The fiscal year 2014-15 proved to be a year which ushered an era of renewed vigor and confidence in the Indian economy, the decisive political mandate accorded in the national elections set the stage for surging hopes for a rapid economic turnaround. We always had the strategic ingredients necessary to bring about focused growth from the economic standpoint. What was actually missing was disciplined and sustained execution.
The present government which started its innings with the promise of “Acche Din” has initiated several structural reforms which are bound to generate substantial long term benefits impacting all industries and sectors.
On the macro front, the biggest comfort came in the form of falling crude oil prices. A wise man once said, the harder one works and the better prepared he is, the more luck he might have. It is indeed satisfying to know that the Indian economy will cross the 7.5% mark this fiscal year, primarily due to pick up in manufacturing and good monsoon. In short, the economy lies in a sweet spot today.
The Indian paint industry has witnessed strong growth of 1.5-2x GDP growth since liberalization, it reported robust double-digit growth even during the economic slowdown from 2009-11. The industry is currently valued at INR 41,000cr and it’s poised to grow over INR 60,000cr by the end of 2017.
Similar to the economy, the paint industry too lies in a sweet spot, a stable central government, increasing GDP growth rate, benign oil prices, rising income (7th pay commission, one rank one pension) and aspiration levels of young demography draws a promising picture of the future of the industry. The reduction in average number of years required for repainting from 10-11 years till 2004-05 to 4-5 years now is in a way an evidence of changing lifestyle with rising income levels.
1. Industry Structure
The Indian paints and coatings market is oligopolistic in nature with about 65% of the market being dominated by organized players such as Asian Paints, Berger paints, Kansai Nerolac, and AkzoNobel. In the unorganized sector, there are about 2,000 units having small and medium sized paint manufacturing plants.
The organized sector has grown at a higher rate vis-à-vis unorganized sector in last few years, primarily due to the rising disposable income and marketing efforts by organized players.
2. Industry Classification
The industry is classified into two broad categories; Decorative & Industrial paints.
Decorative Paints: In terms of value, decorative paints account for about 75% of the overall paint market in India. The premium decorative paints include water based emulsions, whereas the medium range includes of solvents based enamels. The economy range consists of distempers, primarily demanded in the semi-urban and rural markets. Asian Paints is the market leader in this category.
Industrial paints: The three main segments of the industrial sector include automotive coatings, powder coatings and protective coatings and it accounts for about 25% of the overall demand in value terms. The demand for industrial paints is linked to user industries like auto, engineering and consumer durables. Kansai Nerolac is the market leader in this category.
3. Industry inputs
The Industry is raw material intensive, around 300 – 400 raw materials are required to manufacture different kinds of paints. Majority of the raw materials are petro-based derivatives. Titanium dioxide (TiO2) is the largest consumed raw material, it constitutes approximately 30% of the total manufacturing cost.
Hence, any movement in TiO2 and crude oil prices impact the profitability of the paint industry. On an average, a 10% drop in crude prices improves gross margins by 200-300 basis points.
Click here to read the report on Asian Paints.
This report is strictly meant for educational purpose and it may be of interest to researchers as well as students. The Astute Investor acknowledges the fact that a couple of estimates/figures provided in this report have been sourced from various financial news websites (Reuters, Money Control, 4-traders) and research reports available in the public domain.