Sherwin Williams
- 1. The paint industry can easily grow at 12-13% annually over the next few years from its current size of Rs 350 bn. The per capita paint consumption in India which is a little over 4 kgs is still very low as compared to the developed western nations. Therefore, as the country develops and modernizes, the per capita paint consumption is bound to increase. 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 paint manufacturing plants. Top organised players include Asian Paints, Kansai Nerolac, Berger Paints and ICI. 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 70% 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 (50% petro-based derivatives) involved in the manufacturing process. Since most of the raw materials are petroleum based, the industry benefits from softening crude prices.
- 2. 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 power of suppliers Price increase constrained with the presence of the unorganised sector for the decorative segment. Sophisticated buyers of industrial paints also limit the bargaining power of suppliers. It is therefore that margins are better in the decorative segment. Bargaining power of customers High due to availability of wide choice. Competition In both categories, companies in the organised sector focus on brand building. Higher pricing through product differentiation is also followed as a competitive strategy. Financial Year '15 FY15 had its share of both excitement as well as challenges. The arrival of a new Government at the centre with a decisive majority raised hopes of a quick turnaround of the Indian economy. However, it has now dawned that although many macroeconomic indicators are on the mend, it will take time for the growth potential of the economy to be fully realized. On the positive side, softening of international crude and commodity rates has eased the mounting cost pressures on the industry to some extent. And while operating margins haven’t improved much, they can certainly expand in the forthcoming quarters should things continue to remain the same. Apart from better than expected economic growth, the boost to demand in FY16 can also come from fall in inflation levels as it will have a positive effect on customer’s wallet and boost his disposable income. All the key players are almost done with capacity expansion and have started production from new plants. Asian Paints’ plant in Khandala, Maharashtra has recently got commissioned. Besides, it has initiated a project to double capacity at Rohtak plant in Haryana. Kansai Nerolac’s capacity expansion plans at Jainpur and Bawal has culminated. Berger Paints has also commissioned its water based paint plant at Hindupur in Andhra Pradesh. Its powder coating plant at Jejuri has also been commissioned.
- 3. Prospects The market for paints in India is expected to grow at 1.5 times to 2 times GDP in the next five years. With GDP growth expected to be between 6-7% levels, the top three players are likely to clock above industry growth rates in the future, considering they have a strong brand and good reach. The market size of the paint industry in India is estimated at around Rs 350 bn. Industry players expect close to 12% growth in business volume and 10-12% rise in sales in FY16. Decorative paints segment is expected to witness higher growth going forward. The fiscal incentives given by the government to the housing sector have immensely benefited the housing sector. This will benefit key players in the long term. Although the demand for industrial paints is lukewarm it is expected to increase going forward. This is on account of increasing investments in infrastructure. Domestic and global auto majors have long term plans for the Indian market, which augur well for automotive paint manufacturers like Kansai Nerolac and Asian-PPG. Increased industrial paint demand, especially powder coatings and high performance coatings will also propel topline growth of paint majors in the medium term. Volatility of the Indian currency and international oil prices and worries about a normal monsoon continue to be major challenges facing the paint industry.