Nuvama Institutional Equities, which was among brokerages that visited Grasim Industries' ‘Birla Opus’ factory, said the key takeaway for the paint industry was that smaller incumbents were at higher risk, as Grasim sets eyes on being profitable and crossing Rs 10,000 crore revenue mark by FY28. The total capacity at the factory at 1,332 million litres per annum (MLPA) would be higher than current combined capacity of second, third and fourth largest paint makers, it said adding that Grasim Industries Ltd is also targeting the fastest scale-up in sales and distribution ever.
Advertising & promotional spends in absolute terms are likely to be at par with market leader Asian Paints, though the brand ambassador yet to be finalised.
"We were impressed by the scale of the launch of factory and R&D. We remain cautious on the sector from a near-term perspective due to negative 4 per cent pricing and increase in A&P and dealer incentives. Longer term, we expect strong incumbents and Birla Opus to happily co-exist given large industry and attractive growth," it said.
On the production cost front, Nuvama expects Birla Opus to be on a par/near Asian Paints; this gives it a slight edge over smaller players but utilisation shall take many years to ramp up, it said.
In our view, the third and fourth largest players would have existing shelf crisis while other new entrants have to completely refine their existing strategies.
"We argue Birla Opus shall gradually emerge as a challenger to smaller incumbents. The paints industry is tough with very high entry barriers in terms of brand, the trust factor, the relationship with the painters and the distributors," it said.
Nuvama does see the largest and second largest players and Birla Opus happily co-existing. In the near-term, Nuvama would wish to monitor the changes in the dealer programmes, on claims in terms of product superiority.
Also read: Jana Small Finance Bank shares in focus post maiden quarterly results