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Paint industry In India to be worth US$ 10B by 2020

India is the second largest paint market in Asia with an annual demand of over two million tonnes and the demand is set to increase further. Growth of the paint industry is on-par with the GDP growth rate and in some years even higher.

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Definition / Scope

Paint industry is one of the largest industries in the global market. Paints and coatings industry is one of the key sectors of the economy. India’s paint industry is well poised for growth, servicing both domestic demand and increasing export opportunities. The Indian paint industry is growing at a rapid pace helped by increasing urbanization and the increasing levels of education and income has fuelled the growth of the paint market increasingly. Also the usage of enamel and emulsion paints over traditional white wash and the penetration in rural market and digitalization is driving the growth of the paint industry.

Market Overview

Indian paint industry is the second largest in Asia. Over the past few years steep growth is being experienced in the country’s paint industry. Growth is on-par with the GDP growth rate and in some years even higher. Over the past few years the paint industry has grown tremendously and has caught the attention of major international players.

The Paint Industry is expected to grow INR 75,000 crore (USD 10.6 Billion) in value for the period 2018 to 2022. The per capita consumption of 4 kgs per person in India is still considered to be below in comparison to the average consumption of paint in the developed western nations, but as the country is developing at a rapid growth rate the per capita consumption is estimated to improve.

The unorganized sector contributes to 35% of the paint market and the organized sector holds the bulk of the remaining. Top organized players in this sector includes names like Asian paints, Kansai Nerolac, Berger Paints and ICI. Two categories drive the demand for paints which includes Decorative and Industrial. The Decorative paint segment contributes to 70% of the market and the Industrial segment takes up the remaining 30% of the market.

Major segments in Decoratives include exterior wall paints, interior wall paints, wood finishes, enamel and ancillary products

Three main segments of the Industrial paint includes automotive coatings, powder coatings and protective coatings. Kansai Nerolac is the market leader in this segment. User industries for Industrial paints includes automotive sector and consumer durables (which includes Marine paints and other OEM’s).

Segmentation-of-the-indian-paint-industry-decorative-industrial.png

Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet


Market Risks

The major risks in the paint industry which had a solid growth structure over the past year include higher interest rates and rising raw material prices. In recent months the slowing home sales due to rising interest rates and higher real estate prices in addition to the decreasing automobile sales growth has dwindled the growth rate of the paint industry.

The Rising cost of raw materials has affected the growth of paint sales. The paint industry is not immune to the slowing economic growth of the country. A slowdown in real estate development will dwindle the sales growth. The Paint industry is raw material intensive with more than 300 raw materials of which 50% is petro-based derivatives. So the cost of production is directly proportional to the cost of crude prices.

Hence the rise in crude oil prices will dent the profitability. The major costs associated with the manufacturing of paint includes Raw material costs accounting for 56%, the marketing costs occupying 23% and labour cost of 12%.

Paint cost.png

Top Market Opportunities

In spite of the low per capita consumption the Indian paint and coatings industry shows a great promise for the Indian and Global paint producers in the country. With the Indian economy poised to grow at a rate of 7.5% consumer spending will get a huge boost, resulting in higher demand for paint.

The country’s young population represents a bright spot as they join the workforce and will have high availability of disposable income. The Decorative paint segment is expected to witness steep growth. The fiscal incentives provided by the government to the housing sector will benefit the housing sector; this will benefit the key players in the long run.

As the demand for industrial paint is lukewarm it is expected to increase going forward. This is as a result of the increasing investments in the infrastructure. The Local and the Global auto majors have long term plans for the Indian market, which will fuel the growth of the automotive paint manufacturers like Kansai Nerolac and Asian-PPG. The Increase in the demand of the Industrial paint especially powder coatings and high performance coatings will also propel the top line growth of the paint manufacturers in the medium term.

Market Drivers

The major drivers for the growth of the paint industry includes: • Stimulus package from the Government • Mergers and Acquisitions of other companies • Free Trade Agreements for export • Application of New technologies • Rapid Economic growth in APAC region

Increasing urbanization, rising disposable income in the majority of population and arousal in the popularity of value added paints in rural areas and the increasing number of promising schemes of infrastructure development by central and state government augurs well for the growth of the industry in the country.

Major drivers fuelling the growth of paint market are changing customer needs, growth of automobile and Infrastructure sector. Also the entry of Indian and Global brands and easy availability of financing options are contributing to the growth of the paint market in the country. As the government slashed the GST rate to 18% from the previous 28% the Indian paint industry is looking at 10%-plus growth in sales.

With the adoption of digital payment by dealers in Tier II and Tier III cities fuel the growth of the paint industry looks promising. With the deflationary trend on the cost front which contributed to the reduction in raw material prices fuels the growth of the industry.

Market drivers.png

Market Restraints

The major restraints for the growth of the paint industry includes: • Reduced Export Demand • Unstable political conditions • Low cost localised manufacturers • Rising raw material prices • Competing Alternative materials.

With the inflationary trend witnessed in the industry and the rising cost of raw materials affecting the profit margin in the industry. The rising volatility in the country’s currency contributes to the uncertainty on the cost front and continues to challenge the growing trends of the industry.

With the confusion in the applicable GST rates the doubt still remains among the stakeholders. As the input costs are in an upward trend the industry profitability is affected in the long run slumping both top line and bottom line growth.

The increase in the price of titanium-di-oxide and other raw materials has added to the woes of the market players. The other factors causing the increasing cost of raw materials includes the price of the solvents and resins imported from china. Similarly the prices of monomers (a crude oil derivative) are in an upward trend, as the crude prices have reached a price of $77 per barrel which has created a spin-off effect on the monomer prices.

Market restraints.png

Industry Challenges

Lower productivity of high cost labour is a major factor influencing the growth of the industry. With the unorganized sector controlling 35% of the paint market, the market is still fragmented.

Technology Trends

With the business environment becoming complex the industry players have restructured and have applied information technology as the driver for reengineering. Colour dispensing machines both manual and automated have transformed the business on the distribution and manufacturing sides.

These machines have changed the manufacturing pattern from manufacturing shades to producing bases thereby producing economies of scale, reduced inventory levels and eliminated redundancy of stocks, this has cut down the new product introduction cycle and it has also helped expand the range of shades for each product category.

The tinting machines installed at the dealers end have improved the efficiency. Also popular are the gear mixers which provide 2K finishes in auto refinishes. The dependence on information technology has increased rapidly with major players such as Asian paints and nerolac have invested on i2 technology and IBM enabled APO respectively.

The companies are also operating on an ERP (SAP R3) operating system through full connectivity amongst factories and branches via V-SATS, thus directly accessing live data for sales, accounting and purchasing.

Pricing Trends

With three fourth of its raw materials derived from crude, the pricing of paints are directly influenced by the price of crude price. The increase in raw material prices influenced by the increase in crude prices estimated at an average of $77 compared with $51 per barrel will still remain a challenge.

With raw materials accounting to 50% of the total sales, the paint industry is price sensitive. The production cost of paint will be sensitive to the pricing of the crude oil. It is important to note that a rise in crude oil prices will affect the earnings by 7%-10% for every 10% increase in crude oil prices. The price of titanium-di-oxide is also in the rising which increases the manufacturing cost of paint further.

Cost paint.png

Regulatory Trends

The Ministry of Environment, Forest and climate change have enforced lead control regulations in household and decorative paints in the year 2016, according to which the lead content is limited to up to 90 ppm which is the international standard for lead concentration in all kinds of paints.

Market Size and Forecast

The size of the Indian paint industry is around 940 million litres and is valued around $8.35 Bn. The organized sector comprises 54% of the total volume and 65% of the value. In the last ten years the Indian paint industry is growing at a compounded growth rate (CAGR) of 12%-13%

The market size of the Indian paint industry is as plotted in the below graph

Paint rate.png

Market Outlook

The Indian paint industry is expected to reach a market cap of $10 Bn by 2019-20 from around $8.35Bn in 2017-18 .The Indian paint industry is expected to bolster a growth rate of 12.5% CAGR till FY20 driven by robust 13.4% CAGR in decorative paints. The decorative paint market is expected to bolster a strong CAGR of 12.7% and the industrial paint market is set to achieve CAGR of 9.5%

The forecast for the growth of the Indian paint industry is as plotted in the graph below

Paint rate3.png

Technology Roadmap

The adoption of environment friendly applications such as water borne systems is continuing to be areas where advancements are expected. Smart coatings which are at the research stage are definitely growing It is inferred that the advancements in new technologies will impact the growth of the paint industry.

Distribution Chain Analysis

The distribution chain runs through a wide spectrum of functions ranging from materials planning to procurement to primary distribution. It plays pivotal role in improving operational efficiency and creating agile procurement, production and delivery systems. Most of the companies of the organized sector have nationwide presence with multi location manufacturing facilities.

The companies in the unorganized sector are mostly regional, spread in and around the manufacturing facilities. The major players in the organized sector includes names like Asian paints, Kansai nerolac, Berger paints, Pidilite industries, Jenson and Nicholson Ltd, Shalimar paints, British paints Ltd, The aggregate operating margins of the paint industry are 12-13%.

The Distribution chain of a typical paint industry (Asian paints in this case) is depicted as below

Distribution.png

Competitive Landscape

The Indian paint industry comprises about 12 companies in organized and more than 2,000 in unorganized sector. The organized sector enjoys a market share of 65% which is still considered to be less when compared with the developed countries, the supply exceeds demand hence the industry is still considered to be fragmented. A study reveals that six key factors including

  1. Quality
  2. SKU Management
  3. Inventory Management
  4. Computer colour mixing facility
  5. Brand Image
  6. Effective Advertisement

Are considered to be the success factors as determined by the key stakeholders including Architects, Builders, Developers, Paint Dealers, Interior Decorators, Painters, Painting contractors and Industrial users.

The performance of the paint companies vis-à-vis the six key factors were measured on a five-point like scale and analysed. The Analysis revealed that Asian paints have obtained highest 29 points out of 90, followed by Nerolac paints with 22 points. Thus it reveals that Asian paints as the market leader.

It is also observed that with respect to “Inventory Management”. Nerolac paint is comparatively better than other paint companies. This efficiency of Nerolac paints is because of its automotive industry business in which it is the leader.

Competition.png

Competitive Factors

The key factors on which companies compete in the market includes

  1. Brand
  2. Distribution network
  3. Working Capital Efficiency
  4. Technology

Hence the companies focus on brand building, higher pricing through product differentiation.

Key Market Players

Asian paints Asian paint is India’s largest and Asia’s second largest paints corporation based in Mumbai .It has the largest market share of 53% in the Indian paint industry. The company is engaged in the business of manufacturing, selling and distribution of paints, coatings and products related to home décor, bath fittings and providing of related services. Asian paints clocked revenue of $2.2 Billion and net income of $250 million in the year 2016. Asian paint operates in 16 countries and has 26 manufacturing units in the world servicing consumers in 65 countries.

Berger paints Berger paints is the second largest paint company in India based in Kolkata controlling a market share of 17% in the Indian paint industry. The company has presence in 5 countries. Berger paints has 13 manufacturing units in the country. The company boasts of revenue of $630 million and net income of $66 million in the year 2017

Kansai Nerolac paints Limited Kansai Nerolac paints is the largest industrial and third largest decorative company of India based in Mumbai. It is a subsidiary of Kansai paint of Japan .It has the third largest market share of 16% in the Indian paint industry it serves the Industrial, automotive and powder coating business. Kansai Nerolac has 5 manufacturing units and about 6-7 contract manufacturers in the country. The company clocked total revenue of $620 million and net income of $120 million in the year 2016.

The market share controlled by each company is as represented in the below pie-chart.

Paintss.png

Strategic Conclusion

India is in the bright spot in the growth of the paint and coatings industry. India’s demographic profile is changing in a way that supports the growth of the paint and coatings industry. Though currently the per capita consumption is very low, factors such as rising urbanization, disposable income and nuclear families are expected to fuel the growth of the paint industry for a number of years to come.

Further Reading

Appendix

  • CAGR – Compounded Annual Growth Rate
  • GDP - Gross Domestic Product
  • APAC - Asia Pacific
  • Bn - Billion


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