Paint stocks: Should Asian Paints and Berger fear Grasim’s entry?

ICICI Securities has downgraded Asian Paints, Kansai Nerolac and Indigo Paints to ‘Reduce’ from ‘Hold’

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26 Aug, 2025 12:21

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As ironical as it may seem, a larger market share by Grasim in the decorative paints industry might be good news for incumbents like Asian Paints and Berger Paints – currently sitting on 75 percent of the pie.

If Grasim grabs a 20 percent market share by FY30, then the industry’s operating margins will contract by only 150 basis points. Compared to that, a 5 percent market share can shave off 400 basis points from margins.

This is as per the calculations done by analysts at ICICI Securities.

“If Grasim gains market share aggressively, then incumbents will do limited pricing actions in products and regions where Grasim is gaining share,” according to analysts Manoj Menon and Aniruddha Joshi.

Existing players may increase advertising spends and trade schemes but that will impact margins by only 150 basis points, they believe.

One basis point is one-hundredth of a percentage point.

On the other hand, if Grasim manages to grab only a 5 percent market share then it may resort to aggressive pricing actions to gain more. In that case, existing players will also do the same to retain their market share.

“Retaining market share will become critical versus margins. While the MNCs (Akzo and Kansai) will be last to engage in a price war, we believe market leader Asian Paints and Berger may resort to aggressive pricing immediately,” as per the analysts at ICICI Securities.

Thus, operating margins are expected to come down by 400 basis points.

Currently, the industry’s operating margins stand at 15-18 percent. In the first scenario of Grasim grabbing a 20 percent share, the EBITDA of the top five players is estimated to be Rs 10,868 crore by FY30, as per ICICI Sec’s calculations. Meanwhile in the second scenario of it getting a 5 percent market share, while revenue growth will be comparatively faster, the EBITDA of the top five players is estimated to be lower at Rs 10,699 crore by FY30.

ICICI Securities has downgraded Asian Paints, Kansai Nerolac and Indigo Paints to ‘Reduce’ from ‘Hold’ with targets of Rs 2,650, Rs 385 and Rs 980 respectively. It has a 'Reduce' rating on Berger Paints with a target price of Rs 505.

Contrary to ICICI Securities’ belief, financial services firm Macquarie says that Asian Paints’ brand pull is enough to offset any pricing competition. It has an 'Outperform' rating on the stock, with a target price of Rs 3,600 apiece.

According to Macquarie’s calculation, Grasim’s Rs 10,000 crore paint capex will be divided as follows: Rs 300- 400 crore on working capital, Rs 300-400 crore on a tinting machine, and the rest on branding and ad spends.

This is contrary to Street’s assumption of the entire capex being used for plant additions.

The company will launch its paints by Q4 of FY24, with six manufacturing plants in Haryana, Punjab, Karnataka, Tamil Nadu, Maharashtra, and West Bengal. Total capacity will be 1,332 MLPA (million litres per annum), which is about 70 percent of market leader Asian Paints' current capacity.

The company plans to leverage the strong distribution network of Birla White, a market leader in white cement and putty distribution.

A subsidiary UltraTech Cement, Birla White has the second-largest distribution network in the paints industry with a presence across 6,000 towns in metros, tier-1 cities and rural India.