Asian Paints, with a market value exceeding that of all other pure-play paints companies put together, appears unperturbed by the recently announced entries of new players with deep pockets and established supply chains.
“There’s enough space for a lot of players …,” Amit Syngle, managing director of
, tells Nehal Chaliawala and Satish John. The decorative paints industry has seen a significant recovery, led by demand in smaller towns, with Asian Paints recording its highest-ever revenue and profit during the December quarter. The company is open to acquisitions, but only to acquire new technology or markets and not in its existing segments just to boost the top line. Its modular kitchen and bath fittings businesses, which the company acquired to persify, are still in their gestation periods and should bear good pidends as the company reaches ‘beyond the surface’, Syngle believes.
How has the recovery been in the paints sector since the pandemic?
If you look at the first quarter, it was a washout because of lockdowns in April and May. Quarter two and three have been very, very buoyant because of the pent-up demand. Demand gets postponed in the paints industry but doesn’t get cancelled to that extent. The overall new demand conditions have been also pretty good, especially in Q3. We have seen a huge amount of new construction. So, we see that for the coming times the double-digit growth would continue because we see that the demand conditions are good and consumer sentiment seems to be quite positive.
Where is this demand coming from?
If you look at different geographies, tier-3 and three tier-4 cities have been outgrowing the other cities in a very, very strong manner and that is fuelling the demand. And we feel that given the good harvest and the good monsoon which we have seen, this demand is going to continue. Also, what we see is that the metros, tier-1 and tier-2 cities also have been witnessing a resurgence in the last two-three months. The luxury and premium segment is also recovering strongly. That segment had been depressed in Q1 and Q2, but now we are seeing a lot of renovation and new homes are coming on to the anvil.
And the last area which is working well for us is construction, given the fact that the government spending has gone up for infrastructure development. So what we see is that the construction segment is something that is definitely going to grow, especially the affordable housing segment.
Conglomerates with deep pockets such as Grasim and JSW are betting big on the paints industry. How do you see this competition?
Competition has always been there in the paint industry, if we look at the last two decades. There have been a lot of MNC (multi-national company) entries, whether Sherwin-Williams, Nippon, Jotun, and now Benjamin (Moore). A large number of Indian companies are also getting into the fray like Kamdhenu, JSW and so on and so forth. We also have a huge unorganized sector where there are close to about 100 manufacturers. So, competition is not new.
What is important is that while all the companies have been coexisting, how are you able to target a large number of Indian consumers and your ability to reach them. Establishing a brand, creating a connection with the consumer, and efficiently managing your supply engine are extremely important. And that has not been a very easy task for any of the players who have come in. And we have seen that even after existing for about 10 years, no player has been able to cross Rs 1,000 crore (in revenue).
But at the same time, we feel that there’s enough space for a lot of players still to come. The per capita consumption in India is very low as compared to the West. And I think that if more and more competitors come in, the merrier it is.
Would you look at acquiring some of the smaller players? Would you consider companies in adjacent segments?
As far as the core paints market is concerned, I think the larger players are pretty good with respect to their technologies, portfolios and reach. I don’t think they need to acquire any of the smaller players to that extent. The adjacencies which you mentioned are strong points of consideration. The question of merger and acquisition for us arises if we’re able to find some really good technology in the market, which could disrupt either the consumer buying behaviour or the state of Indian building and construction.
However, as an organisation, we are very clear that just acquiring people to add to the top line doesn’t really make any sense.
You have persified into businesses like modular kitchens and bath fittings but that is yet to pay pidends. How do you look at all your persification bets going forward?
Yes, you’re right we acquired two businesses. One was Sleek, which was the modular kitchen business and the other was Ess Ess, which was the bath fittings business. We have been working on these businesses for a while; however, it is only now that we have taken a very strong stance in terms of the overall brand entering the home space in a big way. We’re looking at transitioning from having a share of surface to a share of space within the home. Since we know that home consumer so well, we thought there was no point just scratching the surface, which is what we have been doing but looking at a larger share in terms of the space surrounding the consumer at home.
In the current year itself, we are seeing that there is a strong improvement in both the businesses and as the business grows we are looking at possibly break-even and getting into the positive territory in terms of the bottom line. If we take a look at all the businesses which we have persified into, whether it is waterproofing, mechanisation, adhesives and home improvement, we think we would be closer to about 8-10% of the contribution (revenue) coming from these businesses.
How do you see the third generation of the Asian Paints promoters working with the professionals, who run the company?
Over the last two decades, we have seen the second generation of the founders who have been there in terms of guiding the organisation and giving a lot of free hand to the professionals in terms of managing the organisation. Even the third generation’s thinking is similar in terms of giving freedom to the professionals and working with them. The current generation is also far more open to newer ideas, especially ideas related to technology investments, looking at progressive areas like e-commerce and other forms of challenges that are coming into the market.
There is an ongoing investigation against Asian Paints for alleged anti-competitive practices based on JSW Paints’ plaint. A similar incident with Nippon Paints has also been cited. How would you respond to that?
There are a large number of paints players who have been coexisting. I don’t see that there is any issue and if there had been issues, why would new companies enter into the market? I think that itself is proof that the market is fairly open and attractive.
And finally, we cannot tie the hands of the consumer to one company. The consumer is free to exercise options because now the options are not limited to one marketplace. The consumer can reach out to companies in so many forms like e-commerce. And therefore, I feel that it’s a fairly open and fair market, and quite conducive to a lot of players being there and as I said earlier, the more the competition, the better it is as it pushes the existing players to innovate.
The only problem that I see is that a lot of new companies resort to guerrilla warfare and they start stealing and poaching people and technologies. I don’t think it’s a good way of entering the market.
Would you be open to your dealers keeping stocks of multiple brands?
All dealers keep multiple brands today. Every retailer in the country has multiple brands.