Why Indian behemoths are betting on the paints sector?

Fast growing consumer demand and a hike in per capita income has prompted big players to explore consumer facing businesses. A post-pandemic boom of investments and infrastructure development has resulted in a demand spike from the real estate sector, which  accounts for about 70 percent of the total paint demand in India.  The sector saw two consecutive years of remarkable growth in FY22 and FY23, drawing in more players to reap the benefits of the sector.

ALSO READ: Will Grasim’s entry disrupt the paint industry?

The demand from real estate is expected to be robust in FY24 on expectations of significant project completion and increased government spending on affordable housing and infrastructure, according to analysts. The government's recent announcement on building two crore affordable houses over the next five years under the PM Awas Yojana (Grameen), in addition to the three crore houses already under implementation, translates into continued demand momentum, encouraging new players to bet on the sector.

As per CareEdge Ratings estimates, residential housing sales are expected to increase by 10 percent in the top 15 cities during CY2024. Demand from repainting, which accounts for 80 percent of the total decorative paint demand, is also expected to pick up due to factors such as a growing population, increase in rental homes, and growth in the income levels of consumers, according to CareEdge.

Who are the new entrants in the sector and what are their strategies? 

The potential in the sector prompted non-paint players like Birla group's Grasim, JSW Group, JK Cement,  Pidilite, and  pipes and fittings manufacturer Astral to foray into the business.

JSW paints entered the market in 2019 with an equity investment of Rs 250 crore from the promoter group, to manufacture and market both industrial and decorative paints. The conglomerate, came up with an offer of 'Any Colour, One Price.’ It expects to turn profitable in FY24.

Grasim entered the market with an investment of Rs 10,000 crore (double the Rs 5,000 crore planned earlier), with six facilities and a cumulative capacity of 1,332 million litres per annum. It aims to be a profitable number two  player in the coming years. The company has come up with a strategy of having QR code on its paint cans,  which customers can scan to avail a 10 percent discount, while the company gets information on where the cans are sold in real time.

Pidilite joined the bandwagon in 2023 with its brand called Haisha. However, it was a quiet launch.

What are the long term prospects for the industry?

Global player Akzo Nobel, makers of Dulux Paints,  in its 2023 report flagged that the paints and coatings industry in the country is estimated  to be worth  Rs 1 lakh crore in the next five years, from the present Rs 62,000 crore.

What are the existing players doing to protect market share?

Incumbents like Asian Paints, Berger, and Kansai Nerolac are expanding their capacity to fend off competition from financially sturdy new players.

Last year, Asian Paints announced it would increase the installed  production capacity of its Khandala plant to 4,00,000 KL (kilo litres)  per annum,  up from  3,00,000 KL currently. Berger paints announced plans to increase its capacity from 95,000 tonnes per month, to 1.6 lakh tonnes. It aims to double its revenues to Rs 20,000 crore by 2028-29.

Nerolac has also said it will expand its current capacity of 600 million litres.