Asian Paints Limited is a leading Indian chemicals company headquartered in

Mumbai, India and founded in 1942. It is Indian’s largest paint company and ranks among
top ten decorative coatings companies in the world. Asian paints along with its subsidiaries
has operations in 22 countries across the world and 27 paint manufacturing facilities ,
servicing consumers in 65 countries through Berger International , SCIB Paints –Egypt,
Asian paints, Apco coatings and Taubmans.

Asian Paints India Ltd is India’s largest paint manufacturer with a 35% overall
market share covering both the industrial as well as the decorative segment. The company
has a dominant position in the decorative paints industry with a market share of 60%.
Overall Asian Paints is the 10th largest paint producer in the world with aspirations to
become the 5th largest. Asian Paint is able to leverage its dominant position within the
decorative paints segment (currently 5th largest in the world) to drive its future growth.
The decorative paints division has shown promising growth in the past, along with
comfortable margin performance.

The Indian market is dominated by decorative segment, which comprises of almost 70%
of consumption as compared to developed countries where the industrial segment is more
dominant. The ratio in India is also more likely to shift towards industrial segments,
especially with growth in the auto and white goods industry.

The unorganized sector has historically been dominant by high excise

structure. Over the last five years the excise rates have come down drastically from 40% to
18% resulting in erosion of unorganized sector’s share. The Indian Paint Industry grew by
18% from Rs. 95 bn. in FY16 to Rs. 112 bn in FY17 (Source: Company). The industry has a
positive correlation with GDP as both have same drivers for growth. Demand for paints is
both, derived as well as direct. The demand for decorative paints is a direct demand
whereas the demand for industrial paints is a derived demand.

2.2.3 Supply side:

The dynamics that control the supply side scenario are:

Distribution

In case of industrial paints, distribution network doesn’t play an important role,

whereas the situation is totally different in case of the decorative paints. India being a wide
and scattered market having a large distribution network becomes prime requirement for
any company in decorative paints business.

Outsourcing:

The organized players in the decorative paint segment have to compete directly
with those in the unorganized sector manufacturing low cost paints like distemper and
enamels. In-order to face this competition organize players outsource small part of their
production (25-30%).

Demand drivers for Paints Industries

Increase in Per capita consumption of paints:

The per capita consumption of paints in developed countries is around 15-25 kgs
and world average is around 15 kgs. Comparing this with domestic consumption, India’s
contribution to world paint markets is 0.6% with per capita consumption of around 800-
900 gms. Based on the expenditure in the construction activity and increase in the repaint
activity coupled with industrial growth, the industry is expected to increase at a 11.85%
CAGR over next three years

Increase in Real Estate Investments:

The demand for decorative paints is directly related to the increase in the
investment in the real estate thus increasing the cement area. Out of the total demand for
decorative paints, around 30-40% of the demand comes from the fresh construction. The
size of real estate industry is estimated to grow to Rs. 18,517 Bn, over next five year’s
period. Investment in real estate will be primarily led by housing, which is expected to
account for nearly 90% of total investment in the sector. India’s robust economic growth
and resultant increase in income are speeding up the pace of urbanization.

Increase in Industrial Paints:

The industrial paint segment is divided into automotive industrial paints and non-
automotive industrial paints. Increase in income levels of the consumers contributes
towards the growth in the auto-segment and growth in the industrial segments like power,
road and infrastructure leads to growth in the non-automotive segment. Along with these,
growing needs for consumer durables and export opportunity for auto ancillaries will also
contribute towards the growth of industrial paints.

Increase in Per Capita Income:

The above mentioned increase in demand for paints is backed well by increase in
per capita income. Due to increase in disposable income, Indian consumer is expected to
shift from lime wash to paints and those already consuming paints would move up the
value chain. On other hand, the increasing capacity would also drive automotive and
consumer durable, thereby increasing the consumption of industrial paints.

Prices in line with substitute product:

Large scale of operations and technical know-how has helped prices of paints to
come down. They are now in line with those of substitute products like lime wash,
distemper etc., manufactured by local players. This gives consumers the incentive to shift
from lime to paints.
2.2.3 Future Outlook for the Paint Industry

Companies are unanimous in saying that the future of the industry is bright. The
Indian paint industry has grown by 1.5-2 times of India’s GDP growth on a year-on-year
basis. With the revival and upswing of economic activities in the country, the paint industry
is expected to witness double digit growth in the current fiscal. Many feel that the growth
has just begun, and the demand will rise in 2015. The per capita consumption of paint in
India is estimated to be more than 800 grams compared to 10 kg in other Asian countries,
and above 20 kg in the developed countries. Against the backdrop of a rapidly changing
scenario, even if the per capita consumption is 2.5 kg, which in all probability is likely to
happen in the coming five years, the industry should witness 100 per cent growth - from
approximately 25,000 crore to 50,000 crore by 2015. Further, the market share of SMEs
will remain approximately 50 per cent, as the customers are gradually recognizing their
quality. The prospect of the industry further brightens with setting up of shops by
prospective global paint manufacturers in India. The outlook is promising, and the industry
is estimated to grow by 15 per cent on an annual basis. Prediction of normal monsoon has
provided further momentum to the sector. The industry should continue to grow
handsomely, as the monsoon is projected to be normal, and GDP is being projected to grow
in touching 8 per cent in the coming months. However, there exists a risk factor due to
sharp increase in raw material prices from the beginning of the current financial year. This
could affect the margins of paint companies substantially. Going by the current trend and
customers’ attitude, the future augurs well for the industry. What is positive for the
industry is that today people in rural India also feels it a necessity rather than a luxury to
paint their houses every year, which is indeed a significant change of thought.
 INDUSTRY PROFILE

Asian Paints Limited is a leading Indian chemicals company headquartered in

Mumbai, India and founded in 1942. It is Indian’s largest paint company and ranks among
top ten decorative coatings companies in the world. Asian Paints along with its subsidiaries
has operations in 22 countries across the world and 27 paint manufacturing facilities,
servicing consumers in 65 countries through Berger International, SCIB Paints-Egypt, Asian
Paints, Apco Coatings and Taubmans. Asian Paints operates in 5 regions across the world
viz. South Asia, South East Asia, South Pacific, Middle East and Caribbean region through
the five corporate brands viz. Asian Paints, Berger International, SCIB Paints, Apco Coatings
and Taubmans.

It has presence in decorative and industrial coating segment of the paint business.
Besides, the Company operates around the world through its subsidiaries Berger
International Limited, Apco Coatings and SCIB Chemicals. APL has its presence in almost all
the segment through its brands Royale in the premium segment, Apcolite in the mid-
segment, Gattu, Tractor, Utsav and 3-Mango etc. in the lower segment.

In India currently the decorative paints segment is considerably bigger than the
industrial paints division. The decorative paints division is primarily driven by growth in
the real estate sector, rising purchasing power and rapid urbanization. These factors will
continue to contribute to the revenues in the coming years as a part of India’s growth story.
Asian Paints is currently the market leader in the Indian paint industry. Even though its
product portfolio is biased more towards the decorative paints segment, it is about to
change that. The next phase of growth will be embarked by the industrial paints segment.
The firm has been heavily investing to develop a strong industrial paint product portfolio
to bet on India’s rampant industrialization. Recent changes in the government policy to
revive the infrastructure sector will also greatly benefit this segment. However within the
industrial paints segment, APNT has a strong foothold in the automotive coatings segment
where it operates through a joint venture with PPG, a worldwide leader in the coating
industry.

HISTROY

February 1, 1942

The company has come a long way since its small beginnings in 1942. It was set up
as a partnership firm by four friends who were willing to take on the world’s biggest, most
famous paint companies operating in India at that time. Over the course of 25 years, Asian
Paints became a corporate force and India's leading paints company. Driven by its strong
consumer-focus and innovative spirit, the company has been the market leader in paints
since 1967. Today, it is double the size of any other paint company in India. Asian Paints
manufactures a wide range of paints for decorative and industrial use.

1945

The Company was incorporated as a private limited company under the name of
Asian Oil and Paint Company Pvt. Ltd. It was converted into a public limited company in
1973. The Company manufactures a wide range of surface coatings catering to different
end uses. It also manufactures vinyl pyridine latex used in the manufacture of rubber tires.
The Company expanded its products range, developed its own technology, set up a
distribution network penetrating in smaller towns and ploughed back a large part of
earnings into creation of new facilities.

1974

The Bhandup plant in Mumbai of the Company is reportedly the largest single paint
factory in the country and one of the most up-to-date with sophisticated machinery and
equipment for manufacturing a wide range of paints and other products besides adequate
resin manufacturing capacity to meet its entire requirements.

1985

The Company undertook to set up a third paint unit at Patancheru, a notified

backward area near Hyderabad, for the manufacture of 15,000 MT of paints and enamels.
The Company entered into a collaboration agreement with Nippon Paints Co. Ltd., Japan, to
obtain technical knowhow to manufacture powder coating and coil coatings under an
exclusive license. Necessary manufacturing facilities for the powder coatings with a
capacity of 300 MT were installed and commissioned at Kasna plant during 199293.

1996

The Company proposed to set up a fifth point manufacturing plant at Ratnagiri,

Maharashtra. During 21st February, a fire broke and in the paint manufacturing block of
Mumbai plant causing extensive damage to the materials stored in the block. A joint
venture company viz. Asian PPG Industries Pvt. Ltd. was set up along with PPG Industries,
Inc. of USA to market and/or manufacture automotive paints and certain Industrial
products as may be decided upon mutually between the partners.

1998

The new initiative to install 350 color worlds received encouraging response and
made significant contribution to performance. Three new products, NC range of wood
finishes, ACE exterior emulsion and Asian wall putty were launched. Asian Paints, the
Rs.737.20 crore paints major, has launched a new marketing thrust with the introduction
of a one stop color shop for paints complete with software for consumers to choose and
select their different shade combinations. Asian Paints, India's No.1 Paint Company
recently, launched their latest offering ‘Asian Paints Color World’. Credit Rating
Information Services of India Ltd (Crisil) has assigned an ‘AAA’ rating to the proposed
nonconvertible debenture (NCD) obligation of Asian Paints Ltd (APL). Two subsidiaries of
Asian Paints Pentasia Chemicals and Pentasia Investments have been merged with the
parent company following the approval of the Board for Industrial & Financial
Reconstruction (BIFR). Asian Paints Limited, the largest paint company in India, launched
its first exclusive showroom in Mumbai.

1999

The Company has joint venture companies in the overseas market. All these
ventures are doing well and have a strong hold in their respective markets. In its first ever
acquisition overseas, Asian Paints Ltd (APL) has acquired a 76 per cent equity stake in Sri
Lank abased Delmege Forsyth & Co (Paints) Ltd.

2000

Asian Paints has launched two variants in polyurethane (PU) wood finish under the
brand name Opal. The Company has proposed to issue bonus shares in the ratio of three
shares for every five shares held. Asian Paints has opened a manufacturing plant in Oman
in partnership with a local company. Asian Pains has acquired the entire paints business of
Pacific Paints Company based in Australia for over Rs 1 crore. Asian Paints has lifted the
lockout at its factory in Uttar Pradesh. The Company suspended operations at Kasna in July
after the workers resorted to a "sitinstrike".

2001

Asian Paints has introduced Utsav Enamel for the festive season. Asian Paints has
appointed senior parnter of the solicitor firm Crawford Bailey & Co, R A Shah and Deputy
Director, National Chemical Laboratory Dr Swaminathan Sivaram as directors on the
company's board.

2002

Revamps its international operations, transfers shares in its subsidiaries in Fiji,

Tonga, Solomon Island, Vanuata, Australia and the Sultanate of Oman to the Mauritius
based subsidiary Asian Paints International Executes agreement for purchase of 60%
equity capital of SCIB Chemicals S.A.E., Egypt Launches its $3 million joint venture with
Bangladesh based Confidence Cements in which the holds 51 per cent stake. Acquires
controlling stake of 50.1 per cent in Berger International, Singapore, for Rs 58 crore,
appoint Jalaj Dani as CEO.

2003

Board recommends issue of bonus shares by capitalization of Reserves in the ratio

of 1 equity share for every 2 equity shares held on the record date Asian Paints, via its
Singapore based subsidiary Berger International inks a technology and brand licensing
agreement with PT Abadi Coatings Solusi, an Indonesian paint company Shareholders
approve the Scheme of Arrangement proposed to be made between Pentasia Investment
Ltd with Asian Paints India Ltd and the consequential reduction of share capital of Asian
Paints India Ltd. Berger International starts restructuring exercise to curtail cost acquires
Taubmans Paints (Fiji) Ltd. through its subsidiary in Fiji, Asian Paints (South Pacific) Ltd
(APSP) Acquisition of 9.2% shares in ICI India Ltd. Asian Paints bags Ken Sharma award

2004
 10th Asian Paints Star Screen Weekly Awards aura of mystery, Asian Paints
launches paint solutions for kids.

2005

Berger Intl partners with Filipino firm Dutch Boy Company has changed its name
from Asian Paints (India) Ltd. to Asian Paints Ltd. 2006 Asian Paints APICL’s new
manufacturing plant at Baddi commences commercial production

2009

Asian Paints Ltd has submitted the disclosure under Regulation 7(3) of SEBI
(Substantial Acquisition of Shares & Takeovers) Regulations, 1997 to BSE Asian Paints Ltd
has appointed Shri. S Ramadorai is an Additional Director of the Company pursuant to
Section 260 of the Companies Act, 1956.

2010

Berger International Ltd Singapore (BIL), a subsidiary of Asian Paints Ltd , which is
a wholly owned subsidiary of the Company. The Company's new paint plant at Rohtak in
the State of Haryana has commenced commercial production Asian Paints Signed a MOU
with Maharashtra Govt. to set up a Mega Project for manufacture of Paints & Intermediate

2011

Asian Paints to form second Joint Venture with PPG Industries. Asian Paints
Company’s subsidiary, SCIB Chemicals SAE has temporarily restarted the operations of its
two plants in Egypt.

2012

Asian Paints Production at the Company's Plant at Rohtak, Haryana has been
restarted 2013 Asian Paints completes acquisition of Sleek Group Commencement of
commercial production at new plant Asian Paints has splits its face value from Rs 10/ to 1/
2014 Asian Paints Ltd Enters into binding agreement with Essess India.

2013

Inspired by the success of the Stores at Mumbai and Delhi, your Company launched
first ever ‘Ezycolour Store’ at Kolkata in August, 2013. This Store is a more functional
version of the ‘Color Stores’ and focuses mainly on delivering a great colour consultancy
experience to customers. At the top of our retailing hierarchy, your Company increased
Colour Ideas Stores to 170 by launching a record 70 new Stores during the financial year.
In-store Colour Consultancy is a key feature of these Stores which benefitted more than
80,000 customers across these Colour Ideas Stores during 2013-14.

2014

During 2014-15, your Company took steps for setting up paint manufacturing
facility and operations as part of a Greenfield foray into Indonesia. During the year, Berger
International Limited, Singapore became a wholly owned subsidiary of Asian Paints
(International) Limited, Mauritius. During the year, expansion of manufacturing capacity in
Bangladesh to 24,000 KL was completed. In Oman, project of setting up of new
manufacturing facility with annual capacity of 21,000 KL in Sohar is in the advanced stage
of completion and product trials are being taken.

2015

The expansion project at Rohtak plant in Haryana to double the capacity from the
existing 2, 00,000 KL per annum to 4, 00,000 KL per annum was successfully completed
this year. During the year, a new state-of-the-art manufacturing facility was inaugurated at
Sohar in Oman with an annual capacity of 21,000 KL.

2.1 BUSINESS PROCESS OF THE INDUSTRY

 Asian Paints is India's largest and Asia's third largest paint company since its
foundation in 1942, with a turnover of Rs.141.83 billion. Asian Paints, through
international operations, operates in 22 countries and has 27 paint manufacturing facilities
in the world servicing consumers in over 65 countries. Asian Paints Limited has two
chemicals manufacturing facilities, one at Ankleshwar, Gujarat, which manufacturers
Phthalic Anhydride, and the second at Cuddalore in the state of Tamilnadu, which
manufactures Pentaerythritol. These units were set up as backward integration initiatives
in the late eighties, primarily to cater to the in-house demand for these chemicals.

Asian Paints Limited, Penta Division was set up in 1984 as a joint venture between
TIDCO & APL. The plant is located in Cuddalore SIPCOT Industrial Complex, 250 Km away
from Chennai, it is a coastal town on the shore of Bay of Bengal & well connected with
Chennai by Rail & Road. The facility is accredited with ISO 9001, 14001 AND OHSAS 18001
certification and is a "Zero Liquid Effluent Discharge Unit". Our facility has won many
awards at the state level & national level for implementation of energy saving, yield
improvement schemes, outstanding export performances and is the first in the state of
Tamil Nadu to have successfully operated a "Zero Liquid Effluent Discharge" facility.

Asian Paints aims to become one of the top five decorative coatings companies in the
world- wide by leveraging its expertise in the higher growth emerging markets.
Simultaneously, the company intends to build long term value in the industrial coatings
business through alliances with established global partners.

Processes : The production of paints involves the blending of around 300

different raw materials and it is the process type. The three main steps
involved in the manufacture of paints are dispersion, adjustment and packing.
Asian Paints Ltd. manufactures and markets paints and coating products. It operates
through the Paints and Home Improvement segments. The paint segment manufactures
and trades paints and related services. The Home Improvement segment engages in the
manufacture and trade of bath fitting products and related services. The company was
founded by Champakal H. Chokesey, Chimanlal N. Choksi, Suryakant C. Dani and Arvind R.
Vakil on February 1, 1942 and is headquarters in Mumbai, India.

The paint industry is divided into organized and unorganized sector. The unorganized
segment plays a huge role in decorative paint segment due to low technical know-how and
highly scattered market. The organized segment constitutes around 54% of the total volume
and 65% of value of paints industry. Again the whole paints industry can be classifi ed into
decorative (75% of total industry size) and industrial paints (25% of total industry size).
Further, in organized segment, the top 6 players account for around 84% by volume and
63% by value. The remaining players in organized business are largely present in non-auto
industrial segment, and the unorganized players are mainly operational in decorative paints
segment as industrial paints requires high technological know-how and client tie-ups.

Paint can be broadly be classified as decorative and industrial on the basis of end use.

INDUSTRIAL PAINTS:

This material can be further divided into following four sub-segments depending on end
user profile.

• Automotive paints

• Marine paints • Powder coating

• High performance coating

• Other general industrial finishes

• Coil coating

DECORATIVE/ARCHITECTURE FINISH PAINTS:

This market can be further segmented on the basis of the following:

• Customer’s type : institutional/retail or domestic use.

• Product Features/Categories: Distempers, enamels, emulsion.

• Price: Premium, medium, economy.

The Indian market is dominated by decorative segment, which comprises of almost

70% of consumption as compared to developed countries where the industrial segment is
more dominant. The ratio in India is also more likely to shift towards industrial segments,
especially with growth in the auto and white goods industry.
 The unorganized sector has historically been dominant by high excise structure. Over
the last five years the excise rates have come down drastically from 40% to 18% resulting
in erosion of unorganized sector’s share.

The paint industry is charatererised by low fixed asset intensity (as essentially it is a
mixing process) but high working capital intensity (as the number of shades is large and
there is seasonal demand). The investments are in brand building and distribution
infrastructure.

2.2 market demand & supply

Asian Paints Limited is an Indian multinational paint company headquartered in
Mumbai, Maharashtra. The company is engaged in the business of manufacturing, selling
and distribution of paints, coatings, products related to home decor, bath fittings and
providing of related services. Asian Paints is India’s largest and Asia’s third largest paints
corporation. As of 2015, it has the largest market share with 54.1% in the Indian paint
industry.

Asian Paints India Ltd is India’s largest paint manufacturer with a 35% overall market
share covering both the industrial as well as the decorative segment. The company has a
dominant position in the decorative paints industry with a market share of 60%. Overall
Asian Paints is the 10th largest paint producer in the world with aspirations to become the
5th largest.

The company has ventured into new areas like home decor, sourcing of talent and
increasing brand awareness. It has experimented with innovation in retail by launching AP
Homes, a retail store offering products and solutions across categories that include paints,
wall papers, kitchen, bath fittings, sanitary ware, furnishings and light fittings.

The company’s revenue has grown at a compound annual growth rate (CAGR) of
7.5% to Rs16, 824 crore in the past five years. Net profit has grown at double this rate
during the same period to Rs2, 097 crore in 2018. The company has maintained an
operating profit margin of more than 19% in each of the last three fiscal years. Its crude oil-
linked raw materials constitute over 55% of its revenues; hence volatility in oil prices has a
repercussion on the sourcing of materials as well as the market valuation of the paint
companies.

Asian Paints’ average dividend payout in the past three fiscals is 48% and its stock
has been a wealth creator for its long-term investors. Little wonder that it is richly valued
on the bourses — trading at 61 times its past four quarters earnings.

Asian Paints, one of the country’s largest paint markers, posted a 20 per cent higher
consolidated net profit of ₹672 crore in the quarter ended December 31, 2019 as raw
material costs were lower (about 8 per cent y-o-y) due to lower crude oil prices. It was also
helped by lower tax outgo compared to the same period last year.

Revenue growth was subdued as its mainstay decorative segment saw sales
impacted by the overall consumption-led slowdown in the economy during the period. The
company reported revenue of ₹5,131 crore, a growth of 3 percent y-o-y in the recent
quarter. The company’s stock ended 2 per cent at ₹1,773.

DEMAND-SUPPLY SCENARIO:

Paint demand is intrinsically related to economic development. The demand for

decorative paint in India mainly arises from two segments viz construction of new building
and retail demand for refurbishment. While the demand for industrial paint comes from
industries like automobile, consumer durable, shipping engineering etc. the demand for
paint has grown at 10% for last five years. After the sluggish growth in late 80’s and early
90’s, industry grew at rapid pace of more than 12% from 1992-96. High excise duties and
lack luster industrial growth resulted in low growth of 2-4% during 1987-92. After 1992,
the industry picked up aided by improving economic condition and rationalization of excise
structure. Almost the entire growth can be attributed to volume increase as price
realization has increase at less than 5%p.a. over the last two years demand slows down due
to economic slow down. According to Indian Paint Association, demand will rise from
current 0.6mn tones per annum to 1mn tpa by 2003.demand from decorative paint will be
led by the household construction industry which is expected to grow almost 8% over the
next five years considering the extreme shortage of housing and the government thrust on
encouraging the housing activity are also likely to shift more towards rural areas. The
industrial segment will grow faster due to the lower base and fast growth in major users
like consumer durable and automobile.

2.2.4 Overview of Company’s financial performance for FY 2014-2015

Net revenue from operations on standalone basis increased to Rs. 11,648.83 crores
as against Rs. 10,418.78 crores in the previous year – a growth of 11.8%. The performance
for the current year is after considering results of bath business acquired in June, 2014.

Cost of goods sold as a percentage to net revenue from operations decreased to

55.3% as against 57.0% in the previous year. The decrease is on account of reduction in key
raw material prices, specifically in the second half of the year, on the back of significant
drop in crude prices.

Employee cost as a percentage to net revenue from operations increased to 5.2%

(Rs. 606.94 crores) as against 4.6% (Rs. 482.43 crores) in the previous year. The increase is
mainly on account of falling bond yields during the year which adversely impacted the
provision for retirement benefits.

Other expenses as a percentage to net revenue from operations increased to 22.2%

(Rs. 2,591.52 crores) as against 21.3% (Rs. 2,219.13 crores) in the previous year. The
Company was carrying a provision of Rs. 14.04 crores in respect of the diminution in
carrying value of its investment in Asian Paints (International) Limited (APIL), Mauritius in
the earlier years. The same is included in "Exceptional items" in the Statement of Profit and
Loss. The details of "Exceptional items" are given in Note 51 to the Standalone Financial
Statements and Note 28 to the Consolidated Financial Statements.

The Profit After Tax for the current year is Rs. 1,327.40 crores as against Rs.
1,169.06 crores in the previous year - a growth of 13.5%. The growth in profit is mainly
driven by softening of input prices during the second half of the year.

On a consolidated basis, your Company achieved net revenue of Rs.14,182.81 crores

as against Rs. 12,714.81 crores - a growth of 11.5%. Net profit after minority interest for
the group for the current year is Rs. 1,395.15 crores as against Rs. 1,218.81 crores in the
previous year – a growth of 14.5%.

Demand Supply Dynamics

The Indian Paint Industry grew by 18% from Rs. 95 bn. in FY06 to Rs. 112 bn in FY07 (Source:
Company). The industry has a positive correlation with GDP as both have same drivers for
growth. Demand for paints is both, derived as well as direct. The demand for decorative
paints is a direct demand whereas the demand for industrial paints is a derived demand.

Demand drivers for Paints Industries

Increase in Per capita consumption of paints:

The per capita consumption of paints in developed countries is around 15-25 kgs and world
average is around 15 kgs. Comparing this with domestic consumption, India’s contribution
to world paint markets is 0.6% with per capita consumption of around 800-900 gms. Based
on the expenditure in the construction activity and increase in the repaint activity coupled
with industrial growth, the industry is expected to increase at a 11.85% CAGR over next
three years

Increase in Real Estate Investments:

The demand for decorative paints is directly related to the increase in the investment in
the real estate thus increasing the cement area. Out of the total demand for decorative
paints, around 30-40% of the demand comes from the fresh construction (Source:
CrisInfac). The size of real estate industry is estimated to grow to Rs. 18,517 Bn, over next fi
ve years period (Source: CrisInfac). Investment in real estate will be primarily led by
housing, which is expected to account for nearly 90% of total investment in the sector
(Source: Cris-Infac). India’s robust economic growth and resultant increase in income are
speeding up the pace of urbanization.

On other hand, repainting activity which accounts for 70% of the decorative paint demand is also
increasing, mainly due to increase in per capita income. The demand from the repainting activity has
increased by 6-7 percent in last two year. Based on the expected investment in the housing, demand for
paint is expected to increase at a CAGR of 12 percent over the next 5 years (source: CRISINFAC).
Increase in Industrial Paints:

The industrial paint segment is divided into automotive industrial paints and non-automotive industrial
paints. Increase in income levels of the consumers contributes towards the growth in the auto-segment
and growth in the industrial segments like power, road and infrastructure leads to growth in the non-
automotive segment. Along with these, growing needs for consumer durables and export opportunity
for auto ancillaries will also contribute towards the growth of industrial paints.

Increase in Per Capita Income:

The above mentioned increase in demand for paints is backed well by increase in per capita income.
Due to increase in disposable income, Indian consumer is expected to shift from lime wash to paints and
those already consuming paints would move up the value chain. On other hand, the increasing capacity
would also drive automotive and consumer durable, thereby increasing the consumption of industrial
paints.

Asian Paints is also present in industrial and automotive coatings, chemicals, adhesives and
home décor. Its business legacy has ensured that the company has a wide and well-entrenched
distribution network of more than 55,000 dealers across the country.

As a market leader, having the ability to pass on price increases acts as a formidable moat for the
company. It is one of the best promoter-owned and professionally-run companies in India with a
track record of consistent growth and dividend payout.

The growth of paints industry is closely linked with the GDP growth — it grows 1-1.5 times the
GDP. In a fast growing country like India, there are some clear factors like rising paint
consumption (at the retail, industrial and government level), rising frequency of repainting,
urbanisation, affordable housing, gradual shift from unorganised to organised sector,
infrastructure growth and an aspirational consumer keen on

The company has ventured into new areas like home décor, sourcing of talent and increasing
brand awareness. It has experimented with innovation in retail by launching AP Homes, a retail
store offering products and solutions across categories that include paints, wall papers, kitchen,
bath fittings, sanitary ware, furnishings and light fittings.

The company’s revenue has grown at a compound annual growth rate (CAGR) of 7.5% to
Rs16,824 crore in the past five years. Net profit has grown at double this rate during the same
period to Rs2,097 crore in FY18. The company has maintained an operating profit margin of
more than 19% in each of the last three fiscal years. Its crude oil-linked raw materials constitute
over 55% of its revenues, hence volatility in oil prices has a repercussion on the sourcing of
materials as well as the market valuation of the paint companies.
Asian Paints’ average dividend payout in the past three fiscals is 48% and its stock has been a
wealth creator for its long-term investors. Little wonder that it is richly valued on the bourses —
trading at 61 times its past four quarters earnings.

Asian Paints, one of the country’s largest paint markers, posted a 20 per cent higher consolidated
net profit of ₹672 crore in the quarter ended December 31, 2019 as raw material costs were
lower (about 8 per cent y-o-y) due to lower crude oil prices. It was also helped by lower tax
outgo compared to the same period last year.

Revenue growth was subdued as its mainstay decorative segment saw sales impacted by the
overall consumption-led slowdown in the economy during the period. The company reported
revenue of ₹5,131 crore, a growth of 3 per cent y-o-y in the recent quarter. The company’s stock
ended 2 per cent at ₹1,773.

The decorative segment, which contributes to 70 per cent of the company’s revenue, reported
low double digit volume growth. Industrial segments continued to be impacted by the slowdown
in the automobile industry. But the impact was largely offset by the volume growth from
decorative segment.

The operating margin of the company improved by 100 basis points to 22 per cent in the
December quarter 2019 aided by lower raw materials costs.

PRICING STRATEGIES OF AP.

Pricing policies represents the general frame work with in which
pricing decisions are taken. It provides guidelines to carryout
pricing strategy. There are five stages in developing the pricing
strategy. Like any other activity strategy formulation starts
pricing with the clear statements of objectives. It is essential that
pricing decisions be integrated with the firm’s overall marketing
program.

Formulation of marketing strategy is not a onetime

phenomenon. It should be flexible that is can be
moulded according to the need of the hour because
pricing strategy is the plan of action to face the
challenges of a particular market situation.

Asian Paints Competition

Below are the top 6 Asian Paints competitors:

1.Jenson & Nicolson India Limited.

2. Kansai Nerolac Paints
3.Akzonobel

4. Sherwin-Williams

5. Nippon Paint

6. PPG Industries

7.berger paints
Fierce competition and foreseeable increase in raw material prices are likely to impact earnings
of the largest paint manufacturing company — Asian Paints — in the coming quarters. The
company will continue to face cost pressures from increasing input prices and given the rising
competition, it would be financially difficult for the company to pass on this increased cost to the
consumers.

Major raw materials for paint manufacturing companies are crude-linked and titanium dioxide.
Prices of titanium dioxide are likely to be increased from the beginning of 2012. Besides this, its
major competitors have become very aggressive in terms of advertisement spends and product
innovations. Its major competitors include Akzo Nobel, Kansai Nerolac, Berger and Nippon.

They have significantly increased their advertisement spends over the past few years. For
instance, Akzo Nobel, known for its Dulux brand, spends roughly 9% of its sales on advertising
and marketing, compared to 4% five years ago. Additionally, these companies have been
launching more and more innovative products and have kept a target of increasing their market
share by 1-2% year-on-year.

This will limit the company’s ability to pass on the increased cost to the customer. The impact of
all this is clearly visible in the company’s operating margins over the past few quarters. In the
recent September quarter, the operating margin was 15.5% down by 400 basis points YoY.
Given the increased competition, growth in sales volume seems difficult. The company has
gained 9% market share in the past five years. Currently, it has around 53% market share in the
paints industry. Its sales volume grew 16% during the same period.
This could be mainly due to successful advertising campaigns by the company in the previous
years when competition was less active. But maintaining a similar growth in the future appears
unlikely. Besides, the slowdown in the overall demand for paint will make it even more difficult.

Challenges Faced by the Industry

Some of the prominent challenges for Indian paint industry are:

 Seasonal Demand:

Paint Industry is a seasonal industry. The demand shoots up during the Diwali
season or other festive seasons and it will be low in the rainy season.

 Inventory Management at Dealer Level:

The product differentiation is minimal in paint industry. The very close substitutes
are readily available (e.g. ICI Dulux can be a very close substitute for Asian Paints Royale).
Hence the inventory management at the dealer level is of a prime importance. It is also
important for brand visibility and occupying the shelf space.

 Distribution Costs:

Distribution costs are important for a lower price product like Distemper. The
Distemper is a stiff paint and is sold on weight basis. It is called as the “Bread and Butter” of
the paint industry as the consumption is highest for this product. Hence, the cost associated
with distribution of it is of prime importance.

 Shade Offerings:

As the shades offered by the paints companies are very high in number, (e.g. Asian
paints offers more than 1200 own shades), the problem of distribution becomes very
significant. The demand for a particular shade may peak up suddenly in a particular region.
The inventory management at the distributor and dealer level is of great importance.

 Low Per Capita Consumption:

As mentioned earlier, the per capita paint consumption in India is in one of the
lowest. It stands at mere 815 gms per person per annum as compared to the 25 kg per
person per annum in US. This shows the lower penetration of the paint industry in the
country. The paint companies have to educate the customers that they should go for the
repainting of their houses frequently. This is a very unique feature of the industry that the
Indian people will go for repainting either for some festival such as Diwali or occasions like
Marriage or when the repainting is absolutely unavoidable.

 Competition from the Unorganized Players:

A critical challenge in the paints industry was the competition from the
unorganized players; who were not liable for excise as well as other taxes. Reduction of
excise duties over the last few years, from 40per cent to the present level of 12per cent, has
helped to create a level playing field between the unorganized and organized segments.

 Low Per Capita Consumption:

As mentioned earlier, the per capita paint consumption in India is in one of the lowest. It
stands at mere 815 gms per person per annum as compared to the 25 kg per person per
annum in US.

Some of the prominent challenges for Indian paint industry are:

•Seasonal Demand: Paint Industry is a seasonal industry. The demand
shoots up during the Diwali season or other festive seasons and it will
be low in the rainy season. •Inventory Management at Dealer Level:
The product differentiation is minimal in paint industry. The very close
substitutes are readily available (e.g. ICI Dulux can be a very close
substitute for Asian Paints Royale). Hence the inventory management
at the dealer level is of a prime importance. It is also important for
brand visibility and occupying the shelf space.

Distribution Costs: Distribution costs are important for a lower price

product like Distemper. The Distemper is a stiff paint and is sold on
weight basis. It is called as the “Bread and Butter” of the paint industry
as the consumption is highest for this product. Hence, the cost
associated with distribution of it is of prime importance. •Shade
Offerings: As the shades offered by the paints companies are very high
in number, (e.g. Asian paints offers more than 1200 own shades), the
problem of distribution becomes very significant. The demand for a
particular shade may peak up suddenly in a particular region. The
inventory management at the distributor and dealer level is of great
importance. •Low Per Capita Consumption: As mentioned earlier, the
per capita paint consumption in India is in one of the lowest. It stands
at mere 815 gms per person per annum as compared to the 25 kg per
person perannum in US. This shows the lower penetration of the paint
industry in the country. The paint companies have to educate the
customers that they should go for the repainting of their houses
frequently. This is a very unique feature of the industry that the Indian
people will go for repainting either for some festival such as Diwali or
occasions like Marriage or when the repainting is absolutely
unavoidable.•Competition from the Unorganised Players: A critical
challenge in the paints industry was the competition from the
unorganised players; who were not liable for excise as well as other
taxes. Reduction of excise duties over the last few years, from 40per
cent to the present level of 12per cent, has helped to create a level
playing field between the unorganised and organised segments.
Growth Drivers of Indian Paint Industry

Major growth driver of Indian Paint Industry are elucidated as under:

1. Increasing level of income and education – There has been considerable rise in the
proportion of young population. Also a increasing trend in the disposable income has been
witnessed which is leading to a change in consumer habits. The Indian economy is shifting from
a savings economy to a spending economy. With more income at disposal people are opting for
better products and paint is no exception.

Education too has helped in the making people brand conscious. People look to seek value for
their consumption. As far as paint is concerned, the companies offering additional features like
non-toxicity, weather protection, texture, eco-friendly production, etc. attracts more demand
these days. These products also help the manufacturers earn a better premium as compared to the
regular paints thus a scope of earning high margin is created.

2.Increasing Urbanization – Urbanization has resulted in a shift from temporary house to

permanent houses. People opting for permanent house in urban areas are looking for well-
designed interior and exterior aspect. As a result this calls for more house being painted using
medium and premium paints. Interiors are becoming a matter of style statement for the the
people residing in urban areas and thus an increase in the per capita consumption of paint is
witnessed. The overall demand of the paint is also driven by such behavioral attribute of people.

3. Increasing share of organized sector – There has been considerable decrease in taxes on raw
materials. This has helped improve the status and position of the organized players. The
organized sector is expanding and its distribution network is growing. The adoption of installing
tinting machines at retail outlets has helped the sector grow at a much faster rate. These tinting
machines offers a wide variety of color shade options to choose from. The unorganized players
on the other hand are unable to provide such facility as they face capital crunch.

4. Growth of Realty, Automobile and Infrastructure sector – Paint industry is highly

dependent on development of realty and housing sector. For the total paint demand, over 70% is
generated from the decorative segment. Automobile segment generates over 66% of the demand
of industrial paint. Infrastructure segment creates direct and indirect demand for paints through
supporting the growth of the realty, automobile, FMCG and other industries where paint is used.
The growth potential in the 3 sectors is immense and paint industry being dependent on these is
expected to show strong growth.

5. Availability of financing options – Easy financing is available for housing and automobile.
This is expected to favour more people to buy houses and travel in personal vehicles. This in turn
drives the growth of housing and automobile sector for which paint industry get its share

6. Increasing Penetration in the Rural Markets – Distemper segment is the primary product
used in rural areas. Thus it is dominated by the unorganized players. Demand is dependent on
agriculture which again is dependent on the monsoons. Development of irrigation helped in
reducing the dependence on monsoon. Thus with the modernization of agriculture and
accompanying development of rural India, consumer preferences are expected to improve.
Distribution network is increasing in rural areas to tap the relatively untapped market.

Thus to conclude we can say that these factors supported by the increasing penetration of the
paint companies will help drive the demand of paint and the sector will grow manifold in coming
years.