FACTORS/TOOLS OF INDUSTRY ANALYSIS

Concerned with basis of industry analysis, this section can be divided into four points:

1. Study of characteristics of an industry.

2. Industry life cycle analysis.
3. Study of profit potential of industries: Porter Model.
4. SWOT analysis of industries.
 Characteristics of an Industry:
1. Structure of the Industry and Nature of Competition:

Paint is made up of four basic ingredients i.e. pigment, resin, solvent and additives. The types of
paintsavailable in the market and their utility are:
 Acoustic Paint: specially designed for acoustic tiles
 Alkyd Resin Paint: good trim, doors, faux finishes and other maximized use areas
 Drip less Paint: This paint is thicker and is most suitable for application on ceilings
 Latex Paint: good for applicability and it dries much quickly & easier to wash.
 One-Coat Paint: It is the more expensive version of the latex and alkyd paints and is
mostly chosen for surfaces that require flawlessness in color.
 Primers: paint used in the initiation for all interior paint works.
 Rubber-Base Paint: This is best for concrete and bricks.
 Textured Paint: If need is to cover any flawed surface in your house get this paint. It
works well on ceilings.
Paints can be classified as Decorative Paints & Industrial Paints.

Decorative Paints:

Major segments in decorative include exterior wall paints, interior wall paints, wood finishes and
enamel and ancillary products such as primers, putties etc. Decorative paint segment comprises
70% of the $2 billion Indian Paint Industry. Asian Paints is the market leader in this segment.
Demand for decorative paints arises from household painting, architectural and other display
purposes. Demand in the festive season (September-December) is significant, as compared to
other periods. This segment is price sensitive and is a higher margin business as compared to
industrial segment.

Industrial Paints:

Three main segments of the industrial sector include automotive coatings, powder coatings and
protective coatings. Kansai Nerolac is the market leader in this segment. User industries for
industrial paints include automobiles engineering and consumer durables. The industrial paints
segment is far more technology intensive than the decorative segment. An average increase of
growth of about 10% in the automobile sector contributes to 50% of the revenues in the
industrial paints segment

Paint Industry Size

India has more than 20,000 outlets in operation, probably the highest for any country.30% to the
paint industry revenue in India is accumulated from Industrial Paints. The size of the Paint Indian
industry is around 940 million litres and is valued at approximately $2 billion. The organized
sector comprises 54% of the total volume and 65% of the value. In the last ten years, the Indian
Paint Industry has grown at a compounded annual growth rate (CAGR) of 12-13%.
The market for paints in India is expected to grow at 1.5 times to 2 times GDP growth rate in the
next five years. With GDP growth expected to be over and above 7% levels, the top three players
are likely to clock above industry growth rates. There are high volumes of low cost distempers
sold in India, which amounts to approximately 200,000 tons per annum at an average cost of
Rs35 per kg ($0.88) at the present rate

Top leading Companies

 Asian Paints India: Asian Paints is one of the best discretionary plays on macro
recovery given that paint volumes surge a healthy 1.5‐2.0x GDP. Moreover, decisive
policy measures by the new business‐friendly government will spur urban demand.
Diversification into water proofing, modular kitchens and bath fittings places the
company in a sweet spot to corner higher wallet share (Masco Corp in US has done this
successfully). With 22% EPS CAGR, 347bps RoCE spurt over FY14‐17 and
metamorphosis into a home décor company, its valuations will remain high.
 Kansai Nerolac: Kasai Nerolac is the third largest decorative paint company in India in
terms of market share. The company has good brand strength, particularly in the interior
paints segment with brands like Nerolac Impressions, Nerolac HD etc. It has high
exposure to the industrial paints segment (~45% contribution), which has resulted in the
company’s subdued performance. The company has taken significant initiatives to
improve revenue from the decorative business. It recently launched HD paints under
Nerolac and was the first player to launch eco‐friendly Zero VOC, low VOC, low odour
range of decorative paints.
 Berger: Berger Paints (Berger) is the second largest paint company in India after Asian
Paints in terms of market share. The company has a strong brand name with brands like
Berger Easy Clean, Silk, Rangoli, WeatherCoat etc. The company has a strong
distribution network of 16,500 dealers and has ~12,000 tinting machines. As far as
international operations are concerned, Berger has presence in Russia where it has a
production facility with a manufacturing unit in Krasnodar. The company entered Nepal
in 2000 when it acquired Jenson & Nicholson. It has also acquired Bolix SA of Poland
and also tied up with Becker of Sweden. In 2013, Berger acquired the decorative business
of Sherwin Williams India. Berger recently commissioned its Hindupur plant (total
capacity of 300,000Kl) in Andhra Pradesh and will increase its capacity in a phased
manner

2. Cost Structure and Probability

 3. Nature and Prospect Of Demand

 The market for paints in India is expected to grow at 1.5 times to 2 times GDP in the next
five years. With GDP growth expected to be between 5-6% levels, the top three players
are likely to clock above industry growth rates in the future, considering they have a
strong brand and good reach.
 The market size of the paint industry in India is estimated at around Rs 40,000cr. Industry
players expect close to 12% growth in business volume and 10-12% rise in sales in FY15.
 Decorative paints segment is expected to witness higher growth going forward. The fiscal
incentives given by the government to the housing sector have immensely benefited the
housing sector. This will benefit key players in the long term.
 Although the demand for industrial paints is lukewarm it is expected to increase going
forward. This is on account of increasing investments in infrastructure. Domestic and
global auto majors have long term plans for the Indian market, which augur well for
automotive paint manufacturers like Kansai Nerolac and Asian-PPG. Increased industrial
paint demand, especially powder coatings and high performance coatings will also propel
topline growth of paint majors in the medium term.

4. Technology and Research

 The rural market grew 20 per cent in 2013-14. Rural India’s incremental
consumption expenditure is growing well
 Asian paints to invest Rs 2,300-crore on new plant in Karnataka
 Government likely to extend validity of environment clearance to Asian Paints’
project in Telangana
 Berger paints plans 2 new plans in Assam
 Berger Paints unveils new initiative ‘Express Painting’ for painting residential
buildings
 Kensai Nerolac to set up new manufacturing plant at Gujarat
 Indian per capita consumption of paints is at 0.5 kg per annum if compared with 4
kgs in the South East Asian nations and 22 kgs in developed countries.
 Organized sector in India controls 70% of the total market with the remaining
30% being in the hands of nearly 2000 small-scale units.
 In India 30% accounts for the industrial paint segment in paint Industry while the
decorative paint segment accounts for 70 % of paints sold in India

 INDUSTRY LIFE CYCLE:

 Indian paint industry is estimated to be of INR 1OO, OOO core, for the year 2020
according to the president of Indian Paint association Mr. D P Basu.
 Growth rate 17% CAGR from past 7 years.
 Product life cycle shows Indian Paint industry in the growth stage, the industry can
achieve good amount of appreciation in coming future.

 PORTER MODEL FOR INDUSTRY ANALYSIS:

1. Threat of New Entrants- Medium

Paint market in India is dominated by few players, making it difficult for anyone newly entering
the industry to compete. Working capital needed is high-causes difficulty to local players & big
firms enjoy economies of scale. Big players have high brand image & quality products & good
promotional activities to attract customers.

2. Bargaining Power of Suppliers- Medium

The Indian Paint industry is raw material intensive industry with more than 300 products going
into the manufacturing of the final products. The raw material can be divided into different
categories like pigments, additives, solvents, binders etc. Titanium Dioxide is one of the key
pigment used in the production of paint and is facing a global supply shortage. Thus supplier of
this material has good bargaining power.

3. Bargaining power of buyers- Medium

Households and Industrial Users are the main customers of this industry. For housing
requirements, the buyers are building contractors who buy in bulk and end people who paint their
house. Customers are more price sensitive because for them number of options are available and
decisions are made based on quality, price and differentiating factors like weather protection,
environment friendly paints. Industrial segment is low margin high revenue business and buyers
of these segments are knowledgeable about their needs. Therefore, price comparison is done
effectively by the customers. However, the leading Industrial paint suppliers have their expertise
in their favor, which limits the bargaining power of buyers.

4. Threat of Substitutes- Low

The availability of substitute is very minimal. In the rural areas lime wash is conventionally used
substitute for paints. One alternative option for decorative walls available today is Wallpaper.
Buyer propensity to substitute is low. Relative price performance of Decorative walls is also
high.

5. Intensity of Rivalry- Low to Medium

About 80% of organized market is created to by the major players of Indian Paint Industry. But
the current market growth rate can provide ample room of opportunity for all the players of the
industry to flourish. However, competition will keep on increasing as market will get saturated,
but this will take some time to happen, till then one can keep satisfy customer need with good
margin. Also, presence of unorganized sector can cause competition.

 SWOT ANALYSIS:

1. Strengths

1. Indian Paint Market has very strong potential in terms of market share in the organized
sector.
2. Comprehensive nationwide coverage of the market - urban, semi-urban and rural areas.
3. Different segment required by different customer and industry has its own growth area
and market.
4. Widest product range in terms of products, shades, pack sizes - different decorative, some
in 150 shades, 20 different pack sizes; are available
5. country wide distribution network and transportation facility is available within the
industry
6. A network of 25,000 dealers spread all over the country is available.
7. The pricing strategy is oriented to middle/lower end consumers
8. High quality MR and MIS;
 9. Paint Industry is quite strong in production-marketing coordination. Their policy of
offering tailor-made products to suit customer need has resulted in an ever growing
product range.
10. In-house production, no outsourcing, high reliability in suppliers, superior in quality
assurance.
11. Leader in profit and operating margins, ROI of PI is 22%.
12. High caliber human resource, employs maximum number of MBAs, as a proportion to
total number of employees;

2. Weaknesses

1. In industrial paints, AP has only a 14% market share. It is far behind the leader Goodlass
Nerolac, which has a market share of 43%. Since this is going to be the major growth
segment in the future, a lag in this segment will end up as a major weakness;
2. Widening product mix puts strain on production distribution, accounting and
administration;
3. Innovation in developing new products is inadequate;
4. AP has a major weakness on the technology front in industrial paints. Most paint firms
have technology tie-ups with manufacturers abroad. For example, Goodlass Nerolac has a
tie-up with Kansai paints, which has provided the company with Catholic Electro
Deposition (CED) technology. Since Kansai is the supplier to Suzuki, Japan, Goodlass
with its Kansai connection finds it easy to tap Maruti in India. AP has not been able to
make any significant advances either with Maruti or the auto segment in general. Berger
has a technical tie up with Herbets, Germany, for automotive paints, Valspar Corp, USA
for heavy-duty coatings and Teodur NV, Holland for powder coatings;
5. Ever expanding product mix throws some strain on inventory management;
6. Rural bias of logo Gattu. This is likely to contradict the new positioning for the premium
brands meant for urban markets;
7. Seasonal demand and hence in off seasons it can lead to cash flow problems;

3. Opportunities

1. AP has always encased on opportunities that have come its way. It has maintained a
product profile keeping the market trends in picture. It shifted to a predominance in
industrial paints than industrial paints than in decorative paints as was evident from the
production figures of 1995-96;
2. The automobile industry accounted for 50% of the industrial paint market.

4. Threats

1. Domination of few foreign companies;

2. Since both Goodlass Nerolac (43%) and Berger's (14%) have a higher market share than
AP's (14%), it is possible that in the future, they may capture the entire industrial paint
market;
3. Competitors have gone in for hi-tech with insta colour spot mixing. For example, J&N's
insta colour offers 626 shades;
4. Automated paint blending in retail points already there. ICI's Touch Colour and Berger's
Colour Bank are indicative of this;
5. Competition is catching up fast, hi-tech facilities gives abundant choices.

Contrary to the sluggish trend witnessed in the production of paints and varnishes in the
preceding fiscal year, the sector recorded decent growth in output levels during April-May 2006.
Production of paints and varnishes grew by 6.2 percent during May. This is significantly higher
than the modest 0.9 percent rise registered in the year ago period. Trade data available for the
April-January 2005-06 periods also depict a healthy growth. Imports and exports of paints and
varnishes grew by 30 percent and 47 percent rise, respectively.