Asian Paints, Berger Paints slip 6% after Grasim doubles capex plan

Grasim has doubled the capital expenditure for its foray into the paints business to Rs 10,000 crore.

Shares of paint companies were under pressure as Asian Paints and Berger Paints fell 6 per cent in Wednesday's trade, after Grasim Industries doubled the capital expenditure (capex) for its foray into the paints business to Rs 10,000 crore. The Aditya Birla Group diversified firm expects to start production from the fourth quarter of 2023-24 (FY24).

“Market dynamics of the decorative paints sector has changed with new capacities being announced backed by strong growth and outlook. We have accelerated the execution of our paint’s capacity of 1,332 MLPA with commissioning of plants to start by Q4FY24. The project cost is likely to be around Rs 10,000 crore by FY25,” Grasim Industries said in a press release.

In August last year, Grasim Industries’ board had approved Rs 5,000 crore capex plan to set up a paints business.

Among individual stocks, Asian Paints slipped 6 per cent to 2,902, whereas, Berger Paints hit a 52-week low of Rs 576, down 6 per cent on the BSE in intra-day trade ahead of March quarter results slated to be out on Thursday.

In comparison, the S&P BSE Sensex was down 0.17 per cent at 53,961 points. Grasim Industries traded flat at Rs 1,401, after hitting a low of Rs 1,357.60. The stock traded close to its 52-week low of Rs 1,354 that it had touched on May 25, 2021.

According to analysts at Motilal Oswal Financial Services, Grasim’s large capex plan in paintsbusiness indicates commitment towards becoming a serious player in this segment. They expect the company to leverage the strong distribution network of Birla White (UltraTech).

Meanwhile, analysts at ICICI Securities believe that Grasim has a strong foothold in the building material business through its group companies, which will help the company to leverage its dealer networks and gain market share, largely from the unorganized players (~25 per cent of total industry). "The decorative paint industry has grown at CAGR of 12 per cent in last five years and has seen entrance of various national and international brands into domestic markets. However, the top players continue to maintain their market share indicating more formalisation of the paint industry," the brokerage firm added.