I do take your point, but Paints industry is also a multi player industry, which in my limited understanding would not go the Telecom way. It is not a small sized or huge runway industry either, hence “the multi players can easily fit and increase their respective sales at a good rate by winning market share without anyone sacrificing theirs” should not work.
What I understand is paint industry does not have brand loyalty either. One of my relatives is into construction business and through scuttlebutt with him, what I could gather is- be it pipes or paints, the construction guys only prefer the ones which are costing lesser and their customer is usually bouyed by “how good it looks” and not by which brand it is. If Asian Paints sells a premium product and JSW/ Grasim offer similar product at a 2-3% lower price point, they are going to win customers, which should ideally prompt Asian Paints to cut price. Similar to Jubilant Foodworks needing to offer 40% cut on their pizza prices due to stiff competition, despite the consensus view that QSR segment is a fast growing one.
Coming to Grasim putting into Paints business- they always end up putting their legs in the businesses which are highly capex intensive and end up generating sub-optimal returns. They generally enter industries with higher number of players and in the quest of gaining market share, take longer time to generate returns which obscure the CAGR.
Creating empires should be based on 1-2 businesses throwing out enough free cash flows to support the other new ventures so that the returns are not diminished for the shareholders. Empires should not be built on “let us do A because B is now a low growth venture”. They have burnt their hands in Idea, as you rightly said- not going anywhere in Cements industry, AB Capital’s market cap is also increasing because of the long lull it had seen between 2017 to 2022 while other players in Loan/MF/Insurance saw much better returns.
My personal views are based on my limited understanding and some scuttlebutt + the history of returns generated by AB Group in all the businesses they have operated.
| Subscribe To Our Free Newsletter |
