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    How Berger Paints plans to counter Grasim's entry into the ring

    How Berger Paints plans to counter Grasim's entry into the ring

    How Berger Paints plans to counter Grasim's entry into the ring
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    By Ajay Vaishnav   IST (Updated)


    Grasim's plans to enter the paints business with strong capital expenditure plans have the potential to jolt the sector with most brokerages seeing the main fight for the second spot held by Berger Paints. India's second-largest paint company, however, is not worried and has its own plans to counter the challenge from Grasim.

    Berger Paints is up for the Grasim challenge as the Aditya Birla Group firm aims to wrest the second spot in the sector. Two days after the Birla Group chairman Kumar Mangalam Birla declared that "we (Grasim) have a natural right to win," Berger Paints' Abhijit Roy said it wouldn't be easy. India's second-largest paint company has the "wherewithal to fight the new players."
    "We have our own strength in terms of branding, in terms of distribution, in terms of product knowledge, R&D and this takes a long time for people to catch up to. We also have the wherewithal to fight this battle and we will do that," Roy, Managing Director (MD) and Chief Executive Officer (CEO) at Berger Paints, told CNBC-TV18, a day after the company announced its results for the January-March 2022 quarter.
    While Birla reckons that it won't be easy for Grasim to break the clout of sector leader Asian Paints, he made no bones about his intention to target the second spot.
    In an interview with CNBC-TV18, Birla said, "We have every reason to believe that we would be a very strong number two in the next five years."
    The Grasim Challenge
    Throwing the challenge to existing players, Grasim has doubled its capital expenditure (CAPEX) to Rs 10,000 crore in its paint business venture and increased its paint production capacity. The diversified AB Group firm aims to begin production from the fourth quarter of 2023-24.
    Brokerages, both foreign and domestic, see Grasim as a serious player and expect disruption in the paints sector as the competition will intensify, particularly for smaller and unorganised players.
    Macquarie sees no threat to Asian Paints' capex position and limited impact on the market leader. India's largest paint company commands a huge 42 percent market share that is more than thrice the revenue of Berger.
    Global brokerage Morgan Stanley has an 'underweight' rating on Berger Paints stock and set the target price at Rs 546 per share. It said the company's ability to continue to grow at a faster pace will be a key determinant and it will be tough for it to meaningfully outperform. Berger Paints is trading at a 20 percent discount to Asian Paints' multiple, it said.
    Not "unduly worried", Berger Paints Roy has its own plans on the CAPEX front.
    "We are putting up the Sandila plant, which is our biggest plant and we are spending nearly Rs 1,000 crore for doing that and that will come on stream from the month of August-September of this year. We have already started planning for the next plant, which we will set up probably somewhere in the East and that will come up, maybe 2-3 years down the line. So we keep adding as and when required and then we start thinking how to do the sales,” he told CNBC-TV18.
    While the AB Group plans to leverage its existing dealer and distribution network via UltraTech's Birla White putty brand, it will still need to build a brand image and that will require some time.
    "In this particular segment or category, there are a few factors which have to be kept in mind. One, of course, is the brand presence itself, which has to be built over a period of time. So I can't, for example, Berger, if it decides to extend into say tile or get into adhesives, it's not that easy. It's very difficult, though I have distribution strength on the ground, it is not the same thing as going into other categories," Roy added.
    Berger Paints Q4 Results
    On Thursday, Berger reported a 5.60 percent increase in consolidated net profit to Rs 220.29 crore for the fourth quarter ended March 2022.
    Shares of Berger Paints traded positive after starting lower. The scrip traded at Rs 574.55 on BSE at 11:24 am, up over a percent, after opening at Rs 571.50, from its Thursday's close of Rs 568.05.
    So far this year, Berger Paints stock price has corrected more than 25 percent. In the last two sessions, it has dropped 10 percent as Grasim doubled its CAPEX plans.
    In fact, all paint sector stocks have taken a beating including market leader Asian Paints amid persisting concerns over fuel price hike that raises raw material costs.
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