Berger paints is a famous company which is involved with paints

distribution and manufacturing in India. The company has its

headquarters in Kolkata and also has its base in India only. It is
known to be an excellent distributor and manufacturer, though it
is second in advertising to Asian Paints. Berger paints has major
presence in 5 different countries like India, Bangladesh, Poland,
Russia and Nepal. Besides this, it is also trying to make inroads
in South Africa.

Here is the SWOT analysis of Berger paints.

Strengths in the SWOT Analysis of Berger Paints :

Basket of Products: Berger Paints offers a wide range of
products which includes home paints to industrial paints. They
also offer various paints option for decoration which is the latest
offering and in demand in the market. It acquired the idea of
decorative paints from the Indian arm of US-based Sherwin
Williams Paints.

Brand Recognition: Being the second largest Paint

manufacturer in India gives them a healthy brand equity. Almost
everybody recognises the brand and is familiar with its offerings
and products. Their rigorous campaigns have made them a
household name throughout the entire country.

International Market: They have international operations in few

countries including Russia, Bangladesh, Nepal, Poland, Cyprus
and collaboration with Becker of Sweden and Nippon paints of
Japan.
Competent Leadership: The chairman of Berger paints is
Kuldeep Singh Dhingra and vice chairman is Gurbachan Singh
Dhingra who own a combined stake of 75% stake in the company
and have helped the company to reach new heights making it
second largest paint maker trailing behind Asian Paints. The
future leadership of the company has already been set. The
reigns will be passed on to Simran and Kanwardeep, children of
Kuldeep and Gurbachan.

Loyalty: Customers are loyal to Berger Paints when it comes to

them re-painting their homes.

Efficient Supply Chain: They have an efficient supply chain

network throughout the entire country. This includes seven
manufacturing facilities, 85 depots, many regional outlets etc.
They house around 2500 employees and a massive network of
15000 dealers around India.

Growth: They have had a steady growth in their retail values.

Diverse Customer Base: Berger caters to a diverse customer
base ranging from households, industries from manufacturing to
automobiles and nuclear power plants.

Barriers to market entry: They have grown so big that they

have created a barrier for new competition if they want to enter
the market. Together with Asian Paints, they control most of the
market which is a great thing.

Diversification: They have expanded into the Construction

Chemicals segments some five years back and thus have
expanded their scope for revenues and profits.

CSR: They have initiated the Green Horizon initiative that

supports eco-friendly paints by reducing wastage and
conserving natural resources.

Weaknesses in the SWOT Analysis of Berger Paints :

1. High dependence on one segment: Berger Paints depends on
one segment heavily for its maximum revenue and that is the
decorative segment of the brand. This is not a long
term strategy and high growth rate cannot be sustained for long
and can thus cause harm in the future stages.
2. Bad brand image: Berger faced a lot of negative publicity due to
lead found in its paints which could have even closed the
company. This kind of publicity taints the brand image of the
company.
3. Limited Pricing Power: Due to a duopoly in the market they do
not have the pricing power in their hands. They need to keep their
prices in check with the market going paint prices if they want to
grow eventually in the market.
4. Weaker distribution – Berger paints is known to have a weaker
distribution network as compared to Asian paints or Nerolac which
 is a major problem for the company. It needs to increase its
distribution network far and wide and if needed, increase its
manufacturing potential to match demand of the people.
5. No premium alternative – Asian paints has conveniently targeted
a unique segment which gives high margin through their Asian
paints Royale initiative. Berger paints needs such initiative to get
in touch with their customers and have better sales and brand
equity which they working onto but are not confident as to whether
it would work or not.

Opportunities in the SWOT Analysis of Berger Paints :

1. Marketing – Berger paints needs to up its game where marketing
is concerned. Where Nerolac and Asian paints are advertising left
and right, Berger paints is left far behind and the frequency of
advertisement is lesser which has been increasing lately. With
marketing, it will bolster its brand values and create a demand
from consumer perspective.
2. Market potential is untapped : Usage of paints in Indian
households is very low as compared to industrial usages. There is
a high scope of growth in this segment. Also due to urbanization
there is a growth in demand for paint throughout.
3. New Launches : They can innovate and invest in their R&D to
come up with better technology for the paint industry. They can
also launch more eco-friendly paints and make it health friendly
for the customers.
4. Emerging markets – Berger paints is currently present in four
countries only but because of its manufacturing base, it can
expand to other emerging markets too.
5. Diversification: Huge scope for business
and product diversification is available for Berger Paints.
6. Government Policies : Government is focusing on urbanization,
industrialization, increase in house and developing more tier 2 and
tier 3 cities which ultimately means there will be a huge demand
for paints in the recent future.
Threats in the SWOT Analysis of Berger Paints :
1. Raw material Prices: There are great changes in the prices of the
raw materials of paint.
2. Changing government laws: Changing government laws may
lead to new companies in this sector which means an increase in
competition.
3. Competition eroding the margins – There is stiff competition
amongst the top three – Asian paints, Nerolac and Berger paints.
Amongst these, Berger paints seems to be left behind resulting in
price changes because of duopoly. This is a great threat to Berger
paints.

Company moats-Berger Paints

Company moats refers to ability of a firm to maintain competitive advantages over its competitors in
the same industry in order to protect its long-term profits and market share from competing industries.
Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from
outsiders, as said by Warren Buffet.

Some ways in which moats are created are:

1. Cost Advantage: Companies like Berger paints with significant cost advantages can undercut the
prices of any competitor, either forcing the competitor to leave the industry or at least reducing
its growth speed. Berger paints who has a sustainable cost advantage can maintain a very large
market share of its industry by squeezing out any new competitors who try to move in.
2. Marketing and promotional strategy: The company’s basic strategy is to select the target market
and position its product with the help of product segregation, image segregation, etc and Berger
has been doing it perfectly. It has been selling products at affordable prices compared to its
competitors and mainly promoting this strategy in such a way that its competitors could not
match it. For its Diwali campaign, Berger combined talent, colours, etc at an affordable price by
making the activities engaging.

Quality of Management-Berger Paints

Berger is committed to ensure that its operations are carried out within a well-defined internal
control framework. Good governance, well defined systems and processes, and an independent
internal audit function are the foundation of the internal control systems which helps Berger at a
great level. The company has a well-established internal control system, commensurate with its
size and spread, with defined guidelines on compliance, which enable it to run its depots, offices
 and factories with a reasonable degree of comfort. The control environment ensures commitment
towards integrity and ethical values and some relief for the Board of Directors. The control
activities incorporate, among others, continuous monitoring, routine reporting, checks and
balances, authorization and delegation procedures, audits also compliance audits, which are
periodically reviewed by the Business Process and Risk Management Committee and also the
Audit Committee The data generated is shared with the Board and various committees, evaluated
and corrected.

The Company’s Enterprise Resource Management Systems with Standard Operating Procedures
based on work flows and process flow charts also provide a comfort in this regard. The Company
is fully geared to implement any statutory recommendation which may be made in this respect
and thus we can say that the quality of management of Berger Paints is far better than its
competitors mainly because of its internal management system.

Contribution of paint industry in country’s GDP

 The Indian paint market is expected to reach Rs 709 billion by 2019-20 from around Rs 403
billion in 2014-15. The per capita paint consumption in India which is a little over 4 kg is still
very low as compared to the already developed western nations. Therefore, as the country
develops and modernizes, the per capita paint consumption is bound to increase.
 The unorganised sector controls around 35% of the paint market in the country, with the
organised sector accounting for the balance plus in the unorganised segment, there are about
2,000 units having small and medium sized paint manufacturing plants. Top organised players
include Asian Paints, Berger Paints, Kansai Nerolac among others.
 Demand for paints comes from two broad categories:
 Home decorations: Major segments in home decorations include exterior wall paints,
interior wall paints, wood finishes and ancillary products and enamel such as primers,
putties etc. Decorative paints account for around 75% of the overall paint market in
India. Asian Paints is the market leader in this segment whereas Berger taking the
second spot. Demand for decorative paints arises from household painting,
architectural (rare) and other display purposes. Demand in the festive season
(September-December) is significant, as compared to other periods and Berger Paints
has been exceeding in this time span since the last two years. This segment is price
sensitive and is a higher margin business as compared to industrial segment.
 Industrial: Three main segments of the industrial sector include protective coatings,
powder coatings and automobile coatings. Kansai Nerolac is the market leader in this
segment following Asian Paints and Berger Paints thereon. User industries for
industrial paints include automobiles engineering and consumer durables. The
industrial paints segment is far more technology intensive than the decorative segment
thus favouring Asian Paints
 The paints sector is raw material intensive, with over 300 raw materials (50% petro-based
derivatives) involved in the manufacturing process. Since most of the raw materials are
petroleum based, the industry benefits from softening crude prices.

Adding to this, the paints industry in India started with Shalimar Paints, in Calcutta, back in 1902.
During these 116 years, the industry navigated certain economic and political events,
including the two World Wars, the Great Depression, India’s Independence, etc. All through,
the industry remained at the top. A return of 330 times of the Indian paints industry in the last
two decades in which it also outperformed the stock market benchmark NIFTY (22 times)
proved the listed stocks in the paints industry to be good investments. Today, it contributes to
0.4% of the total GDP, besides contributing to employment in unorganised and organised
sectors. This is despite a mere 4-kg per capita consumption in India, against the global
average of 15-kg which is very less, indicating huge scope for growth. This can no better be
explained by the P/E of 66 belonging to the Indian paints industry, compared with an industry
average P/E ratio of 16 for the American paint companies.
Urbanisation, changing social attitudes and ways, rising incomes of individuals, industrial
growth and further infrastructure expansion, supported by the easy availability of housing
loans, are the drivers of decorative paints industry, which accounts for 75% of the estimated
$8.2-billion Indian market. The track-record shows the industry growth a growth of
approximately 2 times that of GDP growth. Research reports suggest that the decorative
paints industry is expected to touch $10.42 billion in the next 6-7 years. However, the recent
not so good growth signals from real estate and auto sectors are a challenge. With lower
crude oil prices during CY2017, the industry remained attractive, as about three-fourths of its
raw materials have been derived from crude.
For further penetration in the market, economic and competitive pricing will remain key
factors. With raw materials accounting to about 50% of net sales, the paints industry is cost-
sensitive. Key raw materials used can be divided into four categories: binders, pigments,
solvents and additives. Titanium dioxide is widely used, and other raw materials including
phthalic anhydride, pentaerythritol, methyl methacrylate, aromatics, etc, which act as binders,
solvents and additives, are derivatives of crude oil distillate used in the making of paints..
Production costs will remain sensitive to the movement of the crude oil price in the ultimate
market, though with a lag. The change in raw material costs and the change in crude oil
prices shows a strong correlation as noted by economists.
Binders, solvents and additives make up 75% of the total composition of most paints,
implying that three-fourths of the raw materials are derived from major distillates of crude oil.
Given that during the past couple of years crude oil prices were highly volatile to the extent of
annualised volatility of 35% and 24% during FY17 and FY18, respectively the
competitiveness of the organised paints industry has been continuing since to be challenging.
Based on ChemQuest analysis, the best under Indian conditions, given the information on
net sales of Indian manufacturers to the price movement of crude oil, and considering the
crude volatility and industry size, we can estimate that about `5,800 crore would be the
potential price risk amount.
There are about 300 raw materials used in the paints industry, and they are usually sourced
through imports or third parties. But most firms in the industry do not make raw material,
makes them price-takers in the market. The prices of chemicals used for producing raw
materials may outpace crude oil benchmarks and, unfortunately, paint companies might end
up paying a huge amount when prices rise.
One way of securing the input costs would be to hedge the price exposure through crude oil
futures against an input delivery contract. . With their prices being quoted in rupee,
domestically traded crude derivative contracts would help them maintain and manage their
gained exposure in the domestic currency. The key to determine the amount of exposure in
crude contracts that a hedger should take is pre-determined that is further needed to be
customised depending on the raw materials thus used and its correlation with crude oil.
Distant derivatives usually respond with a time lag, as their respective inventory stages play a
major role in determining the market price at any given point of time, as opposed to others.
It is important to measure the outstanding risk of a firm and find the best possible way to
manage and hedge it. Getting it locked in a major portion of the costs can give paint
manufacturers a significant margin boost to achieve competitive pricing and hence healthy
functioning so far. Currently, Indian paint manufacturers seem to rely largely on inventory
control and have an access to newer raw materials and suppliers. For the paints industry,
raw material price risk may not be a challenge, but an opportunity to enhance
competitiveness and thus succeed industrial peers. As their raw materials move closer to
market based pricing, commodity risk will be a reality and managing it will be a necessity in
the ultimate future.