Report on Indian Paints Industry

1. OVERVIEW OF THE PAINTS INDUSTRY

• The Indian paints industry is currently placed at Rs. 85.0 billion and has been showing consistent double-digit growth from 1991. The organized sector consists of 65-70% whereas the unorganized sector still controls a large portion of 30-35%.

• The growth of the domestic paint industry is attributed to the boom in the housing sector and the strong growth in the automobile sector. The automobile sector has done well over past 10-years with an average growth of 7-8%. The auto sector is likely to grow at 8-10% due to healthy growth in 2-wheeler and car segments. However, the volume growth in the paint industry may not be in line with the auto sector growth, as the quantity of paint per vehicle is declining over a period, due to continuous innovations.

• Around 70% of the domestic paint industry revenues come from the decorative segment, whereas the industrial segment constitutes around 30%. In FY05, the manufacturing sector has shown good activity with new projects in roads, ports and industrial segments.

• The Indian paint industry has a huge potential, as the per capita consumption of paint in India is 800-900 grams compared to 15-25 kg in the developed countries. The domestic paint industry is poised for good growth in the coming years.

• The Indian paint industry is governed by 4 major players and is largely dependent on the crude oil prices as most of the raw materials are derived from crude oil. The prices of derivatives of crude oil rose more than crude oil due to the lag effect. Despite the sharp rise in the crude oil prices in FY05, the industry has reported good growth.

• The Indian paint industry has grown at CAGR of 10% or 1.5-2.0x GDP growth. With the expected 7-8% GDP growth in FY06, the industry is likely to grow at 10.5-12.0%.

• The decorative segment is likely to do better than the industrial segment. The decorative segment is likely to grow at 12% whereas the industrial segment is expected to grow by 8 -10%.

2. TYPES OF PAINTS

Two Major Classifications of Paints are:
Decorative Paints
• Caters to the housing sector

• Premium decorative paints are acrylic emulsions used mostly in the metros. The medium range consists of enamels, popular in smaller cities and towns. Distempers are economy products demanded in the suburban and rural markets

• Distribution Network is the key

• Nearly 20 per cent of all decorative paints sold in India are distempers

Industrial Paints
• Include powder coatings, high performance coating and automotive and marine paints
• Two-thirds of the industrial paints produced in the country are automotive paints.
• Technological superiority and tie-up with automobile manufacturers

3. TECHNOLOGY

Dealers and contractors play a very important role in the purchase decision for paints, as they are major influencers.

The town-wise mapping of dealer network is required to ensure increase in the width of the network, that is, number of dealers across the country; and the depth, that is, to give consumers a better choice of products.

The installation of tinting machines has been an important initiative in increasing the penetration and helping the dealers to serve the consumers better, while decreasing the inventory costs. This will increase decorative sale.

The latest value-added service being provided by the dealer network is the magic eye or spectrophotometer. With the help of this system, the customer can walk in with a shade in mind and walk out with the paint within minutes. The machine can conjure up 60,00,000 different colours, as many as the naked eye can detect. This goes with commitment to provide technological breakthroughs to consumers and will definitely give the consumers an edge in the market.

4. PAINTS MARKET OF INDIA

• Organized Sector can be divided into 2 distinct segments

- Industrial Segment growing at 15% (US$ 230 million)

- Architectural Segment growing at 8% (US$ 500 million)
• Overall growth is 10 to 12%
• Basic of competition in Architectural segment

- Distribution

- Brand Image

- Range of Products
• Basic of competition in Industrial Segment

- Access to technology

- Technical Servicing
• Compounded sales volume growth of the organized Sector was 12% in the last six years.
• Entry barriers of decorative paints import

- Brand equity of present players

- Distribution network

- Cost of modification of products
• Top six manufacturers have expanded capacity by 50% to service peak demands.
• Yet, after opening up of the Indian market, some multinational paint companies are making efforts to get a foothold in the Indian market.

4.1 Market Segment
• Architectural 70%
• Industrial 30%

4.2 Architectural Sector Composition
• Enamels 50%
• Distemper 19%
• Emulsions 17%
• Exterior Coatings 12%
• Wood Finishes 2%

4.3 Architectural Sector Features
• Enamels Steady growth
• Emulsions Shift from distemper and enamels to emulsions. High growth area
• Distempers High growth in low priced low quality distempers as consumers are upgrading from lime wash
• Exteriors Exterior emulsion fastest growing segment in the Indian Paint market.

4.4 Industrial Sector Composition
• Automotive Paints - 50%
• High Performance Coating - 30%
• Powder Coating - 10%
• Coil Coating - 5%
• Marine Paints - 5%

4.5 Automotive Sector
High growth sector with a number of new entrants like Mercedes Benz, Mitsubishi, Daewoo, Hyundai, Honda, Fiat, General Motors, Ford. However, recently there is some slackness in Auto demands. Two wheeler market booming due to demand from large Indian middle class.

4.6 Powder Coatings
Increase growth due to increased sales of white goods and auto ancillaries.

4.7 High Performance Coatings
Steady growth due to increase investments in refinery segment and power sectors, particularly Thermal and Nuclear.

4.8 Growth Areas for the Indian Paint Industry
• Automatic Tinting System
• Indian Rural Market
• Auto OEM Finish
• Auto Refinish
• Exterior Coatings

4.9 New Developments
• New Foreign Equity
• Kansai Paints acquired controlling interest in Goodlass Nerolac - the second largest Indian paint company. There are talks about other companies also being taken over by foreign companies. Some foreign companies have actually opened shops in India.

4.10 Tinting Machines
• Concept accepted by the Indian Market.
• More than 1500 machines installed in the last five years.
• Has changed face of Indian Paint Retailing.

4.11 Market size
• Total Market size - US$1400 million

- Organized Sector - 55%

- Unorganized Sector - 45%
• Organized Sector dominated by six large players
• Unorganized Sector comprising about 2500 units manufacturing various categories of paints.
• Total Volume of the Market - 600,000MT

4.12 Key Domestic players in Branded paints
• Asian Paints 37%
• Goodlass Nerolac 15.9%
• Berger Paints 13.8%
• ICI 11%
• Jenson & Nicholson 5.7%
• Shalimar 4%
• Others 12%

5. EXPORT OF PAINT & ALLIED PRODUCTS

(i) India's Exports-Segment wise: India's exports of paints and allied products in the year 2005-06 registered a growth of 30.10 per cent over the previous year when the same reached a level of Rs. 3,739.35 crore as against Rs. 2,874.22 crore. Segment wise export trend during the period 2003-04 and 2005-06 shows that the segment "Synthetic organic coloring matter, whether 6 or not clinically defined" continue to dominate exports, and in the year 2005-06, this segment showed a growth of 32.16 per cent over the previous year when the same reached a level of Rs. 2,896.37 crore as against 2,191.64 crore.

The other segments showing a significant growth during the period included: Prepared driers (589.74%), Glaziers' putty, grafting putty, resin cements, caulking compounds and other mastics (275.68%), Pigments Including metallic powders and flakes) dispersed in non-aqueous media in liquid or paste (140.76%), Artists. Students or signboard painter colours, modifying tints, amusement colours and the like (132.92%), Paints and varnishes (including enamels and lacquers) based on synthetic polymers or chemically modified (110.64%), Prepared pigments, opacities, and colours, verifiable enamels and glazes (71.82%), and Color lakes; preparations based on color lakes (64.23%). On the other, the segments registered a steep decline during the period included: Paints and varnishes including enamels and lacquers (based on synthetic polymers or chemically modified (50.98%), and Other paints and varnishes (including enamels, lacquers and distempers (26.75%).
Source: Compiled from the DGCI&S, "Monthly Statistics of Foreign Trade of India",
Volume 1, Exports and Re-Exports.

(ii) India's Exports-Country wise: Country wise exports trends, shows that USA continues to be the largest market for India's exports of paints and paints-based products, and had registered a growth of 30.10 per cent in the year 2007-08 over the previous year when same increased to Rs. 559.78 crore as against Rs. 404.86 crore in the previous year. The other countries showing a robust growth during the period included: Iran (133.31%), Kenya (117.03%), UAE (54.39%), Malaysia (38.57%), and Netherland (27.20%). On the other, the countries registering a steep decline during the period included: China (26.62%), Italy (21.28%), France (19.90%), and Germany (16.09%).

6. FUTURE OUTLOOK
• Over the next few years, the ratio of industrial paints to decorative paints is expected to be 50:50, more in line with the global trend. Currently it is 30:70. With the decorative segment bottoming out, companies are increasingly focusing on industrial paints

• Demand for paints from new housing is expected to constitute approximately 30 percent of total demand; the rest comes in from repainting, mainly after the monsoon rains and before the festive season. This is a function of disposable income, so improvement in rural incomes will boost the growth in the paint sector. Lending institutions continue to make it easier for a consumer to gather up the finances needed to buy homes.

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