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Overview of the Indian Automotive Refinish Paint Industry

By Amoldeepak Mahale, Industry Analyst, Chemicals, Materials & Foods Practice The automotive refinish paints segment is one of the fastest growing areas in the Industrial paints market in India. Automotive industry has been the major consumer of industrial paints, propelled by the rapidly increasing passenger car, commercial vehicles, and two-wheeler markets. OEM coatings constitute 76 percent of the total automotive paints market in revenues today (2004). Refinish paints, a comparatively smaller market, is witnessing tremendous growth in revenues as well as in unit shipments. Main drivers for this growth are: Fast growing second-hand used vehicles market in the country Preference for high value-high performance coating technologies such as polyurethane paints, substituting the traditional forms of refinishing paints such as nitrocellulose and synthetic alkyds.

Market Size In the year 2004, automotive refinish paints market in India was valued at $ 64 million. Market is expected to grow annually at a rate of more than 20 percent for the next 2 years. By the year 2006, the market size in revenues is expected to grow by almost 50 percent from the current value. As mentioned above, the driving factors are the increasing number of vehicles on the road compounded with a gradual shift to the usage of high value products like polyurethane paints.

Polyurethane paints presently constitute 57 percent in revenues and almost 28 percent in unit shipments of the total refinish paints market (year 2004). According to

industry experts, this market is growing at a phenomenal rate of over 25 percent (in unit shipments) and would continue to do so during the next two years. Other product types like nitrocellulose coatings are likely to witness a slower growth during this period. Product Types Polyurethane based paints were introduced relatively late in the Indian market but due to their superior product quality, demand has picked up fast. Average price of polyurethane paints is more than double the price of nitrocellulose, but the product has certain advantages over nitrocellulose: it gives a better finish, has a longer life, and is less hazardous. Nitrocellulose based coatings have been used in refinishing for a long period of time. Two important factors have favored the usage of this coating type simple application technology and cheap price. This product type is relatively easy to apply as the painting can be done in open areas. Polyurethane paints have to be applied in a controlled environment at higher temperatures requiring special paint booths. However, nitrocellulose based paints lack in the over-all finish and gloss. As end users are becoming increasingly conscious of these factors, increasing number of carowners would be preferring polyurethane coating technology in the future. Market Players Competition existing in the refinish paints market can be divided on the basis of sales revenues and geographical coverage of the market participants. Tier I category players are large multinational companies (MNC) with worldwide operations. These companies are either present directly in the market or have strategic tie-ups with Indian counterparts. These players constitute more than 60 percent of the countrys market for refinish paints. Companies in this category operate on a national scale and form the core part of the organized market. Some important market participants in this tier are Goodlass Nerolac, ICI Autocolor, Asian PPG, DuPont, and Akzo Nobel. Tier II category players are medium and small regional participants catering to the lower end of the market. The products offered by these companies are economically priced and are generally based on technologies such as nitrocellulose or synthetic alkyds. Most of these companies have their core businesses in manufacturing and marketing of paint ancillaries. Important market participants from this segment include Esdee Paints, Maharani Paints, Sarika Paints, and so on. End users Second-hand vehicles require refinishing either in the form of touch-up jobs or complete re-painting. Vehicles that have been damaged by accidents constitute the major part of the end-user segment. End users can also be divided on the basis of vehicle types: Passenger vehicles and Commercial vehicles. The passenger vehicles segment is the largest end-user constituting more than 70 percent of the market revenues. Production of cars and two-wheelers is growing in value as well as in volume. This has triggered the increase in demand for high value-

high quality polyurethane paints in the industry. Passenger vehicles market was estimated at $47 million in revenues in the year 2004 and is expected to grow at an annual rate of 20 percent for the next 3 years. Commercial vehicles on the other hand are the major buyers of low priced paints though the consumption in volume has always been much higher. Rising demand for these vehicles in the past few years has ensured a steady growth in paint markets too. Besides this, state transport regulation authorities have made it mandatory to obtain an annual clearance for plying on road and painting the vehicle has been compulsory for vehicle owners. This has been another major driver for the commercial vehicles refinish paints market. In 2004, refinish paints market for commercial vehicles was valued at approximately $17 million. Industry Trends Frost & Sullivan had conducted a survey across authorized service stations, independent repair shops and car owners, in the city of Mumbai and Pune. The research elucidated some important findings on the decision making process in choosing a refinish paint brand. Consumers and car owners are not the primary decision makers in selecting a paint brand. In most cases, availability of a paint brand at the service station determined the selection of the paint. In an authorized service station, this depends upon the certification provided by the automobile paint manufacturer for a particular brand of paint. In an independent automobile repair shop, the repair shop owner decides a brand or type of paint. Availability of the appropriate color shade becomes important in the selection process for touch up jobs. Service station owners rely heavily on inputs from dealers and wholesalers for stocking and supplying of paints and ancillaries. Even some of the more established service stations also do not prefer to stock goods. Important reasons identified were: Shortage of space for stocking Loss of the goods due to improper stocking, damage or pilferage

Dealers and wholesalers are critical in the value chain as they are the important source of communication between the paint users and manufacturers. Although paint companies have started communicating directly with service stations for product awareness and brand recall through training programs, this process is still to gain momentum. Dealers do not have brand exclusivity, and hence they tend to push paint brands that reward them suitably. Research also reveals the increasing popularity of training programs and awareness campaigns amongst the service stations. Such programs organized by the paint manufacturers serve as a good medium for information exchange between the service stations and paint companies. More than 90 percent of the respondents from the authorized service centers were of the view that such programs should be held frequently as it helps them resolve technical queries about the usage of the paints and enables both the value chain participants to resolve issues. Prior to such activities, the major source of communication between the supplier and buyer was the dealer or the stockist and the information flow was slow and at times limited.

This direct interaction can be used as an effective tool not only for product awareness, technical knowledge sharing and query handling, but also for effective brand building. Such training programs are currently being held in authorized service stations, but not in independent body shops and repair stations. Systematically organizing such workshops for independent body shops and repair stations might be the key to become a market winner as independent body shops hold an estimated 50 percent of the total $64 million refinish market. Conclusion Refinish paints market has always been a smaller segment of the overall automotive paint industry but the tremendous potential that it exudes has made all the important players compete aggressively to increase their market-share. It is expected that passenger cars market would drive the growth in the future and the industry would shift from the traditional low valuehigh volume market to a high valuehigh volume market in the years to come.