indian paint industry mrp-1 raj 92
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INTRODUCTION OF THE
INDIAN PAINT INDUSTRY
PAINT INDUSTRY: YESTERDAY TODAY TOMORROW
Just imagine the world without color; like life without air. Paint a well
known subject to mankind for coloring, decorating, identification and signaling
from thousand of years. Man knows about colors since 200 B.C. during the same
period world famous AJANTA CAVES were painted.
In India, way back in 1902 the first Indian Paint industry started
manufacturing paints near Calcutta, namely SHALIMAR PAINTS. In last 100
years paint industry is equally dominant by more than 20-25 organized sector and
over 2500 small scale units scattered all over India.
Presently, Rs.6000 crores Indian Paint Industry producing at 6.50 lac tones
of paint & other allied coating material per/annum. Approx. 40% of total output is
contributed by SMALL SCALE SECTOR to PROTECT AND DECORATE the
national assets.
The Indian Paint Market is widely perceived as one of huge potential and
partly owes its continued growth to rising personal wealth and innovation on the
part of its leading paint companies. While the Organized sector is responsible for a
majority of the market, the contribution from the small scale remains appreciable
at about 40% of the market. Recent growth estimated from the paint industry have
been placed at 8 to 10% per/annum.
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Industry is planning to launch a major awareness campaign in a bid to
enhance the per capita consumption of paint in the country. The paint industry is
growing at a rate of 12% per annum: the per capita consumption is measly 650-
700 gms as against 8.8 kgs in Malaysia, 2.9 kgs in Thailand, 1.55 kgs in China,26.8 kgs in Singapore and 19 kgs in Germany and 31 kg in USA. India has measly
0.6 % share in the world paint market; this is because of non-level playing field for
Indian companies in the areas of high cost of credit, high power cost, poor labor
laws, high freight cost and red tapism.
PAINTS
Paint consumption in India is highest is highest for decorative paints, which
account for 70% of paint sales in India. The Rs.30,000 million organized sector
paint industry has a relatively small numbers of players. The top five players
[Asian Paints, Berger Paints, Goodlass Nerolac, Jenson & Nicholson (J&N)]
account for close to 80% of total sales. The Indian Paint Industry has come a long
way from the days when paints were considered a luxury item. Today the
awareness level on preventing corrosion through paints is relatively high, a
development that should be a huge boost to the paint industry.
US$ 925.0 million (2000-01) worth Indian Paint Industry, offers profitable
scope for revenue streams to manufacturers of both decorative & industrial paints.
Factors that have been given emphasis include the low per capita consumption of
paints (1.0 kilogram), growth in construction sector (It is being offered industry
status) & growth in the auto/white goods market respectively spurring demand for
decorative & industrial paints. The industry has also witnessed increased activity
in the industrial variety of plants with the entry of MNCs in auto, consumer
durables etc. which has been gaining steadily over decorative paints in the last one
decade.
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Following are the major players in the Indian Paint Industry:
ASIAN PAINTS INDIA LTD (APIL)
BERGER PAINTS
ICI PAINTS
GOODLASS NEROLAC PAINTS LIMITED (GNPL)
SNOWCEM INDIA LTD
JENSON & NICHOLSON
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TYPES OF PAINTS
THE INDIAN PAINT INDUSTRY AT A CROSSROAD
This industry has traditionally been divided into two separate segments:
The Organized sector and the Unorganized sector. The former consists of the
major manufacturers numbering around 12 to 14, while the unorganized sector is
said to consist of nearly 2500 small-scale units (SSU).
Paints can be of the following types:
1) Powder Paint
E.g. Dry distempers, cement paints, industrial powder coatings.
2) Paste Paints
E.g. Stiff white paints or Safeda, Oil Paints, Oil bound washable
distempers, Acrylic distempers.
3) Liquid Paints1. Water Based Paints: e.g. Plastic emulsion paints.
2. Solvent Based Paints: e.g. Air-drying synthetic enamels,
stowing synthetic enamels, lacquers, and varnishes.
3. High Solid Paints: mostly for industrial applications.
4. Solvent Less Coating for Industrial Application: e.g.
Unsaturated Polyesters, Solvent less Epoxy systems.
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APPLICATIONS OF PAINTS IN DIFFERENT FIELDS
1. ARCHITECTURAL & DECORATIVE PAINT SEGMENT:
Also called bazaar paints, and ignorantly called by someone as
DECORATIVE paints perhaps because they are used for decorative purpose, are
generally sold through paint dealer for common house hold application, building,
steel structures, bridges, factories etc for use in non corrosive environments.
Unlike in the developed countries where Industrial Paints contribute a
major share in their total paint market, it is the Architectural or Decorative Paintthat contributes between 65 and 70 % of the total Indian Paint Market. The 1
billion populations will require housing and the Governments Policy towards
housing development to provide the Indian Decorative Paint segment
opportunities for growth. Demand for decorative paints will be pushed not only by
new construction but also by refurbishment of existing buildings. Residential and
commercial construction is expected to record growth rates of around 8% over the
next few years. Building maintenance and concrete restoration industry will also
get a boost as more and more owners realize the need for better maintenance.
Decorative Paints
Within the decorative paints segment, there exists considerable scope for new
products and for enhancing performance of several of the existing products. From
the generalized applications of todays products, The Indian
Paint Industry could move to products for specialized applications and
create altogether new markets. In the emerging business era with imports
becoming easier and large international companies willing to dump goods at
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cheaper prices, creating niche markets will act as insurance. Product development
and investing in technology should become priority Areas.
Interior Decorative Paints:
Paints for interior use holds close to 50% of the market for Decorative
Paints. Traditionally water based emulsion paints have found use on interior walls
and ceilings. There exists scope for product innovations in paints for interior use.
Multi-colored decorative paints for walls are one of the many new products that
can enhance the general aesthetics and create new markets. Low odor and anti-
bacterial paints is another product with immense promise. Water based transparent
and pigmented wood coatings for domestic and commercial furniture, doors &
windows, etc is another use. We could also have medium duty commercial floor
coatings competing with marble, granite and other types of floor coverings. Floor
coatings can be formulated to provide designs, textures, etc unlike other types of
floor materials.
The Exterior Paint
It is the exterior of buildings and civil structures that is undergoing far-
reaching changes. The traditional cement paint has competition from other
products, perhaps for the first time in India. Possibility of a rapid expansion in the
paints for Exterior cannot be ruled out. It is also likely that the current five-year
life guarantees will increase to 10 year and even 15 year and more life guarantees.
Emulsion-based paints for exteriors with 10 or 15 years plus performance with
guarantees are norms in many countries. Water and Solvent based Anti-
carbonation coating is another product that has the ability to become a sought-after
product for exterior concrete surfaces. Anti-carbonation coatings provide stain,
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fungus and mold free surfaces and have low dirt pick up characteristics to ensure
high levels of aesthetics. Anti-carbonation coatings are specifically designed to
stop or slow down the ingress of atmospheric carbon dioxide thereby protecting
the reinforcements from early corrosion.
Cement paints itself could undergo modification to improve its performance
attributes, and still remain as a single-pack dry powder that requires only on-site
mixing with water prior to application. The modified cement paint would not only
make it more durable than its present form but also give it a competitive edge
against emulsion-based exterior paints. A new niche could become available in
between the existing type of cement paint and emulsion paints for exterior.
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2. INDUSTRIAL PAINTS:
The industrial paint segment will also grow at a faster rate, especially due
to its low base and the fast growth rates in the major user industries like
automotive and consumer durables. The major users of industrial paints are the
transport segment consisting of Railways passenger and goods carriers,
Commercial vehicles, Passenger Cars and Two-wheelers and the several Off-The
Road Vehicles used in construction. Indian Railways have one the largest
consumers of paints and would continue to dominate because of their sheer
volumes. The Passenger cars, two-wheelers and the Commercial Vehicle segments
where the Indian Paint Industry has been witness to technology changes can be
compared to the best in the world.
The common man in India is more aware of the aesthetic part of paints
rather than its protective properties, and so far it is the decorative segment that has
been aware of. But with the industrial and infrastructural development taking
shape, things are changing. The use of industrial paints especially for maintenance
is extremely low in the country. The developments of roads, bridges, power plants,
development of ports, refineries and natural gas installations etc would enhance
the use of protective paints. And it is here that the future of the Indian Paint
Industry.
A principle concern for the Indian Paint Manufacturer is a lack of the value
of coatings by executives and managers responsible for protecting corporate and
government assets. With many such agencies, coatings and corrosion controls donot have a high level influential internal advocate. Coatings are perceived as non-
glamorous and non technology. The Indian Paint Industry therefore must increase
the awareness of the criticality of protective coatings.
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3. Powder and Coil Coatings:
The use of powder coatings is most often directly dependent on the fortunes
of the consumer durable appliance and the white goods sectors. Conversion in
these industries from liquid paints to powder has been slow, which has not
provided the impetus to the growth of the Indian Powder Coatings. The
automobiles ancillary industry is another prospective area for Powder Coatings,
which in turn is dependent on the performance of the automotive industry.
4. Infrastructure & Industrial Maintenance Coatings:
It is solid directly to the industrial manufactures of various equipments,
appliances, cycles etc. these are generally stoving type but fast air drying paints
may also be used in the cases, where stoving facility is not available.
This is one area of immense potential for the Indian Paint Industry, not only
to carve out a niche business area but also for technology inputs. The vast
countryside and its varying climate, urban and industrial centers provide one of thebiggest challenges for the use of paints and coatings for protective purposes with a
primary objective to enhance the service life of the structures from reinforced
concrete are the targets for high-performance protective coatings.
The Indian Paint Industry could collectively review existing practices,
which although may serve many situations but is not necessarily the best available
coating products, systems and practices. The Paint Industry is best suited to redraw
and reset performance specifications that would guarantee surface protection to the
users. Each specification could provide alternatives to its expected life span to first
maintenance, which would allow users to choose the system that best suits him.
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Naturally specifications would be separate for different substrates like for steel,
galvanized steel and for vertical and horizontal concrete including specifications
for reinforcements used in concrete etc. Separate specifications would be required
for industrial and commercial floors as well as for vehicle parking decks,basements etc.
Heavy duty chemical & corrosion resistant coatings & Linings that
compromise the products in this segment find application at off-shore oil
platforms, refineries, petrochemical plants, chemical & fertilizer plants, storage
tanks, in the paper, dyes & dye intermediates, pharmaceutical intermediate
manufacturing industries, etc. They are used for structural protection as well as
linings & membranes on metal, concrete for verticals as well s horizontal
structures.
Although this segment is currently not a significant contributor to the
industrys revenues, it is a segment that cannot be overlooked. If the Indian Paint
Industry is to garner a position of the huge loss due to corrosion, this segment can
become a significant revenue contributor. It is estimated that the worldwide
market for Heavy-duty Chemical & Corrosion Resistant Coatings is 1.5 billion
US$ annually, and despite this large expenditure the worlds assets remain under-
protected. Many countries are known spend 4% of their GDP in annual
maintenance for corrosion and corrosion control.
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5. Industrial OEM & Automotive:
The stowing paints for the original painting of cars, trucks, light
commercial vehicles, scooters, and motorcycles are sold directly to the automotive
manufactures. They are not sold in market since their application is only possible
in the factory set up.
Increased paint transfer efficiency, high solids, better finish, improved
curing, lower energy usage are some of the challenges faced by the manufacturers
of Industrial finishes. The transport sector is another that can do with better
performing paints as well as improved applications procedures. The Indian
automotive coatings can said to have standards. However within the automotive
coatings segment several innovations are still possible. Paints with heat resistant
properties for ancillaries, interior plastics are some that could be considered.
Automotive refinish coatings are still the traditional nitrocellulose types.
Although international manufacturers have come in with their internationally
established 2K systems, these are still in their infancy. The commercial vehicles,
off-road vehicles, railways, defense vehicles all could do with technology and
innovate products and it is here that The Indian Paint Industry has one of its
biggest challenges.
6. Marine Paints
For the application on ships, submarines, dockyards, offshore drilling
rigs/platforms etc.
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7. Aircraft Paints:
Special paints are used to meet the very exacting and specialized
requirement in the Aircraft.
8. Defense Paints:
The defense industry has its own norms and specialized requirement like
camouflage and special paint are required which can be applied under prevailing
conditions.
9. Specialty Paints:
A vast variety of the specialized paints for use in nuclear plants,
rockets/satellite with very heat resistance, electrode position paints.
10. Paint For Railway:
INDIAN RAILWAYS-THE LARGEST SINGLE CONSUMER FOR
PAINTS:
The Indian Railways is one of the largest consumers of paints and coatings
in the country. The Indian Railways have its own captive manufacturing, repair
and refurbishment establishments for passenger coaches, freight and tanks wagons
and locomotives and also use large quantities of paints for their buildings,
workshops and other establishments. Indian Railways have always relied on their
own specifications for paints drawn from the Indian Standards. Unfortunately,
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these specifications have remained without major updating for many years and can
at best be considered as outdated and not in line with modern international
standards. For the Indian Railways it is an opportunity to not only lead the paint
users in the country in using the highest quality paints and coatings similar tothoseused internationally but also to innovate into using coatings with Low Volatile
Organic Components. To the Indian Paint Industry, it becomes a collective
challenge with the Indian Railways in re-designing specifications for paints and
coatings and help in modernizing national assets.
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PAINT RAW MATERIAL
Paint is a mixture of four elements: solvent, binder, pigment and additives.
Solvent gives the paint a liquid flow while the binder binds it to the surfaces.
Pigments impart color and opacity to the paint and the additives give it special
resistance properties. Paint production involves mixing of various raw materials in
a balanced proportion. Based on the predetermine formula, pigments, extenders,
resins and additives are grouped together in a dispersion or grinding mill. The
ground mixture is then dispersed in a medium, which could be approximately 70%
of the production cost.
Three hundred different types of raw material are used in paint
manufactures and about 50 to 60 % of the inputs are petroleum based. The most
critical input in paint manufacture are titanium dioxide (TiO2), phthalic anhydride
(PAN) and pentareythritol (Penta). There are other raw material such as castor,
linseed and soyabean oils and turpentine. The Industry imports around 30% of the
raw material requirement.
INPUTS
The major inputs are Titanium dioxide (rutile and anatase grade), phthallic
anhydride, organic pigments, pentaerythritol and resins.
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The major manufacturers of the important raw material and the status of
their availability are below:
Titanium dioxide:
This is the most and account for the 50% of raw material cost. It is
available in two grades: Rutile and Anatase. Rutile grade titanium dioxide, the
more expensive of the two, is used in high value decorative paints and industrial
paints. In India, Kerala Minerals & Metals Ltd. manufactures rutile grade titanium
dioxide while three producers viz Travancore Titanium Products Ltd. and Kilburn
Chemicals Ltd. Manufacture anatase grade titanium dioxide while the quality of
Indian rutile grade is good. It is not the case for anatase grade. A large portion of
Titanium dioxide is met from imports.
Phthalic Anhydride:
This is available in large quantity in India. There are alkost seven producers
with a total capacity of over 280000 tones. I G Petro and Thirumali Chemicals are
the major players accounting for nearly 80% of the capacity.
Organic Pigments:
The pigments consist of white or colored particles, usually in the form of
powder, which gives paint its color and opacity. Though the quantities used are
small, their prices are very high. The major manufacturers are Sudarshan
Chemicals, Color Chem and Clariant.
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Pentaerythritol:
It is used for the manufacture of synthetic resins. Availability of the Penta
is not a problem as there are quite a few players including Asian Paint, whichmanufacture the product.
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TRENDS
The trend is seen in the India. The share of small-scale industry is
continuously coming down with reduction of excise duty. Earlier, the excise duty
used to be more than 40 %. Now, this has come down to 16%. Now we are able to
effectively compete with small-scale units. So, the industry is consolidating
continuously since liberalization.
TINTING MACHINE CONCEPT IN INDIAN PAINT INDUSTRY
The tinting machine concept in India has picked up in the last three to four
years and the machine numbers at the dealers counter has been increasing
continuously. This in fact has revolutionized the paint selling. Under this concept
the tinting machine, which can be manual or computerized operated, are kept at
the dealers counters. The computer attached to the machine is loaded with
visualizing package, though which the customer can see various color schemes
and select the shades liked and same tinted instantly. From the companys point of
view it has reduced the product launch time, as you are now offering economy of
scale, and develop shades by using various proportions of colorants, Which can be
tinted with the machines. Handling of stock has become easier and so is the
forecast with the reduction in number of SKUs. There are about 5400 machine
already placed and the trend will further pick up.
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While Jenson and Nicholson was the first company to go for this concept,
others have overtaken. Like Asian has over 2000 machine, Goodless over 1400
and Jenson is having around 375. Goodless has gone one step ahead by launchinga new concept known as Magic Eye whereby a spectrometer is attached to the
computer and it can pick up shade from a sample of any substrate like fabric,
panel, shade chip, or old paint chip. With this any shade of customers choice can
be made at the shops having this facility.
Paint companies have started the concept of providing help to the
consumers through help lines. The concept was test launched by Goodlass at
Ludhiana in Punjab and subsequently promoted aggressively by Asian Paint. We
now have Help Line/Home solutions from Asian, paint Line from Goodlass and
Home dcor from Berger. The consumer gets the benefit of right applicator:
advisory service of the company and work to his satisfaction. This will further
culminate as full-fledged supply &Apply concept at a later stage.
Mega Mills offering a complete range of building material, including paints
have started coming in India now with first such store started at Gurgoan, in an
area measuring 33000 sq.ft. Which a restaurant as well the name Arcus.
Understandably they are in process of setting up a similar store in Mulund at
Mumbai measuring 55000 sq.ft.
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GLOBAL SCENARIO
The total output of the world paints and coating-manufacturing industry
was valued at $54 billion in 1996. The industry supported some 12,250 activefirms. This industry is forecast to expand 4 per cent annually to nearly 26 million
tones by the year 2005. The valued would be $77 billion.
Tonnage gains in the industrial coatings segment will be constrained by a
shift in trend towards higher solid coatings ( such as powder coatings), which
often weigh less per kilo than solvent-borne coatings, and generally require fewer,
thinner coats. On the other hand, the architectural segment is seeing a continuing
shift towards water-based stronger tonnage gains. These trends are evident around
the world but have had the most impact in more nature markets.
Most of the development world has already affected such a switch to water-
based formulations for most architectural applications. The development world is
also experiencing this trend- India included.
The world paints and coatings industry is becoming increasingly dominated
by a small group of highly focused, globally positioned firms. For many of these
companies (e.g. Sherwin Williams, Kansai Paint, Nippon Paint, and Asian Paints)
coatings represent the primary line of business. In other cases (e.g. Akzo Nobel,
ICI, BASF, Hoechst, Dupont & Courtalds), the firms strong position has arisen
from involvement in various upstream petrochemical activities, including
production of many of basic raw material uses in coatings production.
The most rapid gains in paints and coatings production will be registered in
the development regions of Latin America and Asia-Pacific. Although the Asia-
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Pacific rejoin holds excellent long-term prospects as a market for paint and
coatings, regional Production has been lower, primarily due to the financial crisis
that has hit this region. However, India was not severely affected by the crisis.
The wave of currency devaluations and a sharp rise in interest rates will
seriously dampen spending in key paints sectors such as construction and durables
in the short term. Particularly in Indonesia, South Korea and Thailand India, in an
earlier budget, has announced a new housing policy, which should in a boom for
the construction sector, which will boost demand for architectural coatings.
A very interesting trend is emerging in the architectural coatings segment.
We are experiencing a shift from solvent-based coatings to water-based coatings.
Water based coatings now account for most of household paint demand in
development countries and are gaining ground in developing countries too. During
the 1990s, the drive has spread to the industrial coatings have necessitated intense
product reformulation efforts, leading to a number of alternative technologies
Meeting environmental regulations another challenge for paint companies
in the development world. Even companies in development regions must be
prepared in this area, as paint products are soon adopting global standards, hence
all paint companies will have to comply with environmental regulation Global
trends towards free trade will have an impact on product mix, since exports goods
must meet the environmental codes of the establishment of more environmental
regulations for member nations.
Global production of paints and coatings can be divided into two broad
sectors architectural paints and industrial coatings. In 1996, architectural paints
accounted for 58 per cent of the total output, with industrial coatings accounting
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for the remainder. However, the industrial coatings segment is slightly larger in
value(dollar) terms because industrial coatings tend to cost significantly more than
architectural products.
In 1998, the worlds top ten paint and coating suppliers accounted for nearly 42
per cent of the market. The next ten producers accounted for an additional 13 per
cent of sales, which gives the top 20 firms a collective market share of over 50 per
cent.
The most basic division in the market is between architectural coatings and
the industrial coatings. Akzo Nobel, the worlds top player, has a strong presence
in both segments (60:40 in favor of the industrial coatings). Sherwin Williams,
ICI, Total, Asian paints, and Benjamin Moore for primarily on architectural paints
whereas PPG, Kansai Paint, Courtaulds, Nippon Paint and RPM focus heavily on
the industrial segment. BASF, Dupont, Lily Industrial and DAI Nippon focus
entirely on industrial coatings.
Globally industrial paints are the major segment, accounting for around 70
per cent of the market. Global trade is overall sparse, due to relatively simple
technology, and especially the need to maintain higher inventory at the dealer level
and high transportation costs. Per capita consumptions is 26 kg. in the US, 4 kg. in
the Philippines and 16 kg. in Taiwan.
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WORLD PAINT INDUSTRY PLAYERS
Ranking by volume and value for top Asia-Pacific companies:
Company Country Coating sales
$ million
Rank
volume
Nippon Japan 1900 1
Kansai Japan 1775 2
Asian Paints India 774.54 3
DNT Japan 600 4Orica Australia 434.79 5Wattyl Australia 335.63 6
Korea Chem. South Korea 312 7Chugoku Marine Japan 310 8
Berger India 264 9
DIC Japan 254.43 10
Rock Japan 224.79 11Yung Chi Taiwan 220.5 12
DPI South Korea 190 13Shinto Paint Japan 171.89 14
Tophe Japan 142.87 15
Coatings worlds global ranking of the top manufactures of paints,
coatings, adhesives and sealants
No. Rank Company Country Coating Sales1. Akzo Nobel Netherlands $ 6.974 billion2. Henkel Germany $ 6.236 billion3. ICI UK $ 5.817 billion4. Sherwin-Williams USA $ 5.728 billion
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5. PPG USA $ 5.566 billion6. Dupont USA $ 3.78 billion7. BASF Germany $ 2.714 billion8 Valspar USA $ 2.713 billion9. RPM USA $ 2.556 billion
10. Sigma Netherlands $ 2.215 billion11. 3M USA $ 2.00 billion12. Nippon Paint Japan $ 1.9 billion13. Kansai Paint Japan $ 1.775 billion14. H.B. Fuller USA $ 1.512 billion15. Sika Switzerland $ 1.29 billion16. Masco USA $ 1.264 billion17. COMEX Mexico $ 1.22 billion18. Rohm and Haas USA $ 1.158 billion
19. Jotun Norway $ 1.042 billion20. AB. Wilh. Becker Sewedn $1.008 billion21. Benjamin Moore USA $ 1.00 billion22. DAW Germany $ 952.7 million23. Hempel Denmark $ 814.4 million
24. Asian Paints India $ 774.54 million25. DNT Japan $ 600 million26. Tikkurila Finland $ 569.76 million27. Brillux Germany $ 530 million
28. Forbo Switzerland $ 505.54 million29. Orica Australia $ 434.79 million30. Barloworld South Africa $ 404 million31. Arch USA $ 358 million32. Kelly-Moore USA $ 345 million
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33. Wattyl Australia $ 335.63 million34. KCC South Korea $ 312 million35. Chugoku Marine Paint Japan $ 310 million36. Helios Slovenia $ 285.9 million37. Dyrup Denmark $ 280.96 million
38. Dunn-Edwards USA $ 280 million39. Yasar Turkey $ 275 million40. Berger India $ 264 million41. Sico Canada $ 257.78 million42. D I C Japan $ 254.43 million43. National Paints Jordan $ 234.93 million44. Flugger Denmark $ 228.64 million45. Rock Paint Japan $ 224.79 million46. CIN Portugal $ 221.7 million47. Yung Chi Taiwan $ 220.5 million
48. Altana Germany $ 218 million49. Ameron USA $ 210 million50. Renner Brazil $ 209 million
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ASIAN PAINT INDUSTRY COUNCIL
Formed in 1995, The Asian Paint industry council (APIC) was organized to
provide a forum for trade associations representing the paint and coatings industryto meet and communicate on broad matters affecting industry development in asia.
APIC meets annually, with a discussion agenda covering regulatory and
environmental mattress, technical and scientific presentations, and business-related
forecasts and economic analysis. The secretariat (provisional) for APIC is the
japan paint manufactures participate at IPPIC meetings; one representing the
Indian sub-continene, and one representing southeast asia. Currently APIC has
representatives form the following associations:
China National Coatings Industrial Association
Indian Paint Association
Indonesian Paint Manufactures Association
Japan Paint Manufactures Association
Korea Paint & Printing Ind Cooperative
Malaysian Paint Manufactures Association
Philippine Association of Paint Manufactures, Inc.
Singapore Paint Manufactures Association
Taiwan Paint Industry Association
The Fderation of Thai Industries
Ministry of Industry (Vietnam)
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INTERNATIONAL ISSUE
Raw material should be levied a lower duty. The united states has been
dumping certain variety of paints in India and the association is planning to take
up the issue with the commerce ministry soon. Recently, a large quantity of
architectural paints was dumped in India fro the US. This has affected all local
manufactures and as such the government should increase import duty on paints
and the anti-dumping mechanism should be modified to address such issues
without waiting for damage to the local industry to happen. The IPA has been
collecting data and would soon furnish it with the commerce ministry for action.
Cost of many imported products did not even cover the cost of some basic raw
materials.
The easy availability of raw materials, a trained and skilled wordforce, a
technically qualitied managerial cadre bas and low production costs have made
Indian an attractive sourcing destination for global MNCs. Many overseas
companies are also undertaking collaborative research with local companies and
instutions.
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How important are exports for the Indian paint industry?
In any country where industrial development starts, paint industry is the
first one to start locally. The transportation cost is high. Paint is a build item.
Except for specialty industrial coating., nobody wants to import paint. Even within
the country, a big company should have multiple bases to reduce transportation
cost.
In house paint, globally you will always find a strong local player. He may
be a leader in that country. But he does not exist outside that country. Along with
your ablity to formulate paint, your ability to distribute the product is also
important. This is not the case in industrial coating.
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SSI paint industries will survive WTO onslaught
Despite the devastating effects of liberalization, and the future threat of
WTO, the much-touted death of the decorative paint industry in the SSI sector will
not happen.
In the annual VSKD nadir memorial workshop organized in Chennai under
the auspices of the Indian paint association, chairman DG Rajan (southern region)
said that the small industries would have to address foreseeable problems and
opportunities if they wished to live long in the next millennium.
Even though the paint industry was having a growth rate of 10 percent, this
did not seem to rub off into southern India. While differential sales taxes in the
southern states prove a hindrance to growth in some states, small companies
would have to lood at becoming contract manufacturers for larger players or enter
into strategic alliances with technology savvy companies in order to survive.
However subrmanian felt that small companies in the decorative segment
had a strong brand presence in regional markets wit the advantages of lowered
overheads and better prices. It would be impossible for any MNC or large
company to weed them out. According to statistics, SSIs contributed to per cent of
the paint industry turnover, the remaining coming from national level players.
With the small- scale having good presence in primers, distempers, exterior paints,
thinners, all perceived as growth areas, they had good future, according toSubramanian.
The rural markets offered very high opportunities with 83 percent of the
population having success to only 20 percent sale. The manufacturer who cashed
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in the rural markets big or small would have the competitive advantage. The future
growth areas would be in distempers, emulsions, wood finishes and economy
enamels.
While quality enamels will witness a growth of 8 to 9 percent, economy brands
will witness higher growth. Industrial paints will have even better growth, 12 to 13
percent in volume and 15 to 16 percent in value.
POST WTO PERIOD:
Apprehension exists some that the withdrawal of restrictions will encourage
large-scale imports of decorative paints into India. Such a seenatio is unlikely to
take place quickly. First of all, current duty structure foes not encourage imports
of finished paints and still remain competitive. Even should the current duty
structure get reduced, a likely situation over the next few years, the distribution
and the operational logistics would continue to be a hindrance for imported
product. Add to that the necessity of brand building especially for decorative paint,
its cost and time requirements, and you have a situation that does not encouragelarge-scale imports of decorative paints, for the next few years al least.
On the other hand, international manufacturers could taste the India market
by selective introduction of niche products of by selective introduction of the DIY-
Do it yourself concept. Aerosols for instance could be one of the product groups
and could include handy products for home repairs, wood finishes, zinc-aluminum
spray for metal protection. Etc. aerosols could also expand the existing retail
distribution set up by including convenience shops, shopping malls, and furniture
and home furnishing retailers, etc. decorative protective coatings or functional
coating are another set of products with potential.
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FUTURE OF PAINT INDUSTRY IN INDIA
In fact it is quite bright with the awareness level now improving and
customer now getting more, involved in purchase process. The industry, as ishappening worldwide is likely to consolidate. This will amount to a limited
number of players in the field. The foreign companies will wither get into joint
venture with Indian companies or will takeover the existing ones to take benefit of
the established network. Today distribution network, brand image of the existing
players and the customization of the products are the biggest entry barriers.
The industry is likely to register year on year growth of 7 to 8% in next 4
to 5 years. The growth in the industrial will be guided by the overall industrial
growth, increase in automobile industry and in while goods sector. On the
decorative front it will be guided by the availability of funds in the hand of the
consumers with rise in income, increase in agricultural income and improvements
in the construction industry.
This then is the background in which we operate at the present moment.
Where do we go from here? What does the future hold n store for our industry?
Will, I for one is thoroughly confident that the paint industry has indeed a very
bright future ahead. We have the capability, the wherewithal and the dedication to
achieve a quick take-off to a higher tangent of performance. Given the right policy
framework, I have no doubts that the paint industry will be going great guns in the
near future and add significantly to the overall well being of our economy. I am
sure that the plan of action and the modus operandi for the coming years would
throw new lights and open up new vistas of prosperity and growth for the paint
industry in India.
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INDUSTRY ANALYSIS
Analysis of any industry will help to know the position and attractiveness
of any particular industry. By making industry analysis, we come to know that
what is the structure of the industry, growth rate, market size, customer group, any
possibility of backward or forward integration, what are the entry and exit barrier,
what is the technological aspect that it is changing or stable, product characteristic,
it there any possibility of scale economy or learning and experience effect to the
industry, capacity utilization position i.e. having utilized full capacity have an
competitive advantage to the competitor and to know the profitability of the
industry all this shall include the industry analysis.
INDUSTRY BACKGROUND
Paint business in India has been growing at a responsible pace of 9 to 10%,
in the past five years, though there has been some down witnessed in the last two
years. Till the year 1999-2000, paint industry was the third fastest growing
industry in India, next to the Lubricant oil and automobiles. If we go back to the
period 94-95 and 95-96, the growth rates were real high at 26 and 24 %
respectively, triggered by the industrial growth and rationalization of excise duty.
The slow down is not very different than the overall industrial growth. Hence keep
the hope that it will continue to grow as economy grows. If we compare this
growth with China there CAGR for the past five years has been 7.5% to 8%. In a
way our growth has been better.
The current consumption rate of 650 to 700 grams per person is low as
compared to developed countries where the consumption rate is 31 kg/person in
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USA and 1300 grams in Sri Lanka. This however should be viewed in the context
that over 50% of the population in India does not consume paint as it is having low
income. Moreover the consumption is mostly in urban or semi-urban areas as the
home in most of Indian villages are made of bricks and mud with no plaster. Thesituation is however changing fast with improves agricultural income in hands of
the farmers with continues good monsoon records in India.
The industry can do much better if the government correctly understands its
status. The primary function of paint is to protect and the secondary one is to
provide artistic value. It is not a luxury asset of the country. As per the estimate of
the experts at corrosion institute at Karaikudi, India loses over Rs. 2000 crore
annually on account of corrosion- a wealth, which can be served by increasing
awareness about the protective aspect of paint and making it more affordable by
rationalization of excise and taxes. Currently the excise on paints is on MRP at the
rate 16% rationalized for cost.
CURRENT OPERATING ENVIRONMENT
For the industrial business most of the companies have foreign tie-up or
separate joint ventures. Like Birlas, Nerolac has automated coating technology
from Kansai paints of Japan and Du Pont. Asian Paint has a joint venture of PPG
for the success in this segment the Asses to latest technology provides a definite
edge over the others. Besides these the associations of collaborators with the OE
customers parent companies also matter. In the case of decorative business the
technology is generally indigenous except in the case of Goodlass Nerolac. Where
they have assessed to Kansai technology for the decorative products, being their
holding companies.
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With the growth rates deeming the competition among the major players
have been intense and rather cutthroat. Even though the prices have been dropped
quite frequently to boost sales in the market. The market growth in the past threeto four years is lead by the growth in the exterior emulsion products, which has
encouraged the companies to launch new products at a different points meant for
elite top of the line customer and down the line.
Some of the products, which got launched where Apex exterior emulsion
and Ace in economy by Asian Paints. This segment is likely to grow at a similar
pace in the next 3 to 4 years as well. Exterior products which include lower end
cement paints as well, accounts for 12% of total paint volume.
INDUSTRY STRUCTURE
In the Indian Paint Market, one important factor is the presence of the
unorganized sector as a substantial force. Paint business in India can be divided
into organized and unorganized. In the organized sector there are six dominating
companies who enjoy a majority of the market share and this business account for
72% of the total paint business estimated of 6000 Crores. In the organized sector
the split between decorative and industrial business is in the ratio of 76:24 %,
unlike advance countries where it is other way round, which means the industrial
business dominates. While in the decorative business Asian Paints is the clear
market leader, Goodlass Nerolac leads in the industrial sites. On overall basis
Asian Paints is the market leader followed by the . Other major players are Berger,
ICI, Shalimar and Jenson & Nicholson. Historically Shalimar paints was the first
entrants, way back in 1902. The paint industry is highly fragmented. Both the
large organized sector and the small unorganized units make paint.
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The Indian paint industry is dominated by the organized sector (60%
market share). There are around 25 large and medium companies in the organized
sector having a capacity of 36000TPA about 2200 units in the unorganized sectorhaving a total capacity of 24000 TPS share the balance 40%.
The products of the paint industry can be classified as:
1. Decorative/Architectural finishes
2. Industrial finishes
Decorative paints form 70% of the market and include lime stones
coatings, acrylic and oil-bound distempers, enamels, cement paints, super acrylic
and plastic emulsions (Apcolite). They are used in household painting,
architectural and other display purpose. This segment is price sensitive, sale of
these paints is seasonal with over 50% of sales taking place during the September-
December festival seasons.
Industrial paints comprising 30% of the paint market include automotive
paints, high performance coatings, coil coatings and powder coatings. This
segment is relatively priced inelastic, but is susceptible to end user business
cycles.
Industrial paints business is technologically intensive, most Indian
companies have tied up or are tying up with international majors to have access to
the latest technology as it is not available locally. A tier up with global paint
manufacturers also enables the domestic company to supply to local customers of
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its partners (E.g. Goodlass Nerolac is the major supplier to Maruti Suzuki because
of Kansai, its Japanese collaborator and Suzuki relations).
The paint industry is the raw material intensive, with over 300 inputs
(50% are petro based derivative) going into the manufacturing process. Key rawmaterials that go into paint manufacture are pigments (Titanium dioxide), solvents
(Orthoxylene), binders, additives and white cement/urea all of which together
account for 55% of the total cost.
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There are six large companies and over a 1000 small, some of them in the
tiny sector, that are players in the decorative paints market. Most decorative paints
are sold through trade channels. Contractors and painters apply almost all the
decorative paints sold in the country, the do it yourself market is extremely small.As there are large number of manufacturers and several 1000 retailers marketing
decorative paints, reliable information on the size of this market is not available.
We estimate that the market for decorative paints would have been around Rs.
46000 million in 2000-01. The total coatings market would probably have around
61000 million. The average annual growth rate has been around 8 to 10 %, the
market grew at over 15% in the previous year, 1999-00. Six major companies
share approx 55% of this market and over a 1000 other units share the rest.
MARKET SIZE
The Indian Paint Industry is about 100 years old industry. The first
company was established in 1902 of Shalimar Paints after that the market size of
the paint industry is getting bigger and bigger. The market size of the Indian Paint
Industry is about 6 lac tones per annum, which consist of 250000 TPA by
unorganized sector of nearby 2500 small-scale units and 360000 TPA by
organized sector.
Market size by volume(TPA)
Organized
sector
30%Unorganized
sector
70%
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The organized sector account for 70% of the total paint volume as
compared to 30% by the unorganized sector.
The market size of the Indian Paint Industry is getting bigger and biggeryear by years. The overall growth in economy lead to the more income to the
middle class consumer has resulted into higher demand of decorative and
automotive paint. The big market size will attract new competitor will lead to
increase in the competition as also global players also interested in the Indian
Paint Market as it shows good growth.
The organized are acquiring the small-scale company to expand their
market share in rural areas because the rural market has been dominated by the
unorganized sector and now a day this market has good potential for further
growth. The top six company account for 80% of the organized sector production
in terms of sales value. The six companies may include:
1. Asian Paint
2. Berger
3. Goodlass Nerolac
4. ICI
5. J & N
6. Shalimar Paints
The total business of Indian Paint industry is about 6000 crore out of 4000
crore is account by the organized sector. The market size is probably 1000000
TPA by 2003 which indicates the market of the paint is getting big and big.
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MARKET SHARE OF THE MAJOR PLAYERS
The paint industry was divided into two consumer segments: Industrial
(such as automotive) and Decorative (such as Housing).The organized sector was divided as follows:
COMPANY DECORATIVEINDUSTRIALOVERALL
ESTIMATED
PAINT
REVENUES
ASIAN PAINTS 38% 14%-16% 32.50% Rs. 6980MM
GOODLASS NEROLAC 7.80% 40% 17.50% Rs. 3750MM
BERGER PAINTS *14% 14% 14% Rs. 3007MM
ICI INDIA LTD 8%-9% 12% 10.50% Rs. 2254MM
JENSON & NICHOLSON *6.9% 6.90% 6.90% Rs. 1482MM
GROWTH RATE 8%-9% 18% 11%
TOTAL (Rs.) 15033MM 6442MM 21476MM
Since these companies strive to match their product sales to the
market (i.e. 70%: 30%)
They maintain similar market share in each segment.
OVERALL GROWTH RATE
0.00%10.00%20.00%30.00%40.00%
ASIAN
PAINTS
GOODLA
SS
NEROLAC
BERGER
PAINTS
ICIINDIA
LTD
JENSON
AND
NICOLAS
ON
COMPANY
PERSENTAGE
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Market Growth Rate:
Over the years, Indian Paint Industry has good growth rate. The overall
demand for the paint is getting higher and higher. The paint business in India hasbeen growing at a rate of 8 to 10% per annum, in the last five years; though there
has been some slow down witness in the last two years till the year 1999-00, Paint
Industry was the third fastest growing in India, next to lubricant oil and
automobiles.
In the period, 94-95 and 95-96 the growth rate was real high at 26% &
24%respectively, triggered by the industrial growth and rationalization of the
excise duty. Te slow down is not very different than the over all industrial growth,
hence keep the hope alive that, it will continue to grow as the economy improve.
If we compare this growth with China, their CAGR for past five years has
been between 7.5 to 8% in the way our growth has been better.
The paint sector grew at a slower rate of 6.5% in FY03 due to general
slowdown in the economy and subdued demand in western region, which were
affected by communal riots. While the decorative paint demand grew at 7%,
industrial paint volumes increased by 6.5%. The fastest growing segments in the
sector are the exteriors (20%) and powder coatings (12%). Demand in FY03 was
aided by a 6% growth in farm output, which is one of the key drivers.
In the industrial paint segment, automotive paint demand was higher in
FY03 on the back of a number of new model launches and overall recovery in
automobile demand. Key automotive paint manufacturers like Goodlass Nerolac
and Asian-PPG posted impressive performance in the same period.
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CUSTOMER
The customer are to be classified as that most of the demand of the paint is
coming from the urban and semi urban area where the customers have to spend on
paint the home. Nowadays, customers are involving their self in painting process
of the home. This is because that the new trend of the tinting machine which help
to have perfect matching of shade to the customer requirement. The advertisement
of Asian Paint Mera wala Cream has involved the customer in the painting
process.
The customers are purchasing the paint on the basis of the brand and
availability of different shade. In decorative segment, Asian Paint is the
market leader with maximum market share.
The 83% of the consumers are in rural area, which account for the 20% of
the sales value of the paint industry.
On the basis of the different customer group, companies have product range
for each income group of the customer.
Asian Paint Utsav Economy class
Asian Paint ROYALE Premium class
The purchasing behavior o the consumers has also affected by the Pinter
DEGREE OF VERTICAL INTEGRATION
The vertical integration refers to that backward ir forward integration in the
industry. The backward integration refers that production of the raw material by
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the company and vertical integration refers that company itself in the process of
the distribution of the final product.
As far as Paint Industry is concern the backward and forward integration is
possible. In Paint Industry most of the raw material are imported and of petroleum
nature. The industry is facing the problem of theee shortage of the raw material,
which resulted into backward integration for the production of raw material.
EASE OF ENTRY/EXIST
The entry into industry has certain barrier, which result into not an easy
entry in to the industry. The following are:
High working capital intensive:
The industry has been characterized by high working capital in the
production of raw material and finished products. The company ahs to maintain
high stock of the raw material because of that 50 to 60 % are of petroleum nature
and are to be imported. So it require High working capital which is an entry barrier
for a new company.
Distribution Channel
The development of distribution channel will require extensive effort from
the part of the company. Company has to build new distribution channel which
require huge amount of time and management of the inter mediatories.
Brand
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The brand in paint industry has effect in paint industry. The brand
development will require much more time and promotion effort to build brand. So
it would not be easy for new entrance to enter into the industry, which is mostly
dominated by brand of the company.
Tinting Machine
The new trend of the tinting machine has caused one more entry barrier in
the paint industry. The tinting machine helps to have perfect shade of the color,
which is required by the customer. To make available tinting machine thought the
distribution.
Technological Factor
Technological factor has consideration for the industrial paint
manufacturers. The industrial paint companies have to have advance technology
for the competitive advantage, which may be an entry barrier into the paint
industry.
TECNOLOGY AND INNOVATION
Certain industry may be that is facing problem of changing technology day
by day. As far as Paint Industry is concern, in decorative segment it is not facing
the problem of changing technology apart from the Tinting Machine in
distribution network. The change in decorative segment is very low in the
production process.
In industrial paint the technology changes fast as compared to the
decorative segment and company need to have latest technology in the age of
competition to have competitive advantage over the competitor. Most of the
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company is having foreign collaboration to have latest technologies, which helps
for the best quality product with the minimum cost.
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SCALE ECONOMIES
In the paint industry scale economies have not competitive advantages on
the competitor. The scale economies have moderate effect because all company
has virtually equal manufacturing cost.
LEARNING AND EXPERIENCE EFFECT
Some of the industry has certain learning or experience effect, which may
help the company to produce products with high quality and low cost. This is
because that after having certain years of experience in the industry company has
expertise which helps to produce at low cost.
As far as paint industry is concern, in industrial paint have certain learning
and experience effect because of that it require latest technology and relation to the
related industry players. In decorative segment it does not have any learning and
experience effect so that it would be easy for the new players to enter into the
Decorative segment of the paint industry.
COMPANY COLLABORATIONS AREAS OF COLLABORATONS
ASIAN PAINTS
PPG INDUSTRIES, US
NIPPON PAINTS, JAPAN
BV, NETHERLAND
ELECTRO DEPOSITION TECHNOLOGY
AUTO & POWER COATING
MARINE & HIGH PERFORMANCE COATINGS
GOODLAS NEROLAC
KANSAI PAINT, JAPANE 1 DUPONT, US
VALSPAR CO-OPERATIONS, US
AMERON COATINGS, US
AUTO & INDUSTRIAL COATINGAUTO COATING
POWER COATING
HIGH PERFORMANCE COATINGS
BERGER PAINTS
HERBERTS, GERMANY
ORICA AUSTRALIA PVT LTD, AUSTRALIA
DU PONT PERFOMANCE COATINGS, GERMANY
NIPPON PAINTS, JAPAN
BECKER INDUSTRIFARG AB. SWEDEN
TENDOUR NV, NETHERLANDS
AOTU COATINGS
HEAVY DUTY COATINGS
AUTO COATINGS
AUTO COATINGS
COIL COATINGS
POWDER COATINGS
JENSON & NICHOLSON
CHOGOKU MARINE PAINTS, JAPAN
TIKKURILA OY, FINLAND
BIO-FRIENDLY MARINE PAINTS
INSTACOLOR SCHEME
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CAPACITY UTILIZATON
The capacity utilization level in the paint industry is low, at around 55 to 60 %, aspaint capacity are generally designed to meet the peak demand requirements
during festival season. Besides capacity utilization is also affected by factors such
as product mix variety, batch size, batch proc4ssing time and down time between
bacthes. Capacity utilization will not help to produce product at low cost upto
certain extent.
IS THE INDUSTRY WORKING TO CAPACITY?
It must break the myth to capacity in the paint industry. No body in the industry
has ever been constrained by the capacity except in the rare cases. There is always
capacities available in this industry. If not in your company, may be in some other
units where you can get the paint process. Constrains exceed only in the firm of
your ability to sell.
NEW PRODUCT INTRODUCTION
By the introduction of Tinting machine, the new product introduction time has
reduced from 6 months to 1 month.
INDUSTRIAL PROFITABILITY
As far as industrial portability is concerned in the industry paint segment the
profitability will be less, as company has to approach to the professional buyers
like Goodlas Nerolac supplying the paint of the industrial major in the automobile
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i.e. Maruti & Tata Motors. In the decorative segment, the profitability will be
more as compared to the industrial paints.
OPPORTUNITY:
India, the worlds fifth largest economy in term of purchasing power, is
emerging as an attractive market for global investor in the paint industry. Low per
capita consumption of paint of 0.6 k.g. Against the world average of 15 k.g. Offers
lucrative scope for stable revenue stream to manufactures of both decorative and
industrial paints.
Improvement in cement off takes in urban area and increasing housing loan
disbursement figures, both in retail and institutional, segments indicate
immense opportunities in paint industry.
The countrys historical GDP growth trajectory of 3% per annum has
clearly shifted to 6%. In all likelihood, the country will move to 7-8%
growth path in near future. This should lead to further expansion of the
market for all consumer products.
The standard of living of the rural population is gradually improving.
The advertisement in the multiple television channels has increased the
brand consciousness of this class of consumer. This has opened up
opportunities for branded and moderately priced quality paints.
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The house hold construction industry is expected to grow almost at 8% in
the next 5 years considering the shortage of housing and government trust
on encouraging housing activities. This should favorably impact demand
for decorative paints.
At present the per capita use of paint in India is less than a little while in the
develop countries the per capita use is estimated to be over 20 liters.
Therefore, the growth opportunity for the paint industry is immense.
In case of industrial paints, more than 50% of demand comes from
industrial sector followed by 15-20% from consumer durables. With the
entry of MNCs in both these sector, the emphasis on paint quality has
increased. Beside, the industrial business will grow faster due to the lower
base and fast growth in major use industry like consumer durable and
automobiles.
Increasing influence demand of rural and semi urban consumers would
ensure a reasonable demand for paint.
The changing life styles indicated an increase in demand for luxury paint in
the mid price segment.
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THREATS: -
The competition in the paint industry has always been severe. The opening
up of the economy, does not pose any serious threats to decorative paints
trade.
The threats associated with the paints industry are similar to those
impacting other industrial that are mature and well established. Political un
certainties, social unrest, nature disasters and transport strikes etc. disrupt
the business and also adversely effect the demand.
The cost of retaining the customer is increasing day by day with increased
expectations regarding the availability of choice and service.
In the present competitive environment, the paint companies are spending
large sums to install tinting systems retail outlets so that the customer may
be provided with the widest choice of Increase demand for higher skills and
knowledge is increasing employee related costs at am accelerated pace.
The recent Increase in petroleum product prices has increased the cost of
input materials, fuels and transportation.
The advertising media, especially T.V. channel are multiplying and the
viewer ship is getting fragmented. This has substantially increased the cost
of advertisement to reach the same viewer ship.
Environmental concerns are now very important and the paint industry and
the paint industry have to address these and cope. Investments in the
pollution abatement are significant and especially so when facilities have to
be expanded or newly established.
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PEST ANALYSIS
The pest analysis refers to four main factors:
POLITICAL
ECONOMICAL
SOCIAL
TECHNOLOGICAL
The analysis will focus towards the industry that how the political stability,
rules and regulation, and the legal system of the country affecting the
overall industry. The economic condition, liberalization, policy toward
foreign investment, and growth rate of the economy as a whole also help to
analyze the overall industry attractiveness and potential for the growth. The
social aspects like people are more involved in the painting process, trend
of nuclear family; low interest rate of housing loan, increase of urbanization
and change in thinking of the people all this is helpful for the industry
consideration, also the change in technology, production process,
distribution channel and more use of tinting machine that help for better
shading of color.
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POLITICAL ENVIRONMENT
The analysis of the political and legal environment will consider the
following aspect:
Largest Democracy.
Taxation policy i.e. reduction in excise duty and custom duty on raw
material and final products.
Fair amount of political stability.
Era of coalition governments.
Political consensus on economic reforms and higher target of growth of the
economy.
Sound legal system a factor contributing large foreign direct investment.
Growth in the early nineties was constrained by high excise duties. After
the rationalization of the excise duty structure in 1992 and consequent pick up in
industrial growth, the paints segment began posting increasing growth.
The organized sector has grown at a CAGR of about 10% of over the last
five years, though the growth for the financial year under consideration was
estimated at about 5% on account of the deceleration in the rate of growth in the
paint industry consequent to the recession in the economy as a whole.
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Taxation policy:
Duty structure for Raw Materials Used in the Paint Industry
PRODUCT
EXCISE%
EXCISE%
EXCISE%
CUSTOMBASIC%
CUSTOMBASIC%
CUSTOMBASIC%
1999-00 2000-01 2002-02 1999-00 2000-01 2002-02
Titanium dioxide 16 16 16 40 35 35
Phthalicanhydride 16 16 16 40 35 35
Pigments 16 16 16 40 35 35
Orthoxylene 16 16 16 40 15 15
Paraxylene 16 16 16 40 5 5
Pentaerythritol 16 16 16 40 35 35
Raw materials account for nearly 70% of the production cost of
paints. The industry is critically dependent on imported titanium
dioxide.
Lowering of excise duty over the past few years has resulted in
major gains for the organized sector in terms of market share.
The Indian Paint Market is skewed in favor of decorative paints. In
developed countries, industrial paints account for the bulk of the
paint market.
Fortunes of the paint industry are directly linked to growth of end-
user industries such as the automobile, construction and white goods
industry.
Inflation continues to be high; the overall growth in GDP and the
Governments continued efforts to tackle economic issues provides
the desired confidence to the The Indian Market Opportunity.
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INDUSTRYS DEMANDS FROM THE UNION BUDGET 2003-04
The Indian Paint Associations has asked for a reduction in customs
duty on raw materials from the current level of 35%. Titanium dioxide is critical for paint manufacturing and import of
the same should be brought under fast-track clearance.
BUDGET MEASURES
Interest rates for all administered interest rates have been lowered by
50 basis points.
Peak customs has been slashed from 35% to 30%.
The finance minister expects the housing industry to grow at 35% in
the next fiscal. Besides, he has initiated some measures to rationalize
stamp duty and modify the land ceiling act.
Corporate are now exempt from paying dividend tax.
BUDGET IMPACT
One of the big positives for the paint industry is the reduction in customs
duty. Titanium dioxide prices, which account for ^0% of raw material cost for
paint companies, will fall significantly. Operating margins as a result, might
increase notably thus enabling the companies to post better profits. However
lowering of customs duty will also results in higher imports in the coming years.
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Housing demand might increase in the coming fiscal as a result of
lower interest rate. This will benefit paint companies in a large way. As their
prospects are closely linked with housing demand.
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INDUSTRY RESPONSE
Presently the basic customs duty on raw materials is levied at the highest
rate of 35%. This has an adverse effect on the cost structure of paint productiongiven the fact that the import basket forms 60% of the total consumption. Further
the import duty on finished paints is also 35%. This is not justified as both finished
goods and raw materials attract the same import duty. Hence the import duty on all
organic and inorganic chemicals should be brought substantially below the duty of
finished products.
The construction industry generates numerous employment opportunities,
particularly labor workforce. The Finance Minister has taken steps in the last 2
budgets particularly by raising the exemption limit on interest on housing loans.
The Finance Minister should further increase this limit as it will not only help the
housing industry but will also help the paint industry.
WHAT CAN GOVERNMENT DO TO PROMOTE THIS
INDUSTRY
Government must continue to encourage investment in housing sector
through tax concessions. The excise tariff should be brought in line with essential
goods understanding the value of paint from asset protection point of view. There
should be a legislation to paint the exterior of all the building once in 3 or 5 years
so that the urban India wears a new modern look. Some of these measures will not
only support the industry, but also have recurring losses.
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ECONOMICAL ENVIRONMENT
The Economy
The Indian Economy is the midst of a sea change over the last few year
when we set about to restructure it. The results are finally showing up in the way
in which our policy makers intend them. GDP growth is expected to touch 7%.
Foreign Exchange reserves will cross US $ 25 billion. Inflation, hope fully will be
contained below 8% industry. After a long reversionary spell, is already growing
at 8%. Indeed the economy is poised for a take-off.
The country experienced economic slow down during the financial year
2002 and GDP growth slipped to around 6% from the growth rate of 6.4% for the
previous year. While the monsoon was consider as normal for the thirteenth
successive year, the agriculture production suffered due to unfavorable distribution
of rainfall over time and regions. The food grains production is estimated to have
declined to 199 mn tons from the record production of 209 mn tons in 1999-2000.
The sustained growth of service sector, better performance of mining
industry and a growth of around 20% in exports prevented the otherwise likely
steep decline in GDP growth. The inflation based on wholesale price index was
higher at 6.5% as compared to 3.5% in 1999-2000. The rupee depreciated by
6.9%.
A devastating earthquake struck large parts of the Gujarat in January 2002.
Many villagers and towns in the district of Katch, Saurashatra region and part of
north Gujarat suffered total or partial destruction. A few thousand lives were lost
and some estimates place the value of properties destroyed at over Rs. 200000 mn.
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These parts of Gujarat may take years to recover and attain normally. This tragic
disaster has cause a severe setback to the economy of the state as the cost of relief
and reconstruction is enormous.
In these adverse economic conditions, the paints market was subdued and
the demand for paints is estimated to have grown at around 8% to 9%. Although
the economic score board is quite impressive, there is no scope for any
complacency or the stage is not yet ripe for throwing caution to the winds. For
one, inflationary pressures can erode the competitive edge. Secondly, the export
surge needs to be mainted. So that the trade balance is mainted. Thus while the
performance of the economy initially is definitely a cause for optimism, efforts
must continue in the coming years to ensure that growing is sustained.
The paint Perspective:
The Question that arises at this is, what about the paint Industry? In the
rapidly changing economic scenario how our own industry is fairing?
The demand for paints is dependent on the general economic conditions
such as goods overall economic growth, agricultural growth, the performance of
related industries likes steel, cement and construction. In advance economics, the
growth rate of Indian coating market mimics the GDP growth rate. In developing
countries like India, increasing urbanizing and the increase of standard housing are
major drivers of growth. Therefore the growth of the coating industry is 1.5 to 2
times the rate of growth of GDP. Nearly, 70% of paints are health of construction
industry is important.
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As the market develops, customers are demanding products superior to the
traditional low cost coating, branded products and greater choice. This has led to a
huge increase in demand for economy finishes. At the same time, opportunities
have increased for sophisticated and niches comparable to the best availableanywhere in the world. Within all categories, customers demand greater choice in
shade and effect. The rapid increase in the market for good quality exterior
finished is a part of this overall trend.
Consideration of immediate past of the Indian paint industry:
Towards the late eighties and early nineties the duty rates on paints were
progressive increased, to rapid decline in the industrys performance for four
successive years. During 1989-90 to 1992-93 the duty rate was increase in steps
from 26.25% to 40.25%. Corresponding the percentage growth record over
respective previous years was :(-) 6.20, 0.25, (-) 5.91and 0.67. Added to this was
the bane of over increasing raw material costs. An inevitable decline in the
demand for paint followed leading to the industry being forced to cut capacity
utilization from 69% to 55% over the period. Growth was virtually stagnant and in
fact there was negative growth also on some occasions.
This is the picture of the immediate past. Things, however, started to
change for the better about a few years ago with the introduction of the policy of
liberalization. Although the paint industry has not been yet been given the full
benefits of the Chellish committee recommendation on tax reforms, the industry
has nevertheless responded admirably to the small reduction in the duty rates
affecting in the last few budgets. Thus, while the effecting duty rate went down
from 40.25% to 35% during 1993-94, a drop of about almost the entire reduction
in revenue collection due to lower rates. Similarly, in 1994-95, when the rate has
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been reduced from 30% to 35%, i.e. a little over 14%, we expect the industry to
grow by about the same proportion. We are certain that Government will not lose
duty collection because of this rate cut, rather the collection may actually be more.
Firstly, the paint industry has the potential to grow and elevate itself to anaggressive growth path if it has the support of a reasonable duty structure. We
pointed out that the paint industrys growth was fastest during 70s when the rate
was 15%. If a similar rate is reintroduced, as was also the recommendation, as the
idle capacity of about 45% would then be straightway energize. The resultant
additional production would more than offset revenue losses.
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SOCIAL ENVIRONMENT
Making home is the important matter for Indian common man. It has also
connected the belief and value for the decoration of the home. So, socially paint is
highly connected with people because time to time they decorate their home with
paints in the occasion like Diwali, Marriage. The Diwali is the most occasions
when the paint is used. The most of the demand of the decorative paint is in the
Diwali and Marriage Season. So, socially paint is highly connected to the
consumer. In the different occasion Indian uses different color. Every color has its
socially acceptance. The increase in the middle class also helps to boost thedemand of the paint. For different need of the different consumer for this company
introducing more color in cars, bikes, e.g. LML introduce the Freedom with 15
colors.
The following are the characteristics of the Indian social environment:
Large middle class
Increase the awareness regarding paint as the protection not luxury.
Major changes in life style.
Major increase in urbanization.
Both parent working
Nuclear families
Leisure activities
Environment Consideration
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Every society has responsibility to so operate that it leaves a healthy and
clean environment for posterity and the Paint Industry is committed towards its
obligations in this respect. Research and Development is being directed more and
more towards water based and water thinnable products with lower consumptionof petroleum solvent, thus serving a dual purpose of providing environment ally
friendly products and also conserving scarce petroleum based solvents. There is
need to encourage this and Government should consider giving substantial benefits
for expenditure on this account and additional benefits by reducing levies on sales
of such paints. Indian paints Association is also Co-operating effectively with the
Bureau of Indian standards in the matter of Standards for Eco-friendly paints.
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TECHNOLOGICAL ENVIRONMENT
The technological environment refer to the how the change in the
technology will affect the working of the industry. In the paint industry
technological development. In production process is not much but in distribution
channel connection and making of shades is the main change in the technology.
In the Decorative paint segment, technology has not impact in the
production process. But in the connection of the leader technology help to have
efficient operation of the business. The development of the tinting machine is
revolution in the filed of technological development. The tinting machine helps to
have perfect shade as per the customer requirement. The introduction of tinting
machine helps to reduce to introduction period of the new product. Before this
introduction of new product will require about six months compare to one month
nowadays.
Distribution reach of Paint Majors
Size of Dealer Network No. Of Tinting Machine
Asian Paints 14,000 2,800
Goodlass Nerolac 11,500 2,000
Berger Paints 12,000 1,500
1400011500 12000
0
5000
10000
15000
size of dealer
network
Asian paints Goodlass
Nerolac
Berger Paints
company
Distribution Reach Of Paint Major
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2800
20001500
0
1000
2000
3000
no. of tinting
machine
Asian paintsGoodlass
Nerolac
Berger
Paints
company
No. of Tinting Machines
In the industrial paint segment, technological collaboration helps to
have good business. In this segment technology factor comes in to the
mind. The manufacturing of the industrial paint will require efficient and
reliable technology that will help to produce high quality paint, which can
be used for the industrial purpose. The present company that is
manufacturing industrial paint having collaboration with the foreign firm
with regards to the technological aspects.
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CRITICAL SUCCESS FACTORS IN THE INDUSTRY
Brand image, market research, distribution range of products and tinting
machine are critical for the success of any industry. All the companies have been
vying for bringing in improvements in this area. Most of the companies have
increased their advertising budgets in the last financial year and have thus spent
heavily on promoting the brands. Roughly Rs. 100 crores have been spent last year
with maximum share of Asian 40% followed by Goodlass Nerolac 23%. The two
companies Berger and ICI have been also active this year. Goodlass, Nerolac nad
Asian paints are the two companies, which have invested heavily in building up
connectivity across their factories and branches with the implementation of SAP
R3 ERP operating system. This has brought in total transparency in system and
improved service to the customers remarkably. Both the companies are also
looking at have implemented advanced IT solution for handling distribution.
1. Cost and Price Drivers :-
The paint industry costs and price are driven by raw material costs which
constitute about 57% of the cost of the sales, and government levies which
constitute 38% of the cost of the paints. There are more than 300 inputs going into
the manufacture of the paint and about 70% of them are based on the petroleum.
The petroleum prices, therefore, are one of the important cost drivers. The price
drivers include the extent of the concentration in the paint industry which is very
high. This lead to very low margins at each level with the final retailers making aslittle as 4-5%.
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2. Working Capital Management:-
The industry has high raw material content: the no. of products is also large
with varying pack sizes. Sales in the decorative paints segment are seasonal withmore than half the sales coming in the September November festival Season. A
debtor level also tends to be high in this industry.
3. Distribution Channel:-
Distribution Channel is one of the critical success factors for the success in
the paint industry. Marketing of the decorative paint require extensive dealer
networks; especially in the urban and semi urban markets.
4. Plant Location:-
The nearness the plant location to the market and raw material supply may
have success factor for any industry. Plant location helps service distribution
network and bulk consumers.
5. Technology:-
This is particularly important in the industrial paints segment. Foreign
collaboration is important for the players in this segment.
6. Brand Image: -
The brand image of the company may have success factor for the any
company. Development of the brand requires extensive promotion, good quality
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product, well service to the customer all this help to build the brand image. In the
paint industry brand image has great effect to the customer mind. In the decorative
seg