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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, namely
Decorative segment caters to the housing sector and 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.
Raw Materials: On an average, raw materials constitute ~56% of the total expenditure in paint companies. Titanium dioxide is one of the major raw materials and price fluctuations in its cost have direct and substantial impact on the cost of production. Crude oil derivatives are the other major raw materials and have similar impact. Apart from these a large number of other raw materials are used for 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 construction whereas the industrial segment products find use in automotive industry, consumer durables industry and other OEMs.
the Indian Market by acquiring Nerolac, Akzo Nobel, the worlds largest Paint company, entered the Indian market by acquiring ICI Paints (now Akzo Nobel India.)
Asian Paints is the market leader in the Indian Paint Industry and gets the major portion of its revenue from the Decorative segment. Over the years, it has outperformed its peers in every aspect by wide margins. This is mainly due to its strong moat (competitive advantage) which lies in its strong Brand Equity and an extensive Distribution Network. The companys Net sales, Net Profit and Book Value have grown with a 5 year CAGR of 22%, 27% and 28% respectively. Also the companys 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 the Industrial Paint Segment, owing to its leadership position in the Automobile Paint segment. It is the subsidiary of Kansai Paints Ltd., the leading Japanese paint company. Berger paints has the third position and derives its major revenue from the Decorative segment. Akzo Nobel (former ICI Paints) is the subsidiary of the worlds largest Paint Company and is at the fourth position. Shalimar Paints is at the fifth position.
What are the growth drivers of the industry? Heres the analysis
1. Increasing level of income and education The increasing proportion of young population along with increasing disposable incomes is leading to a change in consumer habits. The Indian economy is shifting from a savings economy to a spending economy. With more income at their disposal, 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, paint companies offering value-added features like non-toxicity, weather protection, texture, ecofriendly production, etc. will attract more demand. These value-added products enable the manufacturers to earn 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 permanent houses. Urban houses are well-designed in its interior as well as exterior aspect. This calls for more houses being painted using medium and premium paints. For urban houses, interior design is becoming a fashion statement and a lot of paint is used to decorate the interiors. This will lead to an increase 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 houses even for the existing population thus further driving the demand. 3. Increasing share of organized sector: Decrease in taxes on key raw materials will improve the position of the organized players. The Organized sector is expanding its distribution network and adopting the installation of tinting machines at retail outlets. These tinting machines offer a wide variety of colour shade options to choose from. The unorganized players are not in a position to offer such facility as it is comparatively capital intensive. Shift in use, from distemper segment towards premier 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 paint industry is largely dependent on the development of the realty and housing sector, as decorative segment generates about 70% of the total paint demand from this sector. The Automobile segment generates more than two-third of the demand for Industrial paints, and hence is the growth driver for Industrial Paints. The Infrastructure segment creates direct demand for paints as well as creates indirect demand through supporting the growth of the realty, automobile, FMCG and other industries where paint is used. The growth potential in the above 3 sectors is immense, the paint industry being dependent on these 3 sectors is expected to grow along with them. 5. Availability of financing options: Easier housing finance and auto finance is expected to favour more people to buy houses and travel in personal vehicles. This will drive the growth of housing and automobile 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 the distemper segment, hence dominated by the unorganized players. Demand in rural areas is dependent on agriculture, which is dependent on the monsoons. With the development of irrigation facility, the dependence of agricultural output on monsoons will be on a decreasing trend. Also, with the modernization of agriculture and accompanying development of rural India, consumer preferences are expected to improve. Paint companies are expanding their distribution network in rural parts of India, which is a relatively untapped market for the organized players.
These factors supported by the increasing penetration of the paint companies will help drive the demand for paints.
The table above gives you a list of the top 5 companies from the Paint Industry. Due to the very nature of the paint industry, it is best advised to invest in companies which have created a strong brand equity for themselves and have a strong competitive advantage. While such companies usually trade at a premium and are rarely cheap, you should look to invest in them when they are available at a good discount. To find out the right price to invest in these companies, become a member of MoneyWorks4me.com.
http://stockshastra.moneyworks4me.com/paints-indian-paint-industry-analysis-andresearch-report-2011/
The Indian Paint Industry which is pegged at around 210 billion rupees has undergone a phenomenal evolution in the recent past both in terms of structure & portfolio. It has been growing at over a CAGR of 15 percent owing to the increase in demand for utilitarian or artistic works and introduction of some new liberalization policies. OverviewThe Indian paint industry was initiated in 1902 when Shalimar Paints set up its factory in Kolkata. The industry consisted of small producers and two foreign companies then. The aftermath of World War 2, saw the uprising of small manufacturing units by the local entrepreneurs. Though the imports ceased but the foreign dominance still continued. Being restrained by Foreign Exchange Regulations Act and Monopolies & Restrictive Trade Practices Act, most of the players were not allowed to increase production capacities until the nineties. With liberalization, as the excise duties got drastically reduced from 40% to 16% ,these shackles were removed and the industry recorded a healthy growth of 12-13% annually. The paint industry can be broadly classified into the Organized & the Unorganized sector. The unorganized sector controls around 35% of the paint market accounting for the balance. Most of
the organized companies in Indias paint market have a nationwide presence with multi-location manufacturing facilities. Top players in this sector include Asian Paints (30% market share), Kansai Nerolac (20% market share), Berger Paints (19% market share) and ICI (12% market share). The companies in the unorganized sector are mostly regional and deal in low value products and have been consistently losing market share to the organized sector.
Market SegmentationThe industry can be further segmented into Industrial and Decorative. The decorative paints account for approximately 75% of the total sales with Asian Paints being the market leader. This segment caters to the housing sector. It is price sensitive and is a higher margin business as compared to industrial segment as it is used in protecting valuable assets. Urbanization has surged the demand for decorative paints. Easy availability of housing loan, rise in the level of income and shift in the perception of paints as having a protective value rather than mere decorative one, have been a few factors that have impacted the housing and thereby the paint industry positively. There is also seasonality involved in the demand for decorative paints with demand at its peak around festive time. Industrial paints cater to the Automobile Original Equipment Manufacturers (OEMs) for protection against corrosion and rust on steel structures, vehicles, white goods and appliances. With production and sales of passenger cars expected to grow, demand for automotive paints will continue to remain healthy. Kansai Nerolac is the market leader in this segment. The industrial paints segment is far more technology intensive than the decorative segment. Globally, the industrial paints segment accounts for a major share but 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. This industry is raw material intensive. As most of the raw materials are petroleum based, the industry benefits from softening of crude prices.
Trends and ForecastsThe market for paints in India is expected to grow at 1.5 to 2 times GDP growth rate in the next five years. With GDP growth expected to be over 7% , the top three players are likely to clock above industry growth rate. Demand in the case of industrial segment is also expected to increase.
The per capita consumption which is at 1.5kg, way below the consumption of the developed countries (20kgs), is expected to improve with the growing income levels, both in urban as well as rural India on the back of various government initiatives like NREGS, farm loan waivers, pay commission led salary hikes etc. Despite the positive figures, the Indian paint makers might see growth slowing in the coming months as a drop in the demand for homes, offices and cars is seen hurting the industry. A better focus on supply chain or distribution mechanism backed by aggressive promotion might turn the wheels of fortune and trigger unprecedented growth in the paint industry.