint’s acquisition of 75% stake in Akzo Nobel for a little over Rs 9000 crore in June this year.
When pressed on whether a new player could succeed with more modest return targets, far lower than Asian Paint’s historically high return levels, he was dismissive. “But they’re a million miles from making money,” he said. The economics of the business don’t favour challengers. “There is no rocket science in paint. Your inventory is slower moving, you’re giving the dealer a bigger margin, and at one-twentieth the scale of Asian Paints, having given the dealer away 4x the margin, you now have to turn a profit on an industry where you’ve put up five factories,” said Mukherjea.
That math, he argued, makes profitability 'highly unlikely' in the first 2-3 years, during which time new entrants would burn through Rs 20,000-30,000 crore. Even Sherwin-Williams, he pointed out, exited India after burning through more than $1 billion between 2006 and 2010.
Adding to the challenge, new entrants have been unlucky with timing. “They got very excited looking at Asian Paints’ multiples, probably reading Unusual Billionaires and watching our videos. Poor fellows dumped in billions of dollars and just as they entered, party khatam ho gayi!”
India’s paint demand has slowed to just 1-2% growth - a rarity in the last two to three decades. “It’s unbelievable,” he said. “Let’s hope for everybody’s sake, including ours and the new entrants’, that we do see some revival in paint demand because it suggests a macro which is hostile to basic consumption.”
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