Their main cash cow business is facing stiff competition from a player who probably has the deepest pockets currently. While they are more interested in trying to compete with market leader in another industry. This should logically mean that they commit very high capex in Paints business, while they feel competition in their cements business.
For me, it could be a potential case of mis-allocation of capital, because for them to gain market share in Paints, under-cutting the existing price points or giving higher margins to distributors would be the go-to way which would ensure they are not making much money for sometime, maybe like the Jio entry in telecom. But the difference here is, we do not have a 2-3 player market in Paints or Cements industry.
Paint industry is attracting players like never before- Astral and JSW too have joined the bandwagon and they also possess the same advantage (at least on paper) of having an established brand name in Infra material segment. But these many players, with reasonable willingness and ability to spend money is only going to cause pain in terms of margins and lower return ratios (because of high capex!)
Disclosure: Invested in Asian Paints, Pidilite and Astral. In the decision making process of selling Asian Paints, depending on how Grasim and JSW Paints perform in the next 6 months
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