Reliance looks for $1.3-billion gloss finish to its exit from Asian Paints

Time of India

14-05-2025

HighlightsReliance Industries Limited has initiated plans to divest its 4.9% stake in Asian Paints, potentially yielding Rs 11,141 crore ($1.31 billion), amid increasing competition and margin pressures in India's $9 billion paints market. Asian Paints' market share has declined to 52% from 59% in fiscal year 2025, as new entrants such as Birla Opus are gaining traction, prompting existing companies to enhance advertising and dealer incentives. The sale of Akzo Nobel's decorative business in India and Sri Lanka is expected to intensify competition in the paint industry, with Indigo Paints and JSW Paints vying for acquisition, which could alter market dynamics.
Reliance Industries
Ltd (RIL) has revived plans to sell its 4.9% stake in
Asian Paints
by cashing out of its 17-year-old
investment
in the company at a time when the sector is facing margin pressure and heightened competition, said people in the know. India's paints market worth $9 billion has seen several new entrants seeking to topple No. 1
Asian Paints
from its perch.
Reliance has engaged
Bank of America
(BoFA) to manage the transaction, through a single or multiple block deals. However, offers have been at a 6-7% discount to the current market price. In the last 24 hours, several other investment banks and brokers are said having joined in the jostling for buyers.
The 4.9% stake will fetch Rs 11,141 crore ($1.31 billion) at the Tuesday closing price of Rs 2,323, down from its 52-week high of Rs 3,394 on September 16 last year. Reliance bought the stake for Rs 500 crore in January 2008, before the global financial crisis hit. The stock has dropped 19.3% in the past year—losing market value of about Rs 51,000 crore. Asian Paints'
market share
has dropped to 52% from 59% in FY25, according to Elara Securities. Inclusive of dividends, at current market value, Reliance would make a 24-fold return on its investment.
Reliance didn't respond to queries.
The company may still drop its plans if the bids aren't at the desired price range, said the people involved.
Market watchers said the oil-to-telecom conglomerate had explored a similar option five years ago, ahead of launching India's largest rights issue. It was also in the process of deleveraging its balance sheet following a mega capex plan led by telecom. However, it did not go through with the plan and instead raised a combined $25 billion for the digital, telecom, and retail ventures of the conglomerate through investments by Facebook, Google, KKR, General Atlantic and the Abu Dhabi Investment Authority, pegging the valuations of Jio and Reliance Retail in excess of $100 billion in 2024.
But since 2020, about $50 billion has gone into the retail and digital services. Another $9 billion has been earmarked for solar modules, hydrogen electrolysers and energy storage batteries as part of the group's pivot to new energy.
'It's been a non-core bet for them that has given very good returns,' said a company executive. 'The competitive landscape in the industry is changing rapidly and, being the market leader, Asian Paints has taken the hardest knock.'
Paint companies have reported muted
revenue growth
for the fourth consecutive quarter. The companies attributed this to subdued consumer demand, especially in urban markets, as well as an early Diwali. The impact of rising competition is leading to higher rebating and this has been apparent in year-on-year gross margin contraction, despite the reduction in raw material costs.
The company's year-on-year revenue growth lagged behind rivals Berger and Kansai Nerolac by 6 percentage points in the first nine months of FY25, in sharp contrast with past trends, said Investec analyst Aditya Bhartia.
'This is likely due to peers penetrating urban areas and (the Aditya Birla Group's) Grasim gaining higher market share in west/south along with employee attrition,' he said in a note.
New entrant Birla Opus (Grasim) is likely to have garnered a 3-4% market share in the third quarter, said industry executives. Importantly, it's gaining traction with customers and has made gains in the distribution network, considered a key barrier to entry. Grasim's foray has forced incumbents to push harder on advertising and promotion besides incentives to dealers and cashbacks to painters. Birla has already stated that it's looking at Rs 10,000 crore revenue in three years.
The sale of Akzo Nobel's decorative business in India and Sri Lanka will also likely boost competitive intensity. The acquirer--Indigo Paints and JSW Paints are in the running--should be able to leverage AkzoNobel's brand, expand product offerings and penetrate metro cities, backed by aggressive management teams, which could further impair industry economics.
Asian Paints, which has a market share of 44% in decorative paints, is also the second largest in Asia and eighth globally. The company has an annual domestic decorative paint capacity of 1.85 million kilo litres, serving consumers in over 60 countries. It has the country's largest distribution network, with 74,129 dealers, supported by over 50,500 Colour World shade-mixing machines and over 430 Colour Ideas stores.
'We strongly believe that as a brand we need to take calibrated action to ensure that we tackle the competition in a more sustainable way,' Asian Paints CEO Amit Syngle said in his last investor call.
The company largely operates in domestic decorative paints, with a presence in the domestic home improvement space through acquisitions in the kitchen (Sleek) and bathroom (Ess Ess) segments. Decorative and home décor contributed to 88% of revenue in FY24. It also has a smaller presence in industrial paints, which accounted for 3.1% of FY24 sales.