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The Indian Paint industry, estimated to be a Rs.21,000 Cr.

industry, has been growing at a rate of above 15% for the past few years. The organized players of the industry cater to about 65% of the overall demand, whereas the unorganized players take care of the remaining 35%, in value terms. The unorganised players mainly dominate the distemper segment. The industry consists of two segments, namely
• •

Decorative segment – caters to the housing sector and Industrial segment - consists of powder coatings, floor coatings and other protective coatings catering to the automobile, marine and other industries.

In the domestic market, Decorative segment accounts for 70% of the total demand for paints whereas the industrial segment accounts for the remaining 30%. Globally, the demand for paints is almost equally distributed, where both the segments account for close to 50% of demand.

So, how does the industry work? Here is the analysis….
The working of the Paint industry has been explained pictorially below:

Kansai Paints. Crude oil derivatives are the other major raw materials and have similar impact. Established Foreign companies have entered the Indian market by acquiring existing Indian companies. Paint industry has been growing at a rate of 1. Titanium dioxide is one of the major raw materials and price fluctuations in its cost have direct and substantial impact on the cost of production. Apart from these a large number of other raw materials are used for adding/giving specific properties to the wide product range offered by the industry. End-User: The decorative paints segment products find use in households and construction whereas the industrial segment products find use in automotive industry.Raw Materials: On an average. consumer durables industry and other OEM’s. whereas the demand is low in the monsoons. What does the Past Say? Growth of the paint industry has been consistent with the growth of Indian GDP. The top 5 companies make up more than 80% sales of the organized market. raw materials constitute ~56% of the total expenditure in paint companies. The market share of the organized sector is continuously improving as consumer preference is shifting towards better products offered by the leading brands. Japan entered . The Decorative segment shows a seasonal trend with sales peaking during the festive seasons in the months of September to November.5 to 2 times of Indian GDP growth.

it has outperformed its peers in every aspect by wide margins. Also the company’s debt is very low and its ROIC has been 40% on an average over the last six years. 27% and 28% respectively. the world’s largest Paint company. It is the subsidiary of Kansai Paints Ltd.the Indian Market by acquiring Nerolac. entered the Indian market by acquiring ICI Paints (now Akzo Nobel India. Akzo Nobel. Net Profit and Book Value have grown with a 5 year CAGR of 22%. and is the market leader in the Industrial Paint Segment. This is mainly due to its strong moat (competitive advantage) which lies in its strong Brand Equity and an extensive Distribution Network. Akzo Nobel (former ICI Paints) is the subsidiary of the world’s largest Paint Company and is at the fourth position. owing to its leadership position in the Automobile Paint segment. the leading Japanese paint company. Kansai Nerolac holds the second position in the Indian Paint market. Berger paints has the third position and derives its major revenue from the Decorative segment. .) Asian Paints is the market leader in the Indian Paint Industry and gets the major portion of its revenue from the Decorative segment. Over the years. Shalimar Paints is at the fifth position. The company’s Net sales..

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3. Increasing Penetration in the Rural Markets: Paint usage in rural areas is generally in the distemper segment. thus offering higher margins. with the modernization of agriculture and accompanying development of rural India. consumer preferences are expected to improve. These value-added products enable the manufacturers to earn a better premium as compared to the regular paints. Increasing share of organized sector: Decrease in taxes on key raw materials will improve the position of the organized players. etc. For urban houses. Availability of financing options: Easier housing finance and auto finance is expected to favour more people to buy houses and travel in personal vehicles. Paint companies are expanding their distribution network in rural parts of India. These tinting machines offer a wide variety of colour shade options to choose from. Increasing Urbanization: Urbanization is leading to a shift from temporary houses to permanent houses. ecofriendly production. With the development of irrigation facility. the paint industry being dependent on these 3 sectors is expected to grow along with them. as decorative segment generates about 70% of the total paint demand from this sector. 4. 6. automobile. The Infrastructure segment creates direct demand for paints as well as creates indirect demand through supporting the growth of the realty. Increasing level of income and education – The increasing proportion of young population along with increasing disposable incomes is leading to a change in consumer habits. The growth potential in the above 3 sectors is immense. Shift in use. interior design is becoming a fashion statement and a lot of paint is used to decorate the interiors. The unorganized players are not in a position to offer such facility as it is comparatively capital intensive. hence dominated by the unorganized players. This will drive the growth of housing and automobile sector. of which the Paint industry will get its share. texture. which is a relatively untapped market for the organized players. Educated consumers are more brand conscious and seek value in what they consume. Development of the Realty. which is dependent on the monsoons. weather protection. The Automobile segment generates more than two-third of the demand for Industrial paints. The Organized sector is expanding its distribution network and adopting the installation of tinting machines at retail outlets. This calls for more houses being painted using medium and premium paints. paint companies offering value-added features like non-toxicity. 2. With more income at their disposal. Thus. will attract more demand. Automobile and Infrastructure sector: The growth of the paint industry is largely dependent on the development of the realty and housing sector. the dependence of agricultural output on monsoons will be on a decreasing trend. . The Indian economy is shifting from a savings economy to a spending economy. More nuclear families mean more number of houses even for the existing population thus further driving the demand. Urban houses are well-designed in its interior as well as exterior aspect. Demand in rural areas is dependent on agriculture. FMCG and other industries where paint is used. 5. people are now ready to pay for better products and paint is no exception. Urbanization also brings more nuclear families. and hence is the growth driver for Industrial Paints. Also. This will lead to an increase in the per capita consumption of paint which will increase the overall demand of paint.What are the growth drivers of the industry? Here’s the analysis… 1. from distemper segment towards premier segment is also shifting market share from the unorganized sector to the organized sector.

where the long-term future prospects are bright. It is very important that while investing in a company. Also. Looking at the above points. So. Also. is there anything to be concerned about? • Cost of raw materials: The Cost of Raw materials is an important factor as the industry is raw material intensive. Thus the Indian paint industry is in its growth phase and is expected to grow at a rate faster than that of GDP. Analysing the performance over this time frame is essential to understand how a company has fared during the good as well as bad times.) Companies which have high revenues. • MNC’s entering the Indian Paint Market: The entry of Established foreign players in the Indian market may increase the competition among the players of the industry.These factors supported by the increasing penetration of the paint companies will help drive the demand for paints. A 10 Year period will normally encompass an entire business cycle. The five most important parameters that one needs to look at are Net Sales Growth Rate. This may lead to price competition which may impact the profit margin of the companies. a large portion of raw materials are imported. an investor selects an industry. Return on Invested Capital (ROIC) and Debt to Net Profit Ratio. We have seen that in the long run the Indian Paint industry is expected to have good growth. Book Value per Share (BVPS) Growth Rate. Fluctuation in the prices of Titanium dioxide and Petroleum directly affect the production cost. we can say that the long term future prospects of the Indian Paint Industry appear to be Green (Very Good. the contribution of industrial segment will increase with the continuing economic development of the country. Green 10 Year X-Ray) and its long-term future prospects are Green (Very Good). What is the future Outlook for the Paint industry in India? The Indian paint Industry has a wide potential for growth which is demonstrated by the fact that the per capita consumption of paint in India is merely around 1 kg as compared to about 20 kg in the developed countries or a global average of about 15 kg. The future prospects of the industry are strong. as it is comparatively easier to pass on the costs in case of decorative paints. The market share of the organized sector is on an increasing trend. Given below is the MoneyWorks4me assessment for a few Paint companies: . EPS Growth Rate. efficient operations and distribution network. With India moving towards becoming a developed economy. it is equally important that the company has an excellent financial track record (i. the decorative to industrial paint ratio of 70:50 is expected to move towards the global average of 50:50. Also.e. So. *The 10 YEAR X-RAY facilitates analysis of the financial performance of the company considering the five most important parameters. As a result. This is more of a concern for the Industrial segment as compared to the Decorative Segment. comfortable debt levels and robust capacity expansion plans will be best suited to capitalize on the growth prospects. the absolute consumption of paint in India is definitely expected to rise. leaving the cost factor vulnerable to exchange rate fluctuation. the increase in volume growth may not equally reflect in the profit growth for the companies.

Though the imports ceased but the foreign dominance still continued. OverviewThe Indian paint industry was initiated in 1902 when Shalimar Paints set up its factory in Kolkata. Being restrained by Foreign Exchange Regulations Act and Monopolies & Restrictive Trade Practices Act. With liberalization. The paint industry can be broadly classified into the Organized & the Unorganized sector. become a member of MoneyWorks4me. as the excise duties got drastically reduced from 40% to 16% . you should look to invest in them when they are available at a good discount.The table above gives you a list of the top 5 companies from the Paint Industry. The industry consisted of small producers and two foreign companies then. it is best advised to invest in companies which have created a strong brand equity for themselves and have a strong competitive advantage. To find out the right price to invest in these companies.com/paints-indian-paint-industry-analysis-andresearch-report-2011/ The Indian Paint Industry which is pegged at around 210 billion rupees has undergone a phenomenal evolution in the recent past both in terms of structure & portfolio. most of the players were not allowed to increase production capacities until the nineties. While such companies usually trade at a premium and are rarely cheap.these shackles were removed and the industry recorded a healthy growth of 12-13% annually. The aftermath of World War 2. saw the uprising of small manufacturing units by the local entrepreneurs.moneyworks4me. Due to the very nature of the paint industry.com. It has been growing at over a CAGR of 15 percent owing to the increase in demand for utilitarian or artistic works and introduction of some new liberalization policies. The unorganized sector controls around 35% of the paint market accounting for the balance. http://stockshastra. Most of .

This industry is raw material intensive. Berger Paints (19% market share) and ICI (12% market share). Kansai Nerolac (20% market share). have been a few factors that have impacted the housing and thereby the paint industry positively. The industrial paints segment is far more technology intensive than the decorative segment. As most of the raw materials are petroleum based. the top three players are likely to clock above industry growth rate. rise in the level of income and shift in the perception of paints as having a protective value rather than mere decorative one. . vehicles. Demand in the case of industrial segment is also expected to increase. the industrial paints segment accounts for a major share but over the next few years. the ratio of industrial paints to decorative paints is expected to be 50:50. Kansai Nerolac is the market leader in this segment. This segment caters to the housing sector. more in line with the global trend. Globally. It is price sensitive and is a higher margin business as compared to industrial segment as it is used in protecting valuable assets. Trends and ForecastsThe market for paints in India is expected to grow at 1.5 to 2 times GDP growth rate in the next five years. There is also seasonality involved in the demand for decorative paints with demand at its peak around festive time. demand for automotive paints will continue to remain healthy. Market SegmentationThe industry can be further segmented into — Industrial and Decorative. Top players in this sector include Asian Paints (30% market share). white goods and appliances. With production and sales of passenger cars expected to grow. The decorative paints account for approximately 75% of the total sales with Asian Paints being the market leader. the industry benefits from softening of crude prices. The companies in the unorganized sector are mostly regional and deal in low value products and have been consistently losing market share to the organized sector. Easy availability of housing loan. Industrial paints cater to the Automobile Original Equipment Manufacturers (OEMs) for protection against corrosion and rust on steel structures. Urbanization has surged the demand for decorative paints.the organized companies in India’s paint market have a nationwide presence with multi-location manufacturing facilities. With GDP growth expected to be over 7% .

pay commission led salary hikes etc. Despite the positive figures. farm loan waivers. . both in urban as well as rural India on the back of various government initiatives like NREGS.5kg. is expected to improve with the growing income levels. offices and cars is seen hurting the industry. way below the consumption of the developed countries (20kgs).The per capita consumption which is at 1. the Indian paint makers might see growth slowing in the coming months as a drop in the demand for homes. A better focus on supply chain or distribution mechanism backed by aggressive promotion might turn the wheels of fortune and trigger unprecedented growth in the paint industry.