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Overview of Indian Paint Industry

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The paint industry is one of the fastest growing industries in India. Estimated a
market worth Rs. 280 billion back in financial year 2013, the industry is expected to
grow at a promising annual rate of 12-13 per cent, taking it to the figures of Rs. 500
billion by financial year 2018. It is anticipated that the demand from both consumer
as well as industrial segments (the primary segments of the industry) would be
increasing steadily in the foreseeable future. However, financial year 2014 was
somewhat challenging, as demand was subdued, and inflation was on a rise over
this period as well. Talking of sectors within the paint industry, around 35 per cent
market is covered by the unorganized sector, with the organized sector covering the
rest. The unorganized sector comprises of around 2000 units having small to
medium sized plants that manufacture paints.
The organized sector of the Indian paint industry is dominated by these players:



Asian Paints
Kansai Nerolac
Berger Paints
Shalimar Paints

The paint industry was historically dominated by the unorganized sector in India.
But over the time, foreign players (and a few Indian ones) entered the market,
backed by rapid industrialization and institutionalization. This led to the
restructuring of this sector, and made way for the organized sector to cross the
halfway mark and reach the levels of 65 per cent market share. The smaller
(unorganized) players were either amalgamated or integrated as suppliers in the
supply chains of major players. The top five players control more than 80 per cent
market in the organized sector.
Rapid industrial and in turn economic growth of India in recent years has caused a
tremendous increase in the demand for paints in the country. Such a promising
environment has attracted many global players to establish their bases here in
India. 7 of the top 10 global paint manufacturers have their facilities set up in the
country. India's share in the global paint market stands at a meager 0.6 per cent,
with per capita paint consumption lying around 1.5 kgs. These figures show how
magnificent scope this industry has in India, and the recent developments in this
sector show how the global and local players are aligning themselves accordingly.
The progress of the industry is largely influenced by a number of factors like
innovative products, new technologies, associations and consolidations, exiting of
the poor performers from the market. Presently, industry is anticipating growth from
new demand pockets like tier-II and tier-III cities. It can thus be expected that there
would be a mass acceptance of quality products in the future. The growing demand
for quality paints coupled with increasing income levels of people from tier-II and

into two segments: Decorative and Industrial. for preventing corrosion) are gradually finding public awareness. making this sector of paint industry more sensitive to the changes of raw material (input prices). The Indian paint industry has come a long way from the point when paint was considered to be a luxury item. around 70 per cent usages of decorative paints are under repainting. this sector contributes around 25 per cent of the total revenue from the paint industry. hence it attracts more competition. Due to increased government funding for infrastructure. Let us have a detailed look at the two main sectors in the Indian paint industry: Decorative and Industrial. The entry barriers are very high. Moreover. This segment has technological advantage over peers. pricing power remains considerably weak. both industrial and decorative sectors of the paint industry are expected to show tremendous growth in the near future. Industrial Paints: The industrial paints segment remains dominated by foreign firms. this trend is very promising for the Indian paint industry. whereas interior is painted with either solvent based or water based paints.tier-III cities has fueled the growth of premium paint market of Indian decorative paint sector. as stated earlier. The paint industry is largely divided. The decorative paint can be applied over woods. Decorative Paints: The current industry structure for decorative paints shows oligopoly. Here is the list that highlights a few of them:       Greater levels of migrants moving to cities in order to seek better opportunities Prevailing culture of nuclear families Easy availability of financing for housing loans Higher demand for residential housing Increased purchasing power across people from various income groups Reduction in repainting cycles . The industrial variety of the paint picked up momentum with the entry of MNCs in sectors like automobile and consumer durables etc. Interestingly. The Indian paint market typically shows oligopoly. whereas the remaining usages are for fresh painting. as this is a capital intensive industry. Newer usages of paint (for example. walls or metals. Cement paints and emulsion are applied on outer walls. and margins are slumped. The industrial category. It essentially isolates the well established players from others. There are several factors that fuel the ever increasing demand for decorative paints. has two subcategories: Automotive and Non-Automotive. on the other hand. giving the formers an upper hand in driving prices. Talking in terms of revenue generated. This sector contributes around 75 per cent of the total revenue from the paint industry.

on the other hand. And this is one of the underlying reasons behind anticipating such a magnificent annual growth for this particular sector over the upcoming years. The customers in this particular industry see purchasing paint as a high involvement buy. The industrial paints segment. The urban customer is now favoring quality products (traditionally s/he preferred low cost alternatives). while the rural sector contributes for the rest. it also helps them pitch their quality products effectively. this segment also has a range of factors that influence its demand and sales:  Increase in domestic production of automobiles coupled with easy vehicle financing options  Economic growth fuelling rapid industrialization and establishments of new industries  Government policies on infrastructure to boost spending . all the players are coming up with a wide spectrum of products to cater to the requirements of their customers. And this segment of customers does not hesitate in spending additional sum for quality products. hence the companies can play in higher margins. the urban sector contributes for 55 per cent of the total revenues of this industry. thus allowing them to enjoy higher margins over the product spectrum offered to the customers. ultimately improving their profitability considerably. Especially the urban customers are influenced the most by advertisements highlighting the quality of the products offered. whereas the rural customer is shifting from unorganized players to their organized counterparts. A significant aspect of the financial planning of these companies is the branding and thus advertising. These players have been investing heavily on distribution networks spread across the nation. Just like decorative paints segment. Spurt in commercial construction backed by rapid economic growth  Setting up of state of the art Research & Development labs Talking of recent developments in the sector. Another aspect that seeks considerably investment and dominatingly appears on income statements and cash flows is the supply chain of these companies. Branding not only helps in product differentiation for these players. Currently. rapid industrialization and demand from other core sectors is going to change the scenario of this segment for the good. However. Both these trends show a promising future for the paint industry in a developing country like India. Their customers prefer premium products over value alternatives. and also enable them to offer a better customer service across various points of sale. A widespread network would help them reach out to the rural parts of India (which they could not cater to in the past). has been growing rapidly but has not yet received the scale and prominence shown by its counterpart.

as these players cater only to B2B clients. The rest of the revenues (in both cases) are contributed by the industrial paints segment. the trend is now changing even for the foreign players. to offer them tailor made customized products meeting their specific requirements. and also carry technical knowhow of decades. manufacturing companies interact with clients closely. the proportion of the two (by revenues generated) varies largely from company to company. spends only 3. and the segment is principally dominated by foreign players. It is also essential to have a look at the expenditure of these established players on brand creation and advertising. While resins/latex and pigments are the major raw materials (in terms of volume). as it is the dominant player in the industrial paints segment. This segment inherently seeks foreign sourcing and technology. Where Asian Paints drives almost 93 per cent of its revenue from the decorative paints segment. Every dominant player in this industry caters to both the major segments of the paint industry: decorative and industrial. very few players in this segment means the potential clients are easy to find. This helps the players develop personalized relations with their clients.Industrial paints require higher technical expertise and investments. These players can invest heavily (backed by their global headquarters). Asian Paints has gradually been reducing its domestic sourcing. do not need branding. Industrial paints. as it improves scalability. a company having the dominance in the industrial paints. However. after sales services are need to be more effective because of stringent quality policies in the industry. the entry barriers for this particular segment have traditionally been higher. On the other hand. followed by additives. However. Kansai Nerolac. an indicator that the company is spreading its wings in the industrial paints segment. However. In the industrial paints segment. as they are sold directly to businesses (B2B). There are some key differences between the two categories of this industry. the distribution network is not as widespread as decorative segment. thus securing a steady returns and growth. In absolute terms. Another important factor is sourcing of the raw materials. A range of raw materials is required in the paint industry. Asian Paints is the highest spender on advertising (which goes in-line with its being a company having 93 per cent of the revenues coming from decorative paints segment. Companies relying heavily on foreign sourcing are affected the most by foreign currency fluctuations and changes in the regulatory environment. and they too are resorting to local sourcing. .8 per cent share of its sales on brand creation and advertising. discarding the need for branding and advertising. unlike their decorative counterparts. Kansai Nerolac stands at the maximum sourcing risk over its peers. Also. the same figure for Kansai Nerolac is 55 per cent. As a result. solvents and containers also form a considerable share. Secondly.

Financial Deals and Operations: Since its inception in 1942. Chimanlal N. thanks to the effective leadership at the top. Akzo Nobel shows the least number of retailers among the industry leaders. Business magazine 'Business Today' ranked the company as the ninth best employer in the country.Introduction. acrylic wall putty and wood primer etc. Today. the company underwent a strategic change from being a family owned company to a professionally managed organization). Asian Paints is the only paint manufacturing company in the world to receive such recognition. The company made a foray in automotive paints in 1997 with a joint venture with PPG industries. India. Vakil and Suryakant C. Companies dominating in the decorative paints segment have to have a widespread network. on the other hand. The company caters to a wide range of customer requirements in both decorative and industrial paint sectors. The joint venture thus formed is known as PPG Asian Paints. Within 25 years. The company manufactures plastic coatings and body coatings. has a distribution network comprising around 12000 dealers. the parent group operates around the world through its subsidiaries like Apco Coatings Limited. Asian Paints has come a long way. With 8000 dealers. History. Arvind R. 2002 and 2003. It has been well recognized by Economic Times as well. The company has been the market leader since 1967 (Interestingly. during the period 1957-66. Asian Paints established its dominance in the Indian paints industry. Choksey.Another trend that follows the pattern of branding is retail network and distribution. Segment Wise Revenue Mix: . SCIB Paints and Taubmans. it is double the size of any paints manufacturer in the country. It was set up as a partnership venture by four friends (Champaklal H. Customer focus and innovative spirit have always been the forces that drive the company culture. Dani) willing to take on the world's most famous and biggest brands operating in India at that time. It is India's largest as well as Asia's third largest paint company. This chemicals company is headquartered in Mumbai. Asian Paints . it became a corporate force to be reckoned with. exterior wall putty. In addition to Asian Paints. Asian Paints has always been known for being a reputed and well recognized organization on global level. It also offers ancillaries like wall primer. Forbes Global Magazine USA ranked the company among the 200 best small companies in the world for two consecutive years. whereas the ones catering mainly to industrial paints segment need not have such a vast network of retailers. The company also received the 'Best under a Billion' award. Berger International Limited. Kansai Nerolac. Asian Paints enjoys the most widespread network across the country with over 28200 dealers. Choksi.

Asian Paints also signed a 50:50 new joint venture agreement with PPG Industries. The company dominates the market with around 52 per cent market share (overall) covering both industrial and decorative paint segments. by the name Asian PPG Industries Limited.Asian Paints has bifurcated its operations in two main divisions: Decorative paints and industrial paints. industrial power and light industrial coatings. different demand drivers and supply chain infrastructure. Financial Deals: In year 2006. The company is so strong in this domain. the supply chain for decorative paints is more spread out as compared to that of the industrial paints division. The deal was worth Rs.000 shares of Dutch Boy Philippines. with more than 60 per cent market share. consumer and marine markets. Asian Paints would focus on second joint venture while PPG would concentrate on the first. It also bought a 51 per cent stake in Kadisco Chemical Industry of Ethiopia. a Philippines based firm. paints and specialty products. The second joint venture will cater to the segments like protective. Operations and Market Share: Asian Paints is the country's largest paint manufacturer. diverse clientele. the company is aligning its strategies to become the 5th largest in the foreseeable future. It helps the company to diversify into products like Phthalic Anhydride and Pentaerythritol. As stated previously. The two segments contribute to the revenue with different levels. an American company offering coatings. This was seen as a part of company's refined strategy to cut exposures in loss-making units. its market share is almost 2. .5 times the share of its closest competitor. in order to best utilize their respective strengths and continue dominating the paints market. The company has also adopted vertical integration policy wherever applicable. have different cost structures. This joint venture was in-line with an anticipation of accelerating the growth of the business of non-decorative coatings in India. The company has a formidable position in the decorative paints segment. Under the mutual understanding pact.74 crore. APPG currently offers transportation coatings and is expanding in domains like industrial liquids. 6. The two companies already had one joint venture. the overseas arm of Asian Paints Limited. Berger International Limited. The company executed a conditional stock purchase agreement involving a sale of 427. divested its stake in Dutch Boy. The company acquired 51 per cent stake in Sleek International Private Limited (also known as Sleekworld). Asian Paints principally believes in inorganic growth as well when it comes to expanding business and exploring new territories. Overall 10th largest paint producer in the world. industrial containers. which are used in the manufacturing of paints.

Vanuatu. SCIB Paints. 350 raw material and intermediate goods suppliers. as public income in general is on a rise. keeping customer centric model at the core of its operations. giving the company a robust infrastructure network in place. The company principally covers the whole nation within the paints industry. Nepal.the company also passes savings to its consumers. It covers various price ranges within this diverse portfolio of product offerings. Contribution from the higher end products is expected to grow even further in upcoming years. Middle East and Caribbean. the company offers a wide range of products. 18 processing centres. International Presence: Today. the company genially brought down the prices of its product offering. Such flexibility in pricing ensures constantly increasing revenue levels for the company. It has a price spectrum so effective. All the manufacturing plants. 6 regional distribution centres. . Another formidable quality that decorates the profile of Asian Paints is the strongest supply chain. The group operates across five regions: South Asia. backed with a strong R&D division makes Asian Paints the undisputed market leader. Being the market leader. Singapore. Berger International. It has manufacturing plants in foreign destinations like Sri Lanka. Tonga. Barbados. Solomon Islands. Asian Paints enjoys a strong pricing power in the industry (14 price hikes in 36 months). As stated above. It operates with various names depending on the region it serves: Asian Paints. Jamaica. However. Over the years. the converse is also true. Samoa Islands. 140 packing material vendors and 72 depots are all integrated to form one homogenous system. It also conducts modules like dealer development programs. When the excise duty was reduced. 2 chemical plants. Asian Paints operates in 19 countries across the globe. It enjoys higher levels of margin on high quality (premium) products sold to the urban population. It nonetheless keeps refreshing the entire portfolio of offerings regularly in order to keep up with the ever changing dynamic and pace of the paints market in India. Trinidad & Tobago and Ethiopia. that it can cater to an urban customer as well as a rural customer. Kadisco and Taubmans. South East Asia. The company works on relatively lower margins sold to masses in rural consumer market. This quality. Egypt. The results thus obtained are marvelous. South Pacific. Bangladesh. the company has invested heavily on strengthening its supply chain. It essentially means the company can raise prices when crude oil prices go up without affecting the volumes. the distribution network.The company has the widest and most diverse range of offerings especially in the decorative paints segment. Bahrain. Dubai. Apco Coatings. Fiji. It is the largest paint manufacturer in 11 countries. Oman.

however. thus resulting into higher profit margin (profit/sales). which traditionally enjoys higher margins on premium products. These high quality premium products come with higher margins for the company. owing to the large amount of global operations. 1. experienced a slump as margins continued to erode against rising costs. he was quoted as saying: "The fall in crude oil prices would definitely increase the earning potential of companies and people of the country. WHY IS ASIAN PAINTS SO SUCCESSFUL Asian Paints is one of the most financially successful paint manufacturing company in the world. The company could leverage its domestic operations and contain the situation quite successfully. Rising disposable incomes and contained inflation figures have favored the urban consumers to demand high quality products over cost saving products. However. Let us have a look at these factors and their influence on the financial returns of Asian Paints. the demand would increase. A slowdown in the core automobile sector also dented the financials in this domain of industry. . Hopefully this should have a gross domestic product (GDP) multiplier effect. Higher margins: The Company caters to both the segments of paints industry. The decorative paints business remained on track backed by capacity additions and continuous expansion. 93 per cent of its revenue comes from the decorative segment.Looking Forward: The advances in information technology and emergence of future ready research and development facilities are going to be the main focus of management in the coming years. In a reply to a question about falling crude oil prices. This would help the firm build superior and stronger products enabling it to compete more effectively and also streamline its operations more efficiently. Talking of the challenges. and as a result we should do better. There are several factors that contribute to the better financial returns the company enjoys. viz decorative and industrial. Challenges: Maintaining margins against inflationary pressures from input materials (especially crude oils) still remains a major challenge before the company. K B S Anand agreed the extent to which global crude oil prices influence company's financials. Industrial paint segment. Asian Paints MD & CEO Mr. All consumer companies would do better.".

the effective implementation of technology has ensured higher production capacity per plant. thus again contributing towards higher profit margin (profit/sales). It therefore does not have to pay interests that corrode net profits. In other words. Such a strategy ensures steady flow of high margins. the company manages to keep its high margins unaffected by passing any increase in raw material prices to the consumers directly. Highly efficient supply chain: The Company has in place a highly efficient supply chain and distribution network. as it can have higher margins from its clients in exchange of differentiated customer service and customized service. It has invested heavily on its supply chain to ensure efficient hub and spoke model for the distribution of raw material as well as finished goods. These factors would further be discussed using DuPont analysis. 3. Pricing power: The Company dominates the decorative paints market with almost 60 per cent market share. All these factors help the company to operate on less assets to generate more revenues. thus ensuring higher profit margin (profit/sales).2. Thus. 5. Moreover. such a practice ensures higher profit margin (profit/sales). Such a healthy relation benefits the company in the long run. Asian Paints enjoys higher profit margin as well as asset turnover. Vertical integration of supply chain: With the help of vertical integration wherever possible in the supply chain. Virtually zero debt company: Asian Paints virtually operates on zero debt. the company has successfully kept the overall margins high. Higher margins in turn ensure higher profit margin (profit/sales). a highly efficient supply chain ensures high asset turnover (sales/assets). Thus. 6. Such a dominant player generally retains the pricing power to a considerable extent. As a result of this. It therefore enjoys long lasting client engagement in the industrial paints domain. Healthy B2B relations with industrial paint clients: The Company keeps consumer interest at the core of its ideology. 4. DuPont Analysis .

4 Subtra cted from Interest 31.17 223.18 It refers to a method of performance measurement that was started by the DuPont Corporation in the 1920s.79 Divide into Revenue 12597.95 Operation Cost Net Income 1327.06 Total Cost 11278.06 Fixed Assets 3998.38% Leverage (Assets/Equity) Return on Assets 1.83% Multiplied Profit Margin 10. With this method. assets are measured at their gross book .54% Multiplied Total Asset Turnover 1.35 Inventories 1802.81 Divided Total Assets 7105.Return on Equity 31.11 Revenue 12597.67 18.06 Revenue 12597.42 Added Current Assets A/c Receivables Cash and Bank Other CA 458.16 Depreciatio Taxes n 606.

which is a good indicator and which contributes to the high profitability of the company.Asset use efficiency.8%. not artificial leveraging.Financial leverage. It is also known as "DuPont identity". which is measured by the equity multiplier The attached excel provides the DuPont analysis for Asian Paints. .  Asset turnover ratio for the company is quite high. which is measured by profit margin . by constantly having an average ROE over the past 6 years as 33. which is measured by total asset turnover .7%  The ROE of Asian Paints is fairly stable over time which is indicator of stability of earnings of the firm. Their low leverage and high ROE means that a good portion of returns are coming from organic sales or effective management. It contains both the 3 step and 5 step formula for the purposes of interpretation. Despite good figures for the ROE of the company. Thus we will analyse the components of its ROE. On the basis of its DuPont analysis. we can infer that:  While the return on equity on the Sensex stocks in FY2014 has been average of 16. it does not tell a complete figure since a company may also boost its ROE by taking on additional debt.Operating efficiency. DuPont analysis tells us that ROE is affected by three things: .value rather than at net book value in order to produce a higher return on equity (ROE).  The company’s financial leverage has been low as compared to its major peers. Asian Paints has certainly outperformed the index ROE.