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Paint industry
Paint industry
Paint industry
Paint industry
Paint industry
Paint industry
Paint industry
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Paint industry

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its good to have such kind of data related to paint industry in india...

its good to have such kind of data related to paint industry in india...

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  • 1. Rating: 4.1/5 (15 votes cast) 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, namelyo Decorative segment – caters to the housing sector ando 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. The working of the Paint industry has been explained pictorially below:
  • 2. Raw Materials: On an average, raw materials constitute ~56% of the total expenditure in paintcompanies. Titanium dioxide is one of the major raw materials and price fluctuations in its cost havedirect and substantial impact on the cost of production. Crude oil derivatives are the other major rawmaterials and have similar impact. Apart from these a large number of other raw materials are usedfor 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 constructionwhereas the industrial segment products find use in automotive industry, consumer durablesindustry and other OEM’s.Growth of the paint industry has been consistent with the growth of Indian GDP. Paint industry hasbeen growing at a rate of 1.5 to 2 times of Indian GDP growth. The Decorative segment shows aseasonal trend with sales peaking during the festive seasons in the months of September toNovember, whereas the demand is low in the monsoons.The top 5 companies make up more than 80% sales of the organized market. The market shareof the organized sector is continuously improving as consumer preference is shifting towards betterproducts offered by the leading brands. Established Foreign companies have entered the Indianmarket by acquiring existing Indian companies. Kansai Paints, Japan entered the Indian Market byacquiring Nerolac, Akzo Nobel, the world’s largest Paint company, entered the Indian market byacquiring ICI Paints (now Akzo Nobel India.)
  • 3. Asian Paints is the market leader in the Indian Paint Industry and gets the major portion of itsrevenue from the Decorative segment. Over the years, it has outperformed its peers in every aspectby wide margins. This is mainly due to its strong moat (competitive advantage) which lies in itsstrong Brand Equity and an extensive Distribution Network. The company’s Net sales, Net Profit andBook Value have grown with a 5 year CAGR of 22%, 27% and 28% respectively. Also thecompany’s debt is very low and its ROIC has been 40% on an average over the last six years.Kansai Nerolac holds the second position in the Indian Paint market, and is the market leader in theIndustrial Paint Segment, owing to its leadership position in the Automobile Paint segment. It is thesubsidiary of Kansai Paints Ltd., the leading Japanese paint company. Berger paints has the thirdposition and derives its major revenue from the Decorative segment. Akzo Nobel (former ICI Paints)is the subsidiary of the world’s largest Paint Company and is at the fourth position. Shalimar Paintsis at the fifth position.
  • 4. 1. Increasing level of income and education – The increasing proportion of young populationalong with increasing disposable incomes is leading to a change in consumer habits. The Indianeconomy is shifting from a savings economy to a spending economy. With more income at theirdisposal, people are now ready to pay for better products and paint is no exception.Educated consumers are more brand conscious and seek value in what they consume. Thus, paintcompanies offering value-added features like non-toxicity, weather protection, texture, eco-friendlyproduction, etc. will attract more demand. These value-added products enable the manufacturers toearn a better premium as compared to the regular paints, thus offering higher margins.2. Increasing Urbanization: Urbanization is leading to a shift from temporary houses to permanenthouses. Urban houses are well-designed in its interior as well as exterior aspect. This calls for morehouses being painted using medium and premium paints. For urban houses, interior design isbecoming a fashion statement and a lot of paint is used to decorate the interiors. This will lead to anincrease in the per capita consumption of paint which will increase the overall demand of paint.Urbanization also brings more nuclear families. More nuclear families mean more number of houseseven for the existing population thus further driving the demand.3. Increasing share of organized sector: Decrease in taxes on key raw materials will improve theposition of the organized players. The Organized sector is expanding its distribution network andadopting the installation of tinting machines at retail outlets. These tinting machines offer a widevariety of colour shade options to choose from. The unorganized players are not in a position to offersuch facility as it is comparatively capital intensive. Shift in use, from distemper segment towardspremier segment is also shifting market share from the unorganized sector to the organized sector.4. Development of the Realty, Automobile and Infrastructure sector: The growth of the paintindustry is largely dependent on the development of the realty and housing sector, as decorativesegment generates about 70% of the total paint demand from this sector. The Automobile segmentgenerates more than two-third of the demand for Industrial paints, and hence is the growth driver forIndustrial Paints. The Infrastructure segment creates direct demand for paints as well as createsindirect demand through supporting the growth of the realty, automobile, FMCG and other industrieswhere paint is used.The growth potential in the above 3 sectors is immense, the paint industry being dependent on these3 sectors is expected to grow along with them.5. Availability of financing options: Easier housing finance and auto finance is expected to favourmore people to buy houses and travel in personal vehicles. This will drive the growth of housing andautomobile sector, of which the Paint industry will get its share.6. Increasing Penetration in the Rural Markets: Paint usage in rural areas is generally in thedistemper segment, hence dominated by the unorganized players. Demand in rural areas isdependent on agriculture, which is dependent on the monsoons. With the development of irrigationfacility, the dependence of agricultural output on monsoons will be on a decreasing trend. Also, withthe modernization of agriculture and accompanying development of rural India, consumerpreferences are expected to improve. Paint companies are expanding their distribution network inrural parts of India, which is a relatively untapped market for the organized players. These factorssupported by the increasing penetration of the paint companies will help drive the demand for paints.
  • 5. • Cost of raw materials: The Cost of Raw materials is an important factor as the industry is rawmaterial intensive. Fluctuation in the prices of Titanium dioxide and Petroleum directly affect theproduction cost. This is more of a concern for the Industrial segment as compared to the DecorativeSegment, as it is comparatively easier to pass on the costs in case of decorative paints. Also, a largeportion of raw materials are imported, leaving the cost factor vulnerable to exchange rate fluctuation.• MNC’s entering the Indian Paint Market: The entry of Established foreign players in the Indianmarket may increase the competition among the players of the industry. This may lead to pricecompetition which may impact the profit margin of the companies. As a result, the increase involume growth may not equally reflect in the profit growth for the companies.The Indian paint Industry has a wide potential for growth which is demonstrated by the fact that theper capita consumption of paint in India is merely around 1 kg as compared to about 20 kg in thedeveloped countries or a global average of about 15 kg. So, the absolute consumption of paint inIndia is definitely expected to rise.The market share of the organized sector is on an increasing trend. Also, the contribution ofindustrial segment will increase with the continuing economic development of the country. With Indiamoving towards becoming a developed economy, the decorative to industrial paint ratio of 70:50 isexpected to move towards the global average of 50:50. Thus the Indian paint industry is in itsgrowth phase and is expected to grow at a rate faster than that of GDP. The future prospects of theindustry are strong.Looking at the above points, we can say that the long term future prospects of the IndianPaint Industry appear to be Green (Very Good.)Companies which have high revenues, efficient operations and distribution network, comfortabledebt levels and robust capacity expansion plans will be best suited to capitalize on the growthprospects.It is very important that while investing in a company, an investor selects an industry, where thelong-term future prospects are bright. We have seen that in the long run the Indian Paint industry isexpected to have good growth.Also, it is equally important that the company has an excellent financial track record (i.e. Green 10Year X-Ray) and its long-term future prospects are Green (Very Good).*The 10 YEAR X-RAY facilitates analysis of the financial performance of the company consideringthe five most important parameters. A 10 Year period will normally encompass an entire businesscycle. Analysing the performance over this time frame is essential to understand how a companyhas fared during the good as well as bad times. The five most important parameters that one needsto look at are Net Sales Growth Rate, EPS Growth Rate, Book Value per Share (BVPS) GrowthRate, Return on Invested Capital (ROIC) and Debt to Net Profit Ratio.Given below is the MoneyWorks4me assessment for a few Paint companies:
  • 6. The table above gives you a list of the top 5 companies from the Paint Industry. Due to the verynature of the paint industry, it is best advised to invest in companies which have created a strongbrand equity for themselves and have a strong competitive advantage. While such companiesusually trade at a premium and are rarely cheap, you should look to invest in them when they areavailable at a good discount. To find out the right price to invest in these companies, become amember of MoneyWorks4me.com.Disclaimer: This publication has been prepared solely for information purpose and does notconstitute a solicitation to any person to buy or sell a security. It does not constitute a personalrecommendation or take into account the particular investment objectives, financial situations orneeds of an individual client or a corporate/s or any entity/ies. The person should use his/her ownjudgment while taking investment decisions.

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