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Paint Industry Analysis

simconblog / November 15, 2015

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Paint Industry Overview

The Indian Paint Industry began over a 100 years ago with the setting up of Shalimar Paints in
Calcutta(now Kolkata) in 1902.After World War II many manufacturing facilities were started by local
entrepreneurs. Currently the Paint industry in India is estimated to be around Rs 40,000Cr.

Paint is made up of four basic ingredients i.e. pigment, resin, solvent and additives. The types of
paints available in the market and their utility are:

Acoustic Paint: specially designed for acoustic tiles

Alkyd Resin Paint: good trim, doors, faux finishes and other maximized use areas
Drip less Paint: This paint is thicker and is most suitable for application on ceilings
Latex Paint: good for applicability and it dries much quickly & easier to wash.
One-Coat Paint: It is the more expensive version of the latex and alkyd paints and is mostly
chosen for surfaces that require flawlessness in color.
Primers: paint used in the initiation for all interior paint works.
Rubber-Base Paint: This is best for concrete and bricks.
Textured Paint: If need is to cover any flawed surface in your house get this paint. It works well
on ceilings.

Paints can be classified as Decorative Paints & Industrial Paints.

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Decorative Paints:

Major segments in decorative include exterior wall paints, interior wall paints, wood finishes and enamel
and ancillary products such as primers, putties etc. Decorative paint segment comprises 70% of the $2
billion Indian Paint Industry. Asian Paints is the market leader in this segment. Demand for decorative
paints arises from household painting, architectural and other display purposes. Demand in the festive
season (September-December) is significant, as compared to other periods. This segment is price
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Industrial Paints:
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 Three main segments of the industrial sector include automotive coatings, powder coatings and
protective coatings. Kansai Nerolac is the market leader in this segment. User industries for industrial
paints include automobiles engineering and consumer durables. The industrial paints segment is far
more technology intensive than the decorative segment. An average increase of growth of about 10% in
the automobile sector contributes to 50% of the revenues in the industrial paints segment

Paint Industry Size

India has more than 20,000 outlets in operation, probably the highest for any country.30% to the paint
industry revenue in India is accumulated from Industrial Paints. The size of the Paint Indian industry is
around 940 million litres and is valued at approximately $2 billion. The organized sector comprises 54%
of the total volume and 65% of the value. In the last ten years, the Indian Paint Industry has grown at a
compounded annual growth rate (CAGR) of 12-13%.

The market for paints in India is expected to grow at 1.5 times to 2 times GDP growth rate in the next
five years. With GDP growth expected to be over and above 7% levels, the top three players are likely
to clock above industry growth rates. There are high volumes of low cost distempers sold in India,
which amounts to approximately 200,000 tons per annum at an average cost of Rs35 per kg ($0.88) at
the present rate

Top leading Companies

Asian Paints India: Asian Paints is one of the best discretionary plays on macro recovery given
that paint volumes surge a healthy 1.5‐2.0x GDP. Moreover, decisive policy measures by the
new business‐friendly government will spur urban demand. Diversification into water proofing,
modular kitchens and bath fittings places the company in a sweet spot to corner higher wallet
share (Masco Corp in US has done this successfully). With 22% EPS CAGR, 347bps RoCE
spurt over FY14‐17 and metamorphosis into a home décor company, its valuations will remain
high.

Kansai Nerolac: Kasai Nerolac is the third largest decorative paint company in India in terms of
market share. The company has good brand strength, particularly in the interior paints segment
with brands like Nerolac Impressions, Nerolac HD etc. It has high exposure to the industrial
paints segment (~45% contribution), which has resulted in the company’s subdued performance.
The company has taken significant initiatives to improve revenue from the decorative business. It
recently launched HD paints under Nerolac and was the first player to launch eco‐friendly Zero
VOC, low VOC, low odour range of decorative paints.

Berger: Berger Paints (Berger) is the second largest paint company in India after Asian Paints in
terms of market share. The company has a strong brand name with brands like Berger Easy
Clean, Silk, Rangoli, WeatherCoat etc. The company has a strong distribution network of 16,500
dealers and has ~12,000 tinting machines. As far as international operations are concerned,
Berger has presence in Russia where it has a production facility with a manufacturing unit in
Krasnodar. The company entered Nepal in 2000 when it acquired Jenson & Nicholson. It has
also acquired Bolix SA of Poland and also tied up with Becker of Sweden. In 2013, Berger
acquired the decorative business of Sherwin Williams India. Berger recently commissioned its
Hindupur plant (total capacity of 300,000Kl) in Andhra Pradesh and will increase its capacity in a
phased manner

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 Porter’s Five Force Analysis

1. Threat of New Entrants- Medium

Paint market in India is dominated by few players, making it difficult for anyone newly entering the
industry to compete. Working capital needed is high-causes difficulty to local players & big firms enjoy
economies of scale. Big players have high brand image & quality products & good promotional activities
to attract customers.
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The Indian Paint industry is raw material intensive industry with more than 300 products going into the
manufacturing of the final products. The raw material can be divided into different categories like
 pigments, additives, solvents, binders etc. Titanium Dioxide is one of the key pigment used in the
production of paint and is facing a global supply shortage. Thus supplier of this material has good
bargaining power.

3. Bargaining power of buyers- Medium

Households and Industrial Users are the main customers of this industry. For housing requirements, the
buyers are building contractors who buy in bulk and end people who paint their house. Customers are
more price sensitive because for them number of options are available and decisions are made based
on quality, price and differentiating factors like weather protection, environment friendly paints.Industrial
segment is low margin high revenue business and buyers of these segments are knowledgeable about
their needs. Therefore, price comparison is done effectively by the customers. However, the leading
Industrial paint suppliers have their expertise in their favour, which limits the bargaining power of
buyers.

4. Threat of Substitutes- Low

The availability of substitute is very minimal. In the rural areas lime wash is conventionally used
substitute for paints. One alternative option for decorative walls available today is Wallpaper. Buyer
propensity to substitute is low. Relative price performance of Decorative walls is also high.

5. Intensity of Rivalry- Low to Medium

About 80% of organized market is created to by the major players of Indian Paint Industry. But the
current market growth rate can provide ample room of opportunity for all the players of the industry to
flourish. However, competition will keep on increasing as market will get saturated, but this will take
some time to happen, till then one can keep satisfy customer need with good margin. Also, presence of
unorganized sector can cause competition.

Factors affecting Paint Industry

Increasing level of income & education

Increasing urbanization
Increasing share of organised sector
Development of the Realty, Automobile and Infrastructure sector
Availability of financing options
Increasing Penetration in the Rural Markets

Prospects:

The market for paints in India is expected to grow at 1.5 times to 2 times GDP in the next five
years. With GDP growth expected to be between 5-6% levels, the top three players are likely to
clock above industry growth rates in the future, considering they have a strong brand and good
reach.
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The market size of the paint industry in India is estimated at around Rs 40,000cr. Industry
players expect close to 12% growth in business volume and 10-12% rise in sales in FY15.
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 Decorative paints segment is expected to witness higher growth going forward. The fiscal
incentives given by the government to the housing sector have immensely benefited the housing
sector. This will benefit key players in the long term.

Although the demand for industrial paints is lukewarm it is expected to increase going forward.
This is on account of increasing investments in infrastructure. Domestic and global auto majors
have long term plans for the Indian market, which augur well for automotive paint manufacturers
like Kansai Nerolac and Asian-PPG. Increased industrial paint demand, especially powder
coatings and high performance coatings will also propel topline growth of paint majors in the
medium term.

Latest Developments:

The rural market grew 20 per cent in 2013-14. Rural India’s incremental consumption
expenditure is growing well
Asian paints to invest Rs 2,300-crore on new plant in Karnataka
Government likely to extend validity of environment clearance to Asian Paints’ project in
Telangana
Berger paints plans 2 new plans in Assam
Berger Paints unveils new initiative ‘Express Painting’ for painting residential buildings
Kensai Nerolac to set up new manufacturing plant at Gujarat
Indian per capita consumption of paints is at 0.5 kg per annum if compared with 4 kgs in the
South East Asian nations and 22 kgs in developed countries.
Organized sector in India controls 70% of the total market with the remaining 30% being in the
hands of nearly 2000 small-scale units.
In India 30% accounts for the industrial paint segment in paint Industry while the decorative paint
segment accounts for 70 % of paints sold in India

To conclude, the paint industry has a promising future in India, provided players in the market
implement innovation and cutting edge technology to combat the negative factors.

Reference:

http://www.indianmirror.com/

https://www.equitymaster.com

http://www.ipaindia.org/

http://www.coatingsworld.com/

http://www.moneycontrol.com/

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November 15, 2015 in Industry Analysis. Tags: Paint Industry

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