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Industrial Paints Industry – India

• Raw materials account for around 45-50% of the industry’s sales on an average
• The raw materials used for manufacturing paints include resins (binders), pigments, solvents, additives
• Key pigments used in the manufacture of paints is titanium dioxide (TiO2) –

Titanium Oxide

• Provides white colour to liquids, pastes or coatings


• Accounts for 15-20% of raw material cost
• Scatters light and is Ultraviolet (UV) resistant
• Commercially available in two forms – anatase and rutile (preferred)
• Import Nos:
• TiO2 price movement:

• The demand for industrial paints is also likely to grow backed by an expected improvement in industrial output
• CARE Ratings expects 10-12% growth in the two-wheeler segment (accounting for about 80% of the automobile
industry’s sales) which is also likely to augur well for the paints industry.
• The automotive segment drives the demand for industrial paints as it forms a significant component of industrial
paints

Source: Berger Paints Investor presentation

Industrial Paints:
Industrial Paint Segment Market Share Growth Rate
Automotive & General Industrial 50%
Protective Coatings 40% 14% CAGR
Powder Coatings 10%

Industrial Paints Market Size ~ USD 3 bn


Growth Drivers:
Automotive

• 11% CAGR projected


• World’s largest 2-
Wheeler market.
Women, 1st time
owners and exports
driving demand;
• India soon to be the
top-4 automobile
markets in the world.
Reports Data
Raw Material
Procurement of key inputs
Product Indigenous or imported
Additives/ biocides Mostly imported
Manufacturing equipment Both indigenous and imported
Solvents Both indigenous and imported
Resins — acrylic/PE/epoxy/amino/PU Both indigenous and imported
Inorganic pigments Both indigenous and imported
High performance pigments Both indigenous and imported
Titanium dioxide Both indigenous and imported
Carbon black Both indigenous and imported
Organic pigments Mostly indigenous
Machine colourants & tinting systems Mostly indigenous
Emulsion resins Only indigenous
Resins — alkyds/phenolics Only indigenous

Key Players
% share of industrial
Industrial coatings Key players
coatings market
Auto OEM 24 Kansai Nerolac, BASF, Asian PPG, Nippon, Berger, Maharani Paints
Auto refinish 14 Akzo Nobel, Esdee Paints, Asian Paints, BASF
Protective/General industries 32 Berger, Akzo Nobel, Kansai Nerolac, Asian Paints, Shalimar
Powders 14 Kansai Nerolac, Marpol, Asian Paints, Jotun
Coil 6 Berger-Becker, Nippon, Akzo Nobel, BASF, PPG, KCC
Others 10

Technical Collaboration
Automotive paints demand to grow in low teens
• Auto industry witnessed pressure on volumes in FY15-16 due to
1) weak rural demand due to two successive weak monsoons
2) damage to winter crop due to untimely rains
3) Little increase in MNREGA allocations and
4) Mining ban in a few states impacted demand for
commercial vehicles

• We expect the auto volumes to pick up in FY17 led by


1) expectations of normal monsoon post two bad years
2) pick-up in Infra development & economic growth and
3) Improved urban demand led by OROP and pay commission
benefits
• Automotive paints are expected to grow in low teens and by
16.7% CAGR over FY15-20

Auto refinish segment


• Market for Auto refinish is estimated to be ~Rs10bn with major players being Kansai, PPG Asian paints, Akzo Nobel and BASF.
• PPG Asian Paints is the market leader in this segment as it had acquired ICI’s auto refinish business. Auto refinish segment reflects
growth specific to used car sales and repair services. Revival in Auto sales can further boost growth with a lag. Auto refinish segment
has been growing at 20% CAGR as:

o Growth in auto insurance is fuelling demand for refinish paints and coatings as increasing number of consumers have
insurance claim for accidents.

o Emergence of Multi-Shop Operators (MSO) chains in the service and repairs segment is prompting consumers to opt for
better services and vehicles; this is propelling the demand for refinish coatings
o Pessimism in the economy in the recent past changed consumer’s preference towards used cars over new cars

Other Industrial paints


It consists of Powder coatings, Performance coatings and other Industrial coatings like Marine coatings, coil coatings etc

Powder Coatings

• Powder Coatings market is Rs14bn; 15% CAGR likely on durables and home improvement demand
• High performance Powder coating is amongst the fastest growing industrial coatings segments, given the toughness, corrosion/
scratch resistance and finish of the products

Performance Coatings

• Performance Coatings are Rs33bn segment and


have grown at 13% CAGR in the past 5 years
• Core sectors like Power, Oil and Gas, OEM, Mining,
Infra and SME - major contributors to this segment
Key Player Sales Analysis - Domestic

Figures in INR million Figures in INR million

Asian Paints FY 17 1,75,182 Total Paints Market 4,69,800


Paints - India 83% 1,45,401 Key Player (% total Paints) 2,74,831
Home Improvement 13% 22,774 Key Player (% total Paints) 58%
Total Industrial paintsMarket 1,17,450
Industrial (JV with PPG) 2% 3,504
Total Key Players (Industrial) 37,250
International 2% 3,504
Key Player (% total industrial) 32%
Kansai Nerolac FY 17 44,690 Acquired Marpol Pvt Ltd
Decorative 55% 24,579 Apr-18 - EV - 36 Cr
Industrial 45% 20,110 Sales - 63 cr EBITDA (%) - 7%

Berger FY 17 45,523 Acquired Saboo Coatings


Decorative 80% 36,418 Jun-17 - EV - 82 Cr
Industrial 20% 9,105 Sales - 76 cr EBITDA (%) - 18%

Akzo Nobel Coatings FY 17 28,249


Decorative 87% 24,606
Industrial 13% 3,643

Shalimar Paints FY 17 3,962


Decorative 66% 2,615
Industrial 34% 889

Global Market:

CAGR 5.91%
Global FY 17 FY 18 FY 19 FY 20 FY 21 FY 22
Industrial USD bn
Paints 98 104 110 117 124 131

Figures in USD million


FY 17 Industrial Decorative
Key Players Mcap
Sales (% sales) (% sales)
Sherwin Williams 35,421 14,984 25% 14%
PPG Industries 26,481 14,750 41% 59% Market Size (USD bn) 98
Akzo Nobel 22,882 11,459 57% 38% Top Players (USD bn) 28
Nippon Paints Holdings 13,362 5,554 85% 9% Top Players (% total market) 29%
RPM International 6,557 4,958 52% 48%
Axalta Coatings 7,758 4,377 62% 0%
Kansai Paints 6,069 3,030 69% 26%
Comparables
Transaction Comps

Stake Amount
Target Acquirer Date Valuation EV/S EV/EBITDA P/E EV/S EV/EBITDA P/E
Acquired (INR mn)
Marpol Kansai
Apr-18 100% 359 359 0.5x 6.2x 20.9x 0.5x 7.3x 22.8x
Pvt Ltd Nerolac
Saboo
Coatings Berger Jun-17 100% 816 816 1.3x 8.6x 15.4x 1.1x 5.9x 9.7x
Pvt Ltd Paints
Mean 0.9x 7.4x 18.1x 0.8x 6.6x 16.3x
Median 0.9x 7.4x 18.1x 0.8x 6.6x 16.3x

Trading Comps – Domestic


Mcap and Sales in Crores

FY17 EV/Sales EV/EBITDA P/E


Company Mcap
sales FY16 FY17 FY18E FY19E FY16 FY17 FY18E FY19E FY16 FY17 FY18E FY19E
Asian
1,16,567 15,290 8.0x 7.5x 6.7x 5.8x 41.5x 38.1x 35.1x 30.1x 66.8x 60.1x 55.6x 47.4x
Paints Ltd
Berger
Paints 26,441 4,535 6.3x 5.8x 5.1x 4.4x 40.9x 36.7x 33.0x 28.0x 71.4x 55.8x 56.3x 46.8x
India Ltd
Kansai
Nerolac 27,156 4,042 7.0x 6.5x 5.6x 4.8x 44.8x 35.5x 32.3x 27.9x 30.1x 53.4x 50.2x 43.7x
Paints Ltd
Shalimar
322 368 1.1x 1.2x NA NA 14.7x 30.4x NA NA 61.4x NM NA NA
Paints Ltd
Mean 5.6x 5.3x 5.8x 5.0x 35.5x 35.2x 33.5x 28.6x 57.4x 56.4x 54.0x 46.0x
Median 6.6x 6.1x 5.6x 4.8x 41.2x 36.1x 33.0x 28.0x 64.1x 55.8x 55.6x 46.8x

Cost Structure

Akzo Nobel India Berger Paints Kansai Nerolac Shalimar Paints


FY 17 (% sales) Asian Paints Ltd
Ltd India Ltd Paints Ltd Ltd

COGS 59% 56% 57% 55% 57%


Employee Benefits 5% 9% 7% 7% 7%
Other expenses 18% 18% 18% 18% 18%
D&A 2% 2% 2% 2% 2%
Total 84% 86% 85% 83% 85%
Trading Comps – International
Figures in USD million

FY17 EV/Sales EV/EBITDA P/E


Company Mcap
Sales FY16 FY17 FY18E FY19E FY16 FY17 FY18E FY19E FY16 FY17 FY18E FY19E
Sherwin-
Williams 35,421 14,984 3.1x 3.1x 2.6x 2.4x 18.8x 19.8x 14.7x 13.3x 31.3x 20.0x 19.7x 17.0x
Co/The
PPG
Industries 26,481 14,750 2.0x 2.0x 1.8x 1.8x 11.4x 11.5x 11.0x 10.4x 30.2x 16.6x 16.9x 15.6x
Inc
Akzo Nobel
22,882 11,459 2.2x 2.2x 2.2x 2.2x 13.7x 15.1x 18.4x 15.8x 19.8x 23.1x 25.3x 21.5x
NV
Nippon
Paint
13,362 5,554 2.7x 2.5x 2.3x 2.2x 14.7x 14.4x 13.9x 13.0x 48.5x 39.2x 39.9x 34.8x
Holdings Co
Ltd
RPM
Internationa 6,557 4,958 1.6x 1.7x 1.6x 1.5x 11.7x 18.6x 11.2x 10.3x 18.5x 36.1x 15.9x 14.6x
l Inc
Axalta
Coating 7,758 4,377 2.6x 2.5x 2.3x 2.2x 14.6x 15.5x 11.4x 10.7x 200x 211x 23.2x 20.1x
Systems Ltd
Kansai
6,069 3,030 2.0x 2.3x 1.9x 1.8x 14.1x 16.2x 14.2x 12.4x 23.3x 27.4x 28.4x 22.6x
Paint Co Ltd
Mean 2.3x 2.3x 2.1x 2.0x 14.1x 15.9x 13.5x 12.3x 53.1x 53.4x 24.2x 20.9x
Median 2.2x 2.3x 2.2x 2.2x 14.1x 15.5x 13.9x 12.4x 30.2x 27.4x 23.2x 20.1x

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