Paints: A sector forced to exit its complacency zone

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₹10,000 crore in gross revenue and profitability within three years of full-scale operations. While there was no clear indication on whether it will break even at Ebitda or profit after-tax level, analysts caution that the company seems prepared to give incumbents, especially smaller ones, a run for their money. “We reckon, [comfortable] competitive equilibrium in paints is likely broken," ICICI Securities said in a report.

Birla Opus will have more than 145 products and 1,200 product lines, or stock keeping units. The actual product launch is slated for March. Details on pricing will be a crucial distinguishing factor to gauge the company’s aggression in chasing incumbents' market share.

Birla Opus will offer 10% additional quantity in most water-based paints during the promotional period. To establish its brand value, the company will also be offering a one-year warranty for enamels/wood finishes, incentives for contractors, and free tinting machines. The company is yet to finalize a brand ambassador, but its advertisement and promotional expenses in absolute terms would be at par with the market leader.

Counter moves in pricing, mainly by Asian Paints and Berger Paints India, dealer incentives, and increased ad budgets by incumbents cannot be ruled out. This could put the sector’s margins at risk as tailwinds from easing input costs fade, thus driving earnings downgrades by analysts. Jefferies India notes that all large paint companies are generating 15-20% Ebitda margins currently and have a net cash balance sheet.