Asian Paints shares in focus as Reliance eyes $1.3-billion exit
Asian Paints shares will be in focus on Wednesday after Reliance Industries revived plans to sell its 4.9% stake in the company, potentially exiting a 17-year-old investment. The move comes amid mounting margin pressures and rising competition in India's Rs 75,000-crore paints market, where several new players are challenging Asian Paints' dominance.
ADVERTISEMENT Reliance has engaged Bank of America (BoFA) to manage the transaction through one or more block deals. However, offers so far have come at a 6–7% discount to the current market price. Over the past 24 hours, several other investment banks and brokers are said to have joined the race for buyers.
At Tuesday's closing price of Rs 2,323, the 4.9% stake would fetch around Rs 11,141 crore ($1.31 billion), down from its 52-week high of Rs 3,394 hit on September 16 last year. Reliance had bought the stake for Rs 500 crore in January 2008, just before the global financial crisis. The stock has declined 19.3% in the past year, erasing around Rs 51,000 crore in market value. Asian Paints' market share has also dropped to 52% from 59% in FY25, according to Elara Securities. Including dividends, Reliance stands to make a 24-fold return on its investment at current market value.
The company may still withdraw the sale if it does not receive bids within the desired price range, according to people involved in the matter.Market observers noted that Reliance had explored a similar exit five years ago, just before launching India's largest rights issue and during efforts to deleverage its balance sheet following heavy telecom-led capex. However, the company dropped the plan and instead raised $25 billion through strategic investments in its digital and retail ventures by Facebook, Google, KKR, General Atlantic, and the Abu Dhabi Investment Authority—pegging Jio and Reliance Retail's valuations at over $100 billion by 2024.
ADVERTISEMENT Since 2020, Reliance has invested around $50 billion into its retail and digital services businesses. An additional $9 billion has been earmarked for new energy initiatives, including solar modules, hydrogen electrolysers, and energy storage solutions.'It's been a non-core bet for them that has delivered very strong returns,' said a company executive. 'But the competitive landscape in the paint industry is shifting rapidly, and as the market leader, Asian Paints has taken the hardest hit.'
ADVERTISEMENT Paint companies have reported muted revenue growth for the fourth consecutive quarter. Executives attributed this to subdued urban demand and an early Diwali. Rising competition is also driving up rebates, causing gross margins to shrink year-on-year despite lower raw material costs.
According to Investec analyst Aditya Bhartia, Asian Paints' year-on-year revenue growth lagged behind rivals Berger Paints and Kansai Nerolac by 6 percentage points in the first nine months of FY25—an unusual reversal of past trends.
ADVERTISEMENT 'This is likely due to peers penetrating urban areas and Grasim (Aditya Birla Group) gaining higher market share in the west and south, along with employee attrition,' he said in a note.New entrant Birla Opus (Grasim) is estimated to have captured 3–4% market share in Q3. It has made significant inroads into distribution—considered a key entry barrier—and is gaining customer traction. Grasim aims to achieve Rs 10,000 crore in paint revenue over the next three years.
Additionally, the sale of AkzoNobel's decorative paint business in India and Sri Lanka is expected to intensify competition. Indigo Paints and JSW Paints are contenders for the acquisition, and the winner is likely to benefit from leveraging AkzoNobel's brand, expanding product lines, and penetrating metro markets, backed by aggressive strategies that could further strain industry profitability.
ADVERTISEMENT Asian Paints, which holds a 44% share in the domestic decorative paints market, is the second-largest paint company in Asia and the eighth globally. It has an annual domestic decorative paint capacity of 1.85 million kilolitres and serves consumers in over 60 countries. Its distribution network includes 74,129 dealers, over 50,500 Colour World shade-mixing machines, and 430+ Colour Ideas stores.'We strongly believe that as a brand, we need to take calibrated action to ensure we tackle competition in a more sustainable way,' said CEO Amit Syngle during the last investor call.
Asian Paints primarily operates in the domestic decorative segment and has expanded into home improvement through acquisitions in the kitchen (Sleek) and bathroom (Ess Ess) spaces. Decorative and home décor accounted for 88% of FY24 revenue. It also has a smaller presence in industrial paints, contributing 3.1% of FY24 sales.
Also Read: Stocks in news: HAL, Eicher Motors, Airtel, Tata Motors, Cipla
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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