Indian Paint Industry A Brief History

The Indian Paint Industry is more than 100 years old. Its first origin can be traced
back to the inauguration of Shalimar Paints in Kolkata back in 1902. Till World
War II, the whole industry comprised of two foreign players and rest small
players. After the war ended, the import came to a standstill so the only option
left was to locally manufacture paints in India. Therefore local entrepreneurs
started showing interests and they set up local facilities. Still the foreign players
were the dominant forces in the market which is the current scenario as well.
British paint companies such as Goodlass Walls (now Kansai Nerolac), ICI, British
Paints (now Berger Paints), Jenson & Nicholson and Blundell & Eomite enjoyed
the complete dominance in the market. One notable mention during the post
independent Paint Industry would be of AsianPaints, a completely Indian firm
which started on a very small scale and finally grew so large that today it is the
market leader of the Indian Paints industry.
The post-independence era also saw the growth of many small Indian
manufacturing units which got started in various places like Kanpur, Calcutta and
Bombay. The British units though small in number were superior in terms of
technology and financial strength and they still enjoyed the dominant part of the
market share. This era saw a huge growth in the Indian Paint industry with a
mere Rs. 200 million turnover in 1950 to Rs. 1400 million in 1990.
But despite all these, paint was seen a luxury item in Indian households. Only the
rich people used paints on their walls and that too it was only for decorative
purposes. The concept of paints being used a protective coating on the walls was
still unheard of. The industrial segment which produced lower revenues than the
decorative segment carried a similar notion. As a result of this misconceived
notion, the Government increased the duties in the early nineties on the paint
segments in order to augment exchequer revenues. The consequence was
unavoidable. It resulted in a downturn in the economy of the industry. The highly
elastic products showed a negative growth rate. The next year was not a good
one. The industry grew only by 1% supporting the fact that the industry requires
lower duties in order to grow according to its potential. Finally, in consequence
with the liberalized policies and with subtle understanding that Paint is not a
luxury item, the Government started progressively reducing the duties from
1993-94.
This move by the Government helped the industry to grow. Also the opening up
of the economy allowed the Indian firms to foray into foreign markets. All these
factors contributed in double digit growth figures for the industry. From a decent
growth of 8% in 1993-94, the growth touched to 12% in one year 1994-95.
Rapid industrialization and the rising growth of infrastructures such as telephone,
transport and energy have further promoted the Indian Paint industry. In aid with
the liberalized policies introduced by the Government, many foreign players have
started investing money in this sector further bolstering the growth. There has
been a constant rise in demand of decorative and protective paints in the last
decade resulting in technological innovations and indigenous developments.

Industry Structure

The Indian Paints Sector is valued 6800 crores in value terms and is highly
fragmented. The current demand is estimated to be around 650,000 tonnes per
annum and is seasonal in nature. The per capita consumption stands at 1.0 Kg
per annum compared to 1.6 Kg in China and 22 Kgs in developed economies.
Indias share in the world paint market is just 0.6%.
The Indian Paint industry can be divided as

The organized sector comprising of large and medium size units.

The unorganized or the small scale sector.

There are now twelve players in the organized sector with a market sector of
70%. This is in contrast to 55% which was there few years back. The major
companies in this sector include Asian Paints (44% market share), Berger Paints
(15 % market share), ICI (12% market share), Kansai Nerolac (15% market
share), Jenson Nicholson (6% market share), Shalimar Paints and Rajdoot Paints.
The organized sector has grown at a rate of 11.5 % in the previous five years.
The unorganized sector comprising of over 5000 units has a market share of
30%. Recently market leaders like Akzo Noble, PPG, DuPont and BSF have set up
base in India with product ranges such as auto refinishes powders and industrial
coatings. Kansai Paints of Japan, which entered into collaboration with Kansai
Nerolac in 1984, is now the holding company of Kansai Nerolac with 64.52%
equity holding. PPG has a joint venture with Asian Paints to manufacture
industrial coatings.

Porters Five Forces Analysis on Paint Industry

Threat of
New
Entrants
(Medium)

Bargaining
Power of
Buyers
(Medium)

Existing
Competito
rs Rivalry
(Medium)

Bargaining
power of
Suppliers
(High)

Threat of
Substitute
s (Low)

Existing Competitors Rivalry -The current condition of the market looks bright
with ample growth opportunities for all the players. Almost 80% of the organized
market share is occupied by the top four players. However the competition can

only increase from this point as market gets saturated but that will definitely take
some time. Till that point the competitors can co-exist and keep satisfying the
customer with a healthy profit margin. The rivalry between the existing
competitors therefore can be said as Medium.
Competitors Business Models

Asian Paints Overall market Leader due to cost leadership strategy

Kansai Nerolac Market Leader in Industrial Paints Segment, also present
in decorative paints segments.
Akzo Nobel Major revenue comes from decorative segment. Also present
in automobile paints.
Shalimar Paints Oldest Company. Mainly into decorative and nonautomobile paints.

Bargaining Power of the Buyers The main customers of the decorative and
industrial paints are households and automobile industry respectively. For
household paints, the customers can be contractors (who can buy in bulk) or the
end-users (people who paint/re-paint their houses). These buyers are very price
sensitive as they have the power to choose between the brands. Their decisions
are based on quality, price and other differentiating factors (weather protection
features for protective coatings). The unorganized sector also provides the
customers with cheaper options which further increased the buyers bargaining
powers. However, the players each one of them have their own market expertise
which brings down the bargaining power. Therefore, the bargaining power of the
buyers can be attributed as medium to high. Shalimar paints although being the
oldest company in the industry has failed to cope with the changing attitude of
buyers and could not produce proper product mix. With more and more players
coming into the picture and more products available, buyer power will be more
intense in coming years.
Bargaining Power of the Suppliers The Indian Paint Industry is a very raw
material intensive industry with as many as 300 manufacturers involved in the
whole manufacturing process. The raw materials can be of different categories
like solvents, pigments, additives. Titanium dioxide is one major constituent of
the raw material the price of which is fixed globally. Besides, many of these
suppliers are trying to enter the industry themselves. All these factors result in
solid bargaining power of the suppliers. There the bargaining power of the
suppliers can be said to be high.
Threat of New Entrants: As stated before the Indian Paint industry is
dominated by few key players and many of these are almost century old firms.
So the new entrant will find it difficult to match the knowledge base which they
have gathered through all these years. The entry barriers of the industry are as
follows:

Brand equity of present players

Distribution network
Cost of modification of products
Access to technology
Technical Servicing

However new technologies are available which can reduce the life cycle of
production and the new entrants can use these technologies. Therefore, the
threat of new entrants is medium. In recent years international players like PPG,
DuPont and Sherwin Williams are entering the market with their international
experience and resources. In coming years this force may act as major game
changer in the industry.
Threat of Substitutes: The number of substitutes available for paint is very
minimal. In the rural areas, one substitute which is conveniently used is lime
wash. One more substitute mainly used in urban areas is wallpaper. In the urban
areas, the emergence of glass walls in corporate offices and malls which reduces
the usage of paints can be one more major substitute. But still now, the threat of
substitutes is low as the alternate measures are not yet developed. But this
threat has the potential to increase in the subsequent years.
Power of Compliments: Apart from these five forces the paint industry has
complements too. Housing industry is the complement to the paint industry in
the decorative segment and automobile industry is the complement to the
industrial segment. As the real estate business is booming so it is positively
affecting the business of the firms in the paint industry.
Moreover the automobile industry in India is fast growing and there is more
demand for automobiles, so the paint industry is benefitted by this industry. The
decorative segment is cyclical in nature with sales linked to festival season.

Underlying Drivers of Each Force

Competitive rivalry:
Few major players: Market is highly concentrated and it is an example of
oligopoly where the entry barrier is very high. The players have different
strategies to sustain their businesses. Asian paints have a huge line of products
that gives it an adequate product mix. Nerolac strives by capturing the industrial
segment. Shalimar is serving the low end customers thus competing with the
local unorganized sector players.
Price sensitivity is high for the customers and there is a chance of price
competition also due to less scope of product differentiation. The oligopolistic
nature may prevent a bitter price competition among the existing players to
sustain profitability.
Threat of New Entrants
Increase in rivalry: As there are already established players in the market so the
need to fight for market share is strong, and this will lead to price war. This will in
turn make the existing players keep their prices down.
Bargaining Power of Buyers
Changing nature of market and consumers: There is also increase in
urbanization, income and education among the population. The consumer habits
are also changing due to the increase of these factors. Now, the customers are
more educated and are brand conscious.
Bargaining Power of Suppliers

Suppliers include Chemical Manufacturers, Petrochemical manufacturers.

Oligopolistic Nature of suppliers: The paint industry is raw material intensive.
Paint involves the mixing of various raw materials in various proportions. 300
products are used in the manufacturing of the final product. Hence bargaining
power of suppliers is strong.
Suppliers are unique and differentiated- pigments, solvents, binders, additives
are specific raw materials that are bought from specific players. The main raw
materials are color, solvent, pigments etc. Most of which are petroleum byproducts. Petroleum industry being of oligopolistic nature it has huge power over
the prices of the materials it supplies. Also some raw materials are produced by
1-2 petroleum companies like Reliance industries, giving them a monopolistic
power over the prices of the products it supplies to the paint industry.
Threat of Substitutes
Availability of Substitutes is medium and in most of the cases either very costly
or of inferior quality.
Repetitive cost of painting: Painting is a cyclic process that needs to be done
after a certain time period periodically. The time and cost incurred for the
process is huge. Metallic finishes and oxidation process are used to give the
product a more matt and sleek look in case of industries. Also, these metallic
options are considered more convenient as there are no issues of re-painting etc.
Cost: Painting being a costly item with respect to economic condition of most of
the Indians, rural population and lower income group people refrains from using
paints.