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Taking stock of Birla Opus’ rollout plan and strategy

Our interactions with paint dealers indicate that Birla Opus is gearing for a phased rollout starting in March 2024 with a nearly complete product portfolio. The company is focusing on: (1) brand building (media spends comparable to APNT), (2) product quality, (3) heavy investments in field-force with a focus on sellouts over and above primary sales and (4) differentiators— (a) smallest tinting machine provided free of cost to dealers, (b) significant investments in sampling, (c) unique retailing strategy (shop-in-shop formats, franchisee showrooms) to the extent possible and (d) better terms of trade. Prima facie, it looks like Birla Opus would not engage in irrational pricing in the retail market (aggressive pricing in the B2B market likely). We expect EBITDA margins of incumbent paint players to correct by 200-400 bps over FY2024- 26E as they increase A&P spends and tweak trade schemes and pricing to defend market share. Brace for muted earnings CAGR over FY2024-26E.

Key insights on Birla Opus’ rollout plan and strategy

Grasim has engaged extensively with decorative paint dealers across the country. We gather the following from our dealer/industry interactions.

* Rollout plan. Grasim is expected to launch its decorative paint brand, Birla Opus, in March 2024. The rollout would be in a phased manner (in line with the commissioning timelines of manufacturing plants), starting with the North and South regions in 1HCY24 and the West and East in 2H. Punjab, Haryana, Rajasthan and Tamil Nadu are expected to be among the first few states. The company has placed tinting machine orders and expects imports starting this month. The company would cover urban as well as rural markets in the states that they enter from the very beginning. Birla Opus would directly supply decorative paints to dealers, and it would continue to sell putty through its distributor network.

* Product portfolio. Birla Opus would be launched with a portfolio of 50+ products that account for 80% of decorative paints industry sales. The portfolio would be expanded to 100+ products in a year, covering 100% of decorative paints industry sales. Grasim has carried out field validations (blind testing) of 100+ products at 200+ sites across 15 cities and covering 400+ contractors; it claims that 80% of contractors ranked Birla Opus as #1 brand in field validations. Given this, it looks Grasim has focused on product quality and invested in rich formulations that fetch high scores on functional parameters.

* Marketing plan. Grasim is indicating that its advertising spends would be comparable to those of the market leader. APNT’s standalone A&P spends are Rs11-12 bn (FY2024E), of which 45-50% could be media spends. Our industry interactions suggest that Aditya Birla Group had bid for the title sponsorship of IPL but it lost out to the Tata Group, which had the right of first refusal. It looks like Grasim could spend Rs4-5 bn on advertising in FY2025E, more than the aggregate media spends of Berger, Nerolac and Indigo Paints.

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