Saurabh Mukherjea, whose portfolio management services (PMS) fund is heavily invested in paint producer Asian Paints, is not worried about competition heating up in the paints industry. He rather believes it is good news.
In the last few years, a number of new players have announced their entry into the paints industry including big pocketed players like JSW Group and Grasim Industries.
“This is a competitive free market economy and we need our companies to be kept on their toes by credible challenges emerging,” Mukherjea told Moneycontrol. “But the barriers to entry are extremely high.”
The paints industry in the country is dominated by Asian Paints with the rest of the market share divided among Berger Paints, Kansai Nerolac, Indigo Paints, and other smaller players.
Some have expressed concerns that the entry of new players will lead to market share erosion for Asian Paints and could also result in lower margins due to pricing pressure.
However, Mukherjea said making it big in the paint industry is not easy. He cited a number of examples of companies that have failed to make a mark in the industry in India such as Shalimar Paints and Sherwin-Williams Paints.
Paint business, especially the business-to-consumer (B2C) part, relies on brand name and distribution network for success. Asian Paints boasts a wide and efficient distribution network including dealers and shopkeepers. It also has a solid image among construction workers.
A bigger opportunity
For Asan Paints, a bigger opportunity is the home decor market, said Mukherjea. The business is still in its nascent stage as it contributes barely 3 percent to the total revenue of the company.
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“Paint is Roughly a $10 billion business industry, in which Asian Paints has cornered roughly half of it. Our reckoning is home decor is a $50 billion market,” said the prolific investor.
Asian Paints has been excited about the decor business for a while now. Last year, it had about 29 stores for this business and now it has added about seven more stores, taking the count to 36 stores. The ‘Beautiful Homes Service’, which is a personalised Interior design to execution service, is live in 11 cities now.
Its home decor business has two components – kitchen and bath. According to its latest earnings statement, sales for the bath fitting business increased by 51.2 percent year on year (YoY) in H1FY23 to Rs 219.77 crore from Rs 145.38 crore. For the kitchen business, sales increased by 35.1 percent YoY in H1FY23 to Rs 226.87 crore from Rs 167.95 crore.
“The traditional model is gradually going to fade away because people like you and me are too busy to project manage and home decor,” said Mukherjea.
Competition is good
According to Mukherjea, more competition is actually good news for Asian Paints. It will help the company become more agile and in turn, the stock will make more money for investors.
“We need new entrants to come in, talk a good game at the outset, hire good people, and give our investing companies a run for the money because that's how our investing companies will get more efficient. As they become more efficient, return on capital goes up, more cash will come out, and we will compound faster.”
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