Birla Opus' discounting could paint a deeper tint of red in the sector, fear experts

• As per a Jefferies report, Birla Opus’ dealer pricing is at a discount to the industry leader, Asian Paints.
• The sector is already reeling from weak demand even in the peak festival/wedding season of November and December.
• A few brokerages believe that Asian Paints will be impacted by Opus, others think that smaller, unorganized players will face more heat.

After announcing its entry into the paints business last September, the Aditya Birla group’s Grasim Industries launched its brand Birla Opus in late February. As per a Jefferies report, Birla Opus’ dealer pricing is at a discount to the industry leader, Asian Paints.

“The dealer pricing for the Birla Opus paint portfolio is broadly at around 5% discount to Asian Paints in most cases across premium and economy categories, based on our analysis. However, the prices appear to be similar to Asian Paints in the luxury segment, where the price sensitivity is relatively low,” said Jefferies.

These dealer discounts are in addition to its limited-period promotional offer of a 10% volume discount across all water-based paint products. “After factoring in the volume discounts and the lower prices, the cumulative discount to Asian Paints comes broadly around 10-15%,” the report added.

Kumar Mangalam Birla, chairman of Aditya Birla Group, said they endeavour to become a profitable ‘number two’ player in the coming years. Apart from market leader Asian Paints, the sector has players like Berger, Kansai Nerolac Paints, and more.

Grasim, which owns Birla Opus, said that it will offer a full suite of high-quality products in the decorative paints segment — whose size is estimated at ₹70,000 crore. The company had earlier said that it has committed an investment of ₹10,000 crore to set up the paints business. It has plans to commission capacity to the tune of 1,300 million tonnes per annum by FY25.

Weak demand and rising competition

Birla’s ambitious plans will increase the competitive intensity in the decorative paints segment. This is on top of a slow demand pickup during the festive and wedding season of November and December. The market leader Asian Paints has already taken price cuts, which were expected to bring in improved sales in the summer of 2024.

“Asian paint has taken around ₹15 per litre price cuts in the premium emulsion segment in February 2024 and around ₹2 in economic emulsion. Dealers expect Asian Paints to execute around a 5% price cut in April 2024 in the luxury segment,” said a report by Centrum.

Brokerages, however, are mixed in their views of how Grasim’s entry will affect the sector as a whole. “Dealers said it’s too early to stamp success for Birla Opus, though Grasim’s entry may escalate competitive intensity and smaller players including unorganised segments are more vulnerable to losing market share,” opines Centrum.

Jefferies, which has reported discounts by Grasim, thinks otherwise. “We expect flat earnings per share for Asian Paints over the next two years, due to a rise in competition and see downside risk to our below consensus forecasts,” it says.

Recently, Grasim raised a Rs 1,250 crore investment from the International Finance Corporation (IFC). The investment marked the first Sustainability Linked Non-Convertible Debentures (NCD) for the company. The funds are to be used to strengthen the company's endeavours in the paint manufacturing industry.

Whether it affects the market leaders or not, Grasim is making a steady entry into the sector. It has a wide portfolio across price points with 145 products, and over 2,300 shades. Moreso, it has plans to distribute pan-India by July 2024, and is also connecting with influencers along with several other marketing initiatives. Overall, its entry is set to cause an upheaval in the sector.