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ET Analysis: Is Asian Paints innovating or piling on non-core businesses?

ET Analysis: Is Asian Paints innovating or piling on non-core businesses?

ET Intelligence Group

Asian Paints

acquired a modular kitchen business in 2013, then a bathroom fittings business in the next year. With Covid striking, the company forayed into hand and surface sanitisers in May and has now announced the launch of floor and toilet cleaners.

Is India’s largest decorative paints company innovating through its foray into growth-oriented consumer businesses, or allocating disproportionate resources into unrelated segments at the expense of what is considered core?

The recent business forays are largely B2C – requiring retail distribution that is different from the company’s traditional paints distribution. While the first two new businesses are service-oriented, the latest ones are branded products in a new category.

Even after six years of acquiring and ramping them up, the home improvement business – comprising of the Sleek kitchen and Ess Ess bathroom businesses – contribute just over 2% to the total revenues and are loss-making. Sluggishness in the real estate market led them to underperform.

With the outlook of the realty sector being dismal in the wake of the Covid crisis, the under-performance of its home improvement businesses (now encompassing kitchen, bathroom fittings, sanitary ware and home decor) is going to continue and they are unlikely to emerge as core businesses any time soon.

The company’s foray into hygiene products also has its share of challenges. It is a highly cluttered category with established FMCG players jostling with private labels for sale at local kirana shops, e-commerce platforms and modern trade outlets. While there is some synergy in raw materials used in paints and hand sanitisers, the distribution play is entirely different. A market leader in a major category of decorative paints is set to become an ‘also-ran’ in a relatively small and niche category of hygiene, which is dominated by large FMCG players such as HUL and ITC and whose pace of growth essentially depends on the spread of the pandemic.

Asian Paints’ management believes the hygiene category is here to stay and is in for a strong growth. It is pushing branded services such as safe painting, sanitization, and home decor to households. The company has already been providing water-proofing and home improvement services. The apparently unrelated foray into hygiene products may be the centerpiece of the company’s innovation strategy.

While the Asian Paints stock has risen 16% since the beginning of the lockdown, it fell 5% following the company’s announcement of sanitisers launch and is still trading around the pre-launch level. As per data from Bloomberg, 63% of analysts tracking the company’s stock were bullish on it in April, which has now dropped to 50%, with a lower target price.

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