Can competition kill Asian Paints?

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StockSelect recommendations was for Asian Paints. In April 2004, we advised Equitymaster subscribers to buy shares in this paint company. At that time, Asian Paints was beginning to feel the pinch of rising crude oil prices on its profit margins, facing stiff competition from rivals like Goodlass Nerolac, Berger Paints, and Sherwin Williams.

Moreover, its international subsidiaries were suffering losses due to currency fluctuations. Yet, the company's successful strategy in both domestic and international markets through acquisitions was clear. A pivotal moment came with the adoption of tinting machine technology, revolutionizing the decorative paints sector.

The foresight of Asian Paints' management was also evident in its partnership with US paint giant PPG and its timely expansion into industrial and automotive paints, which bolstered the company when the decorative segment slowed. Notably, Asian Paints was among the first companies to invest in a supercomputer. However, its capital expenditure plans sometimes faced setbacks during economic downturns.

For instance, after announcing heavy capex in April 2008, Asian Paints saw its stock price crash by 44% between May 2008 and March 2009. This narrative serves as a reminder that even stalwarts like Asian Paints can experience temporary setbacks that affect shareholder value. Yet, the question arises: should these challenges be viewed as permanent setbacks? Reports suggest Grasim Industries, under the Aditya Birla Group, is poised to shake up the oligopolistic Indian decorative paints industry with its brand, Birla Opus.