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LOTUS KNOWLWEALTH
Creating Wealth through Knowledge

SECTOR REPORT
PAINT SECTOR
An INDEPENDENT Research Initiative We are NOT a Broking House Date: April, 2008
ISIEmergingMarketsPDF in-bcg3 from 202.56.139.29 on 2011-08-08 01:19:41 EDT. DownloadPDF.

Date of Report: 30th June, 2008

www.theipoguru.blogspot.com
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decoratives. Good monsoons result in higher agricultural output and have a positive effect on the GDP growth. is technology intensive and finds applications in sectors such as automobiles. The application of paints can be broadly divided into three categories viz. consumer durables. decorative growth is affected by growth in housing. www. So. agriculture and disposable income of people and the overall economic performance of the country.com Downloaded by in-bcg3 from 202. Also the level of technology in the manufacturing of decorative paints is not very significant. Demand for paints comes from both new houses and repainting.. ISIEmergingMarketsPDF in-bcg3 from 202.56. It is broadly divided into interior paints (emulsions. infrastructure projects and the manufacturing.139. . This depicts the potential for the sector to grow. Unauthorized Distribution Prohibited.blogspot. wood finishes) and exterior paints. The paints industry is estimated to grow at a CAGR of 13-15% over the next three years and this is mainly on account of the rising income level.29 at 2011-08-08 01:19:41 EDT. This segment is price sensitive and is a high margin business as compared to industrial segment. the paint sector will benefit and vice versa. Thus a growth in the demand for new houses would spurt the demand for decorative paints. however. The demand for paints is seasonal in nature.139. expected growth in construction activities and growth in manufacturing activities.theipoguru.56. While the Industrial paints business is driven by growth in automobile & white goods segment. enamels. industrial and automotive. In the festive season (SeptemberDecember) it is high. when GDP growth is high. The demand in Festive season is dependent on monsoons and economic performance.29 on 2011-08-08 01:19:41 EDT. The growth in revenues is also dependent on the growth in the housing sector. as compared to other periods. The per capita consumption of paints in India is still low at 1% as compared to that in Europe and the US.LKW LOTUS KNOWLWEALTH Creating Wealth through Knowledge Indian Paints Industry The Indian paint industry is witnessing substantial growth on account of the boom in the infrastructure space. being the market leader with close to 26% market share in Indian paint market would be the prime beneficiary of this. Decorative paints accounts for over 75% of the overall paint market in India. Asian Paints Limited. DownloadPDF. ISI Emerging Markets. The industrial and automotive paint manufacturing.

DownloadPDF.blogspot. Further. A hike in the price of petroleum directly impacts the bottom lines of companies.theipoguru.com Downloaded by in-bcg3 from 202. It is for this reason that smaller companies and small scale sector units are slowly losing market share to the organized sector. Domestic players have tied up with global majors like Nippon Paints. Most of the raw materials used in making paints are petroleum based. Thus the paint companies benefit when the prices of the crude products go down. to advertise and develop a brand over a period of time can only be afforded by companies in the organized sector. results in cheaper raw material cost for ISIEmergingMarketsPDF in-bcg3 from 202. The huge investments required in setting up a vast marketing and dealership network.29 on 2011-08-08 01:19:41 EDT. The unorganized players were the ones not paying taxes and were unable to sell products at a cheaper rate and had no significant investments in technology. PPG and Kansai for technology. DuPont. . The organized segment constitutes around 54% of the total volume and 65% of value of paints industry.56. The remaining players in organized business are largely present in non-auto industrial segment. The last year witnessed a phenomenal growth in the auto space helping the Paints industry. the top 6 players account for around 84% by volume and 63% by value. Unauthorized Distribution Prohibited. and the unorganized players are mainly operational in decorative paints segment as industrial paints requires high technological know how and client tie-ups. Due to fall in excise duty. Asian Paints is a market leader in the decorative paints segment and has recently bought a stake in ICI.56. in organized segment.139. Demand for automobiles in turn is dependent on income growth and interest rates.LKW LOTUS KNOWLWEALTH Creating Wealth through Knowledge Increased demand for automobiles tend to have a positive impact on automotive paint manufacturers. Further a reduction in customs duty. ISI Emerging Markets.139. organised players. www. whereas Kansai Nerolac is the market leader in the Industrial paints segment. The Indian paint sector has the co-existence of the organised and unorganised players. unorganised players are losing competitiveness.29 at 2011-08-08 01:19:41 EDT.

Margins of paint industry have remained under pressure as the major raw materials are derivatives of crude. and the crude prices have moved up. Moreover.139. to the chemically-complex.29 at 2011-08-08 01:19:41 EDT.blogspot. epoxy resins. Unauthorized Distribution Prohibited.139. consistency and other properties of the final output. They are generally used to bring down the viscosity of paints to the desired level. it is also a long drawn process. In decorative water-based products like Interior & exterior emulsions. resins and plasticizers that give paints its protective property.56. Additives are added in small proportion to the paint to improve its performance characteristics in various ways. ISIEmergingMarketsPDF in-bcg3 from 202. polyesters. driers are included in this category. it is difficult to pass on in Industrial products. for use as decorative or protective coatings.theipoguru. Even with the softening of crude prices. multi-component finish that the automobile manufacturers apply on the assembly line. which also reduces the cost of paint formation. wetting agents. Paint is defined as the group of emulsions. the prices of crude derivatives have not moved down proportionately thus indicating an upward price movement in future. fungicides. They constitute 70%-75% of the paint liquid and ultimate escapes into the atmosphere when the fluid dries. . forming one-third of the total raw materials costs are Pigments which are finely ground solids and determine the colour. ISI Emerging Markets. Demand Supply Dynamics www. DownloadPDF.29 on 2011-08-08 01:19:41 EDT. amino resins. While it is easier to comparatively pass on the burden of increase in raw material prices in decorative products. consisting of pigments suspended in a liquid medium. Binders are generally oils.com Downloaded by in-bcg3 from 202.LKW LOTUS KNOWLWEALTH Creating Wealth through Knowledge One of the major raw materials. emulsion polymers. suspend or change the physical properties of other materials. powder coating resins etc. Skinning inhibitors. Raw material cost typically account for around 50% of sales of a paint company High cost and erratic availability of raw materials affect the Indian paint industry. “Paint” ranges from the broad group of environmentally-sound latex paints used to decorate and protect homes and the translucent coatings that line the interior of food containers. Wood finishes offer higher margins. Solvents are volatile organic compounds (VOC) used to dissolve.56. Most resin manufacturers make alkyds.

Even Sri Lanka and Pakistan have higher per capita paint consumption. Choguku (marine). and use of chuna (lime powder) and French polish (paint substitutes). and semi-pucca homes (semi-temporary).139. The unorganized sector itself constitutes 25-30% of the market. A number of foreign players have subsidiaries in India including: Jotun (powder. automotive refinish paints. There are many players in the Indian paint market.blogspot. ISI Emerging Markets.S. The low per capita paint consumption until recently can be linked to the large number of kuccha (temporary).139. Akzo-Nobel (powder. The top four companies—Asian Paints. the long repainting cycle. . DownloadPDF. the small size of homes. The demand for decorative paints is a direct demand whereas the demand for industrial paints is a derived demand. www. The Indian paint industry has been growing at an average rate of 13% over the last five years.2-1.theipoguru. Berger. automotive OEM and automotive refinish paint markets will be operating in India. Kansai Nerolac and ICI (India)—constitute more than 5. In addition to these. Demand for paints is both.56. As a result. and Becker (coil coatings). However.29 at 2011-08-08 01:19:41 EDT. Unauthorized Distribution Prohibited.29 oncoatings and powder coatings.56. Nippon Paints (decorative). derived as well as direct. there are more than one thousand other companies in both the organized and unorganized sectors. The other large segments are automotive OEM paints. all the leading international players in the decorative. marine and decorative). India’s market is dominated by the decorative paint and coatings segment. India also imports a small volume of specialty wood finishes including polyester and polyurethane water-based coatings and special effect emulsions. protective 2011-08-08 01:19:41 EDT.5% of the Indian domestic market.LKW LOTUS KNOWLWEALTH Creating Wealth through Knowledge The industry has a positive correlation with GDP as both are drivers for growth. The industry is less than half the size of the Chinese market by volume and about one fifth of the U. protective and automotive refinish). DuPont (automotive refinish). the per capita paint consumption in India is only 1. market by volume. ISIEmergingMarketsPDF in-bcg3 from 202.4 liters. Architectural coatings largely used in households constitute almost three-fourths of the market’s value. Others like Sherwin Williams are in the process of entering India. low purchasing power.com Downloaded by in-bcg3 from 202.

Comparing this with domestic consumption. India’s robust economic growth and resultant increase in income are speeding up the pace of urbanization.139. Out of the total demand for decorative paints. ISIEmergingMarketsPDF to world paint markets on 0. increasing décor-consciousness and gradual replacement of chuna.139. The automotive OEM segment too should grow at least at 15% per annum powered by the projected high growth in the automotive segment. the next decade should see a value growth in the region of 15-20% per annum due to reduction in poverty levels. DownloadPDF.56.29 at 2011-08-08 01:19:41 EDT. the industry is expected to increase at an 11. India’s contribution in-bcg3 from 202.6% 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.517 Bn. Investment in real estate will be primarily led by housing. which is expected to account for nearly 90% of total investment in the sector. Thus if the Indian economy maintains its growth rate at the recent high levels.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. .LKW LOTUS KNOWLWEALTH Creating Wealth through Knowledge In the decorative segment. around 30-40% of the demand comes from fresh construction (Source: CrisInfac). ISI Emerging Markets.29 is 2011-08-08 01:19:41 EDT. construction of new homes.blogspot. Housing investments (permanent. 18. In India. we should see value growth of at least 15% annually in the Indian paint industry over the next five years. Unauthorized Distribution Prohibited.com Downloaded by in-bcg3 from 202. over next five years period. The size of real estate industry is estimated to grow to Rs. about three fourth (3/4) of real estate development is for residential use and the balance one fourth (1/4) is predominantly for commercial use. www. non-slum houses) are expected to grow at a CAGR of 12% over the next 5 years period.theipoguru. 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.56. higher inclination to spend.

. In the case of automotive paint ISIEmergingMarketsPDF in-bcg3 from 202. benefits industrial paint manufacturers. Nippon and PPG of USA. Thus the announcement by the government on higher public spending. Demand for automobiles in turn is dependent on income growth prospects and interest rates.139.e. the ability to pass on any rise in input is weaker i. The demand from the repainting activity has increased by 6-7 percent in last two years. This gives consumers the incentive to shift from lime to paints. increased spending in infrastructure plays a vital role in boosting paint demand. mainly due to increase in per capita income.29 at 2011-08-08 01:19:41 EDT. They are now in line with those of substitute products like lime wash.blogspot. distemper etc.com Downloaded by in-bcg3 from 202. Unauthorized Distribution Prohibited.29 on 2011-08-08 01:19:41 EDT. Prices in line with substitute product: Large scale of operations and technical know-how has helped prices of paints to come down. Import Scenario: Climatic conditions in India are not conducive for foreign formulations and the modification cost in product formulation is quite high. In-order to face this competition organize players outsource small part of their production (25-30%). It negates the further supply from the international markets even after reduction of import duty from 40% to 15. demand for paint is expected to increase at a CAGR of 12 percent over the next 5 years. repainting activity which accounts for 70% of the decorative paint demand is also increasing.56. Automotive paint manufacturing is technology intensive and Indian manufacturers have technical collaboration with foreign players like Kansai. imports are no significant threat to the Indian players. manufacturers.. most of the major players in the industry already have a tie-up with global players for latest technology. Based on the expected investment in the housing. 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.theipoguru. bargaining power of customers is higher. manufactured by local players. As far as industrial paint segment is concerned. DownloadPDF. ISI Emerging Markets.LKW LOTUS KNOWLWEALTH Creating Wealth through Knowledge On other hand.3% in last 8 years.139. As a result. Industrial Paints Increased demand for automobiles tends to have a positive impact on automotive paint manufacturers. www. In case of industrial paints.56.

enhanced employment and expanding per capita income that should lead to a higher purchasing power. rutile (imported and mainly used by the Indian paint industry) and anatase (manufactured domestically).200 crore in 2006-07. It takes around 300 different raw materials to make paint.139. there are other petroleum based raw materials which constitute around 40-50% of total raw material consumed. ISI Emerging Markets. INDUSTRY OUTLOOK The size of the Indian paint industry was estimated at Rs 10. of which organized players account for 75%.5% per annum. The unorganized sector comprises 2. www.29 at 2011-08-08 01:19:41 EDT. Unauthorized Distribution Prohibited. Any increase in the interest rate can subdue the demand for the new houses and lead to a slowdown in the demand for paints.288 million square feet during FY06-08E.139.e.56. Construction activity grew at a robust rate from 7. Over the last few years. translating into increased production. most of which are petroleum based.29 on 2011-08-08 01:19:41 EDT. Construction boom India is currently witnessing a boom in construction. the organized sector has become highly concentrated. Robust economic growth The Indian economy is growing at a robust pace of over 8. De-growth in end-user industry Demand for paints is directly from the construction and automobile industry. It constitutes around 30% of the total manufacturing cost.000 odd players that are widely scattered. . DownloadPDF. Fresh demand for paints accounts for 40%.LKW LOTUS KNOWLWEALTH Creating Wealth through Knowledge Cost Structure The paint industry is raw material intensive industry. ISIEmergingMarketsPDF in-bcg3 from 202.com Downloaded by in-bcg3 from 202. Increasing real estate development is the major demand driver for paint industry.blogspot. TiO2 is available in two grade i. while re-paint demand is around 60%.56. Any de-growth in these industry will cap the growth in paint industry.396 million square feet to 8. Besides TiO2. while the unorganized sector has remaining 25%. Titanium Dioxide (TiO2) is the largest consumed raw material for manufacture of paints. with the top six players enjoying a market share of 84% in volume terms.theipoguru.

wood finishes.LKW LOTUS KNOWLWEALTH Creating Wealth through Knowledge Among the organized players. primers and others. The industrial paints segment is dominated by the organized sector with its high technology orientation. The utilization rates in the paints industry is relatively low at 60-65%. auto ancillaries. During periods of significant increase in material costs. ISI Emerging Markets. the decorative segment accounts for Rs 5.800 crore in value term. Kasna.139. It sells its products under several brand names such as Royal for the premium segment. Utsav. consumer durables. The company has presence in both decorative and industrial coating segment of the paint business. The industrial coating segment comprises automotive coating.139. prices ISIEmergingMarketsPDF in-bcg3 froma202. APL has also diversified into www.theipoguru.700 crore. whereas demand for industrial paints is derived from user industries such as automobiles. 3-Mango. etc. Demand for paints is direct as it is used for new houses and repainting.56. MAJOR PALYERS ASIAN PAINTS LTD Asian Paints (APL) manufactures wide range of paints for Decorative and Industrial use. Sriperumbudur. realization per tonne has not varied significantly over the years on account of the competitive nature of the market and the need to maintain attractive pricing. marine vessels and containers. Apcolite for the middle segment and Gattu. Company’s product range includes wall paints. Sarigam.com Downloaded by in-bcg3 from 202. as the focus has been on volume growth. marine vessels and containers. and depends on the level of industrialization in the country.29 on 2011-08-08 01:19:41 EDT. have been hiked but to limited extent. auto ancillaries. The automotive segment accounts for the largest share of the industrial paints. as paint capacities are mainly designed to meet peak demand requirements during festive season. In the industry.blogspot. Ankleshwar. Tractor. DownloadPDF. in the lower segment.56. Baddi etc. . In India it has manufacturing facilities at Bhandup. Unauthorized Distribution Prohibited. Industrial paints cater to industries such as automobile. metal paints. It caters to markets across 65 countries and is a market leader in 11 countries. APL operates in 20 countries and has 28 paint manufacturing facilities in the world.29 at 2011-08-08 01:19:41 EDT. powder coating and protective coating. consumer durables. Patancheru. while industrial paints accounts for Rs 1.

56. and Weathercoat for exteriors are.139. wood. complimented with the largest network of dealers. Subsidiaries include Beepee Coatings. ISI Emerging Markets. APL has secured a plot of 130 acres at Rohtak in Haryana for setting up a paint plant with a first phase capacity of 150. Production facilities are located in east. backed by strong housing demand and growing international business make the stock attractive. and special applications like water storage etc. APL has set up this plant exclusively for waterbased products. KG. of Japan to manufacture automobile plastic substrate coatings. west and south India. The company’s sales initiatives like color world and home solutions.000 tons per annum (tpa) in FY10 at capital expenditure of Rs 3 billion. Unauthorized Distribution Prohibited. and powder coatings. BERGER PAINTS LTD Berger Paints India (BERGEPAINT) is engaged in the manufacture and sale of decorative and industrial paints and coatings. metal. Acrylic brands like Luxol. The existing capacity is 600 KL a month and contributes 24% of total sales. Farbenfabrik GmbH & Co.56. Luxol Hi-Gloss is the national hallmark for excellence in paint enamel. DownloadPDF. (coating on bumpers and other plastic parts). Orica Australia (protective coatings).theipoguru. .com Downloaded by in-bcg3 from 202. APL’s polymer plant in Sriperumbudur was commissioned in Q1 of 2007-08. automobile. Austria (specialized powder coatings) and Nippon Bee Chemical Co. The company is to set up a Rs 500 million automotive paints plant in Pune with a manufacturing capacity of 800 KL of automotive paint a month. Silk and Rangoli for interiors.000 Kilo Litre ( KL) and plans to commission it in Q1 FY09. The company offers decorative paints for all interior and exterior surfaces including concrete.139. It has technical licence agreements with DuPont Performance Coatings (automotive coatings).29 on 2011-08-08 01:19:41 EDT. The company is expanding its capacity by 40% to 494. (automotive coatings). plasticizers.81billion. These are used in paints.29 at 2011-08-08 01:19:41 EDT. The company plans to increase the capacity of this plant to 100. The company’s leadership position and earnings visibility due to increasing offtake in the domestic market. ISIEmergingMarketsPDF in-bcg3 from 202. Its also provides industrial.000 KL by January 2010.blogspot. Berger Jenson & Nicholson www.LKW LOTUS KNOWLWEALTH Creating Wealth through Knowledge manufacturing specialty products such as Pentaerythritol and Phthalic Anhydride. would help expand sales volumes. inks and dyes. Nippon Paint Co. plaster. Tigerwerk Lack-u. They expect a 14% CAGR in sales over FY07-10E to Rs 41. Berger Paints is a joint venture company between BNB Coatings India and Nippon Bee Chemicals Co.

It has joined hands with Cartoon Network.LKW LOTUS KNOWLWEALTH Creating Wealth through Knowledge (Nepal) and Berger Paints (Cyprus) and also has interests in Berger Paints Overseas (Berger Russia). ISI Emerging Markets.6 million (nearly Rs 1. The purchase is conditional upon fulfillment of certain conditions precedent including clearance by the Polish anti-monopoly office. both in terms of new business opportunities and regional markets and will also compliment the company`s existing businesses.139. expansion of facilities in Gujarat and expansion of powder paint manufacturing capacity in Jammu. manufacturing capacity in West Bengal. Also recently the company has issued and allotted 20 million equity warrants to Jenson & Nicholson (Asia).com Downloaded by in-bcg3 from 202.56.A. a Time Warner company. upon receipt of Rs 99 million towards 10% of the total issue price from the allottee. Berger Paints inked pact to acquire 100% in Bolix S. Simultaneously.29 on 2011-08-08 01:19:41 EDT.56.blogspot. a part of the promoter group being the allotee.139. to exploit the kid`s product market and launched a new product called Berger Kidz. UK. Berger is also undertaking several modernization/expansion activities including expansion of solvent based paint plant. www. DownloadPDF. from global private equity group Advent International. for a net purchase price of USD 38. 2008. The proposed acquisition will provide synergy benefits to Berger`s presence in the region. expansion of water based paint and resin manufacturing plant 202. Poland.559 million).theipoguru. The acquisition will be made through a wholly owned subsidiary of Berger Paints India in Cyprus. . In 29th April. installation of resin ISIEmergingMarketsPDF in-bcg3 from in Goa.. Unauthorized Distribution Prohibited.29 at 2011-08-08 01:19:41 EDT.

before its publication.theipoguru. The firm may trade in investments which are the subject of this document or in related investments and may have acted upon or used the information contained in this document or the research or the analysis on which it is based. www. Fairlink Centre. Whilst meticulous care has been taken to ensure that the facts stated are accurate and opinions given are fair and reasonable. LKW’s key strength lies in its EXPERIENCE and INDEPENDENCE. ACA.com Disclaimer: This document has been prepared and issued on the basis of publicly available information. Email: consulting@lotusknowlwealth. Ltd.56.com Downloaded by in-bcg3 from 202.139. Andheri (W). No matter contained in this document may be reproduced or copied without the consent of the firm.theipoguru.blogspot.29 Contact No: +91—022--40105482—85 on 2011-08-08 01:19:41 EDT.56. Off Andheri Link Road.blogspot. Mumbai – 400 053 ISIEmergingMarketsPDF in-bcg3 from 202.LKW About Us LOTUS KNOWLWEALTH Creating Wealth through Knowledge LOTUS KNOWLWEALTH (LKW) PVT LIMITED. an organization promoted by ASHOK KUMAR (B. internally developed data and other sources believed to be reliable. neither the analyst nor any employee of our firm is in any way responsible for its contents. The Research & Advisory Division of LKW offers niche and customized services to Corporates.29 at 2011-08-08 01:19:41 EDT. LLB (Gen). This is just a suggestion and the firm will not be responsible for any profit or loss arising out of the decision taken by the reader of this document. Contact Details: Lotus Knowlwealth Pvt.139. Unauthorized Distribution Prohibited. The firm or its owners may have a position or be otherwise interested in the investment referred to in this document.Com.com www. DownloadPDF. Our aim is to offer UNBIASED & CUSTOMISED Research Output to help investors (institutional or proprietary) take better investing decisions.) He oversees the operations of an experienced team comprising professionals from the fields of economics and finance. . Institutional Investors and HNIs. We are not a sell-side research firm nor do we have any broking arm. ISI Emerging Markets. B-505/506.

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