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    Paints Industry

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    Vipin George
    The Indian paints market is valued at Rs 210 billion and is fragmented with the organized sector controlling 65% and the unorganized sector 35%. Demand comes from decorative paints which accounts for 75% of the market led by Asian Paints and industrial paints led by Kansai Nerolac. Key factors influencing the industry include raw material costs, expansion of organized players, demand from housing and user industries, and the impact of excise duties on unorganized players.

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    Paints Industry

    Uploaded by

    Vipin George
    46 views2 pages
    The Indian paints market is valued at Rs 210 billion and is fragmented with the organized sector controlling 65% and the unorganized sector 35%. Demand comes from decorative paints which accounts for 75% of the market led by Asian Paints and industrial paints led by Kansai Nerolac. Key factors influencing the industry include raw material costs, expansion of organized players, demand from housing and user industries, and the impact of excise duties on unorganized players.

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    The Indian paints market is valued at Rs 210 billion and is fragmented with the organized sector controlling 65% and the unorganized sector 35%. Demand comes from decorative paints which accounts for 75% of the market led by Asian Paints and industrial paints led by Kansai Nerolac. Key factors influencing the industry include raw material costs, expansion of organized players, demand from housing and user industries, and the impact of excise duties on unorganized players.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    46 views2 pages

    Paints Industry

    Uploaded by

    Vipin George
    The Indian paints market is valued at Rs 210 billion and is fragmented with the organized sector controlling 65% and the unorganized sector 35%. Demand comes from decorative paints which accounts for 75% of the market led by Asian Paints and industrial paints led by Kansai Nerolac. Key factors influencing the industry include raw material costs, expansion of organized players, demand from housing and user industries, and the impact of excise duties on unorganized players.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Paints

    The market size of the Indian paints sector has been pegged at Rs 210 bn in
    value terms having grown by 15% in FY10 and is very fragmented. The per capita
    consumption of paints in India stands at 0.5 kg per annum as compared to 1.6
    kgs in China and 22 kgs in the developed economies. India's share in the world
    paint market is just 0.6%.

    The unorganised sector controls around 35% of the paint market, with the
    organised sector accounting for the balance. In the unorganised segment, there
    are about 2,000 units having small and medium sized paints manufacturing
    plants. Top organised players include Asian Paints (30% market share), Kansai
    Nerolac (20% market share), Berger Paints (19% market share) and ICI (12%
    market share).

    Demand for paints comes from two broad categories:

    Decoratives:Major segments in decoratives include exterior wall paints, interior


    wall paints, wood finishes and enamel and ancillary products such as primers,
    putties etc. Decorative paints account for over 75% of the overall paint market in
    India. 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 sensitive and is a higher margin business
    as compared to industrial segment.

    Industrial: 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.

    The paints sector is raw material intensive, with over 300 raw materials (30%
    petro-based derivatives) involved in the manufacturing process. Since most of the
    raw materials are petroleum based, the industry benefits from softening crude
    prices.

    With the steady decline in excise duties (from 40% to 16% over five years),
    viability of small-scale units has eroded considerably. Without the price
    advantage, these units have found it difficult to compete with their peers in the
    organised sector. The unorganised sector has been consistently losing market
    share to the organised sector.
     Key Points
    Supply Supply exceeds demand in both the decorative as well as the
    industrial paints segments. Industry is fragmented.

    Demand Demand for decorative paints depends on the housing sector


    and good monsoons. Industrial paint demand is linked to user
    industries like auto, engineering and consumer durables.

    Barriers to entry Brand, distribution network, working capital efficiency and


    technology play a crucial role.

    Bargaining Price increase constrained with the presence of the


    power of unorganised sector for the decorative segment. Sophisticated
    suppliers buyers of industrial paints also limit the bargaining power of
    suppliers. It is therefore that margins are better in the decorative
    segment.

    Bargaining High due to availability of wide choice.


    power of
    customers
    Competition In both categories, companies in the organised sector focus on
    brand building. Higher prices through product differentiation are
    also followed as a competitive strategy.

     Financial Year '10


    FY10 was a strong year for paint companies as compared to a very challenging
    FY09. The 3 players viz. Asian Paints, Kansai Nerolac and Berger Paints
    reported strong growth in sales as demand significantly improved in both the
    decorative and the industrial paints segment. With respect to the latter, the
    automotive paints segment did very well on the back of splendid sales
    performance reported by auto companies. Further, the GDP growing at a much
    faster rate in FY10 than it did in FY09 also helped matters.

    Performance was robust on the margins front as well. Operating margins


    significantly expanded as raw material costs fell down. This was on the back of
    benign commodity prices. An appreciating rupee (which makes imports cheaper)
    also helped matters as all paint companies import a large part of its raw material
    requirements namely titanium dioxide. However, the end of FY10 saw a gradual
    rise in input costs and the robust margins that the companies enjoyed are not
    likely to be sustainable going forward.

    All the key players are in an expansion phase. Asian Paints' plant in Rohtak,
    Haryana has commenced operations and it has acquired land in Maharshtra to
    set up another plant. Kansai Nerolac is undertaking brownfield expansions at its
    Lote and Bawal plants. Meanwhile operations have commenced at its greenfield
    project in Hosur, Tamil Nadu. Berger Paints has acquired land in Andhra
    Pradesh for setting up a water based paint plant besides enhancing its current
    plant capacities at Goa and Jammu.

     Prospects
    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 7%
    levels, the top three players are likely to clock above industry growth rates,
    especially given the fact that protection that was available to unorganised
    players has come down significantly.

    Decorative paints are expected to witness higher growth going forward. The
    fiscal incentives given by the government to the housing sector have benefited
    the housing sector immensely. This will benefit key players in the long term.

    This apart, the status of monsoons would have a significant impact on


    agricultural output, which in turn would influence the demand for paint from rural
    areas. We expect paint demand to grow by 12% to 15% in the next two to three
    years, largely led by post festive season demand.

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