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Paints- Indian Paint Industry Analysis & Research Report 2011 | Stock Shastra

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Stock Shastra #50 – Indian Paint Industry – Adding colour to the India growth story

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The Indian Sensex@MRP Paint industry, estimated to be a Rs.21,000 Cr. industry, has been growing at a rate of above 15% for the past few years. The organized players of the industry cater to about 65% of the overall demand, whereas the unorganized players take care of the remaining 35%, in value terms. The unorganised players mainly dominate the distemper segment.

unorganised players mainly dominate the distemper segment. The industry consists of two segments, namely Like 31

The industry consists of two segments, namely

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Decorative segment – caters to the housing sector and Industrial segment - consists of powder coatings, floor coatings and other protective coatings catering to the automobile, marine and other industries.

In the domestic market, Decorative segment accounts for 70% of the total demand for paints whereas the industrial segment accounts for the remaining 30%. Globally, the demand for paints is almost equally distributed, where both the segments account for close to 50% of demand.

is almost equally distributed, where both the segments account for close to 50% of demand. 1

Paints- Indian Paint Industry Analysis & Research Report 2011 | Stock Shastra

So, how does the industry work? Here is the analysis….

The working of the Paint industry has been explained pictorially below:

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Raw Materials: On an average, raw materials constitute ~56%

Raw Materials: On an average, raw materials constitute ~56% of the total expenditure in paint companies. Titanium dioxide is one of the major raw materials and price fluctuations in its cost have direct and substantial impact on the cost of production. Crude oil derivatives are the other major raw materials and have similar impact. Apart from these a large number of other raw materials are used for adding/giving specific properties to the wide product range offered by the industry.

End-User: The decorative paints segment products find use in households and construction whereas the industrial segment products find use in automotive industry, consumer durables industry and other OEM’s.

What does the Past Say?

Growth of the paint industry has been consistent with the growth of Indian GDP. Paint industry has been growing at a rate of 1.5 to 2 times of Indian GDP growth. The Decorative segment shows a seasonal trend with sales peaking during the festive seasons in the months of September to November, whereas the demand is low in the monsoons.

The top 5 companies make up more than 80% sales of the organized market. The market share of the organized sector is continuously improving as consumer preference is shifting towards better products offered by the leading brands. Established Foreign companies have entered the Indian market by acquiring existing Indian companies. Kansai Paints, Japan entered the Indian Market by acquiring Nerolac, Akzo Nobel, the world’s largest Paint company, entered the Indian market by acquiring ICI Paints (now Akzo Nobel India.)

Paints- Indian Paint Industry Analysis & Research Report 2011 | Stock Shastra

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Asian Paints is the market leader in the Indian Paint

Asian Paints is the market leader in the Indian Paint Industry and gets the major portion of its revenue from the Decorative segment. Over the years, it has outperformed its peers in every aspect by wide margins. This is mainly due to its strong moat (competitive advantage) which lies in its strong Brand Equity and an extensive Distribution Network. The company’s Net sales, Net Profit and Book Value have grown with a 5 year CAGR of 22%, 27% and 28% respectively. Also the company’s debt is very low and its ROIC has been 40% on an average over the last six years.

Kansai Nerolac holds the second position in the Indian Paint market, and is the market leader in the Industrial Paint Segment, owing to its leadership position in the Automobile Paint segment. It is the subsidiary of Kansai Paints Ltd., the leading Japanese paint company. Berger paints has the third position and derives its major revenue from the Decorative segment. Akzo Nobel (former ICI Paints) is the subsidiary of the world’s largest Paint Company and is at the fourth position. Shalimar Paints is at the fifth position.

Paints- Indian Paint Industry Analysis & Research Report 2011 | Stock Shastra

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Paints- Indian Paint Industry Analysis & Research Report 2011 | Stock Shastra

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What are the growth drivers of the industry? Here’s the analysis…

1. Increasing level of income and education – The increasing proportion of young population along with increasing disposable incomes is leading to a change in consumer habits. The Indian economy is shifting

from a savings economy to a spending economy. With more income at their disposal, people are now ready to pay for better products and paint is no exception.

Educated consumers are more brand conscious and seek value in what they consume. Thus, paint companies offering value-added features like non-toxicity, weather protection, texture, eco-friendly production, etc. will attract more demand. These value-added products enable the manufacturers to earn a better premium as compared to the regular paints, thus offering higher margins.

2. Increasing Urbanization: Urbanization is leading to a shift from temporary houses to permanent houses. Urban houses are well-designed in its interior as well as exterior aspect. This calls for more houses

being painted using medium and premium paints. For urban houses, interior design is becoming a fashion statement and a lot of paint is used to decorate the interiors. This will lead to an increase in the per capita consumption of paint which will increase the overall demand of paint. Urbanization also brings more nuclear families. More nuclear families mean more number of houses even for the existing population thus further driving the demand.

3. Increasing share of organized sector: Decrease in taxes on key raw materials will improve the position of the organized players. The Organized sector is expanding its distribution network and adopting the

installation of tinting machines at retail outlets. These tinting machines offer a wide variety of colour shade options to choose from. The unorganized players are not in a position to offer such facility as it is comparatively capital intensive. Shift in use, from distemper segment towards premier segment is also shifting market share from the unorganized sector to the organized sector.

4. Development of the Realty, Automobile and Infrastructure sector: The growth of the paint industry is largely dependent on the development of the realty and housing sector, as decorative segment generates

about 70% of the total paint demand from this sector. The Automobile segment generates more than two-third of the demand for Industrial paints, and hence is the growth driver for Industrial Paints. The Infrastructure segment creates direct demand for paints as well as creates indirect demand through supporting the growth of the realty, automobile, FMCG and other industries where paint is used.

The growth potential in the above 3 sectors is immense, the paint industry being dependent on these 3 sectors is expected to grow along with them.

5. Availability of financing options: Easier housing finance and auto finance is expected to favour more people to buy houses and travel in personal vehicles. This will drive the growth of housing and automobile

sector, of which the Paint industry will get its share.

6. Increasing Penetration in the Rural Markets: Paint usage in rural areas is generally in the distemper segment, hence dominated by the unorganized players. Demand in rural areas is dependent on agriculture,

which is dependent on the monsoons. With the development of irrigation facility, the dependence of agricultural output on monsoons will be on a decreasing trend. Also, with the modernization of agriculture and accompanying development of rural India, consumer preferences are expected to improve. Paint companies are expanding their distribution network in rural parts of India, which is a relatively untapped market for the organized players. These factors supported by the increasing penetration of the paint companies will help drive the demand for paints.

So, is there anything to be concerned about?

• Cost of raw materials: The Cost of Raw materials is an important factor as the industry is raw material intensive. Fluctuation in the prices of Titanium dioxide and Petroleum directly affect the production

cost. This is more of a concern for the Industrial segment as compared to the Decorative Segment, as it is comparatively easier to pass on the costs in case of decorative paints. Also, a large portion of raw materials are imported, leaving the cost factor vulnerable to exchange rate fluctuation.

• MNC’s entering the Indian Paint Market: The entry of Established foreign players in the Indian market may increase the competition among the players of the industry. This may lead to price competition which may impact the profit margin of the companies. As a result, the increase in volume growth may not equally reflect in the profit growth for the companies.

What is the future Outlook for the Paint industry in India?

The Indian paint Industry has a wide potential for growth which is demonstrated by the fact that the per capita consumption of paint in India is merely around 1 kg as compared to about 20 kg in the developed countries or a global average of about 15 kg. So, the absolute consumption of paint in India is definitely expected to rise.

The market share of the organized sector is on an increasing trend. Also, the contribution of industrial segment will increase with the continuing economic development of the country. With India moving towards

becoming a developed economy, the decorative to industrial paint ratio of 70:50 is expected to move towards the global average of 50:50. grow at a rate faster than that of GDP. The future prospects of the industry are strong.

Thus the Indian paint industry is in its growth phase and is expected to

Looking at the above points, we can say that the long term future prospects of the Indian Paint Industry appear to be Green (Very Good.)

Companies which have high revenues, efficient operations and distribution network, comfortable debt levels and robust capacity expansion plans will be best suited to capitalize on the growth prospects. It is very important that while investing in a company, an investor selects an industry, where the long-term future prospects are bright. We have seen that in the long run the Indian Paint industry is expected to have good growth.

Paints- Indian Paint Industry Analysis & Research Report 2011 | Stock Shastra

http://stockshastra.moneyworks4me.com/paints-indian-paint-industry-analysis-and-research-repo

Also, it is equally important that the company has an excellent financial track record (i.e. Green 10 Year X-Ray) and its long-term future prospects are Green (Very Good).

*The 10 YEAR X-RAY facilitates analysis of the financial performance of the company considering the five most important parameters. A 10 Year period will normally encompass an entire business cycle. Analysing the performance over this time frame is essential to understand how a company has fared during the good as well as bad times. The five most important parameters that one needs to look at are Net Sales Growth Rate, EPS Growth Rate, Book Value per Share (BVPS) Growth Rate, Return on Invested Capital (ROIC) and Debt to Net Profit Ratio.

Given below is the MoneyWorks4me assessment for a few Paint companies:

is the MoneyWorks4me assessment for a few Paint companies: The table above gives you a list

The table above gives you a list of the top 5 companies from the Paint Industry. Due to the very nature of the paint industry, it is best advised to invest in companies which have created a strong brand equity for themselves and have a strong competitive advantage. While such companie s usually trade at a premium and are rarely cheap, you should look to inve st in them when they are available at a good discount. To find out the right price to invest in these companies, become a member of MoneyWorks4me.com.

Disclaimer: This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations or needs of an individual client or a corporate/s or any entity/ies. The person should use his/her own judgment while taking investment decisions.

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Paints- Indian Paint Industry Analysis & Research Report 2011 | Stock Shastra

http://stockshastra.moneyworks4me.com/paints-indian-paint-industry-analysis-and-research-repo

Any way this report help e a lot to understand about the paint industry.because i m now doing my project in paint company.

industry.because i m now doing my project in paint company. Gud work done , but i
Gud work done , but i dont agree with the X-RAY Report u have made
Gud work done , but i dont agree with the X-RAY Report u have made

Gud work done , but i dont agree with the X-RAY Report u have made in which u have shown Nerolac as Orange & Berger as green

 

Nerolac brand equity is much more greater than berger plus the distribution network

so

how cum u hav done the analysis ??

network so how cum u hav done the analysis ?? today is my interview with the
network so how cum u hav done the analysis ?? today is my interview with the
network so how cum u hav done the analysis ?? today is my interview with the
network so how cum u hav done the analysis ?? today is my interview with the

today is my interview with the vice president of berger paint india

n this info will be of grt use to me

thx

alot.

n this info will be of grt use to me thx alot. its been very useful
n this info will be of grt use to me thx alot. its been very useful
n this info will be of grt use to me thx alot. its been very useful
n this info will be of grt use to me thx alot. its been very useful

its been very useful for me. thanks .

to me thx alot. its been very useful for me. thanks . Its really good to
to me thx alot. its been very useful for me. thanks . Its really good to
to me thx alot. its been very useful for me. thanks . Its really good to
to me thx alot. its been very useful for me. thanks . Its really good to

Its really good to understand indian paint industry market thru such kind of informations. It really helpful

 
thru such kind of informations. It really helpful   Who so ever did that study, he/she
thru such kind of informations. It really helpful   Who so ever did that study, he/she
thru such kind of informations. It really helpful   Who so ever did that study, he/she
thru such kind of informations. It really helpful   Who so ever did that study, he/she

Who so ever did that study, he/she is really did fabulous job. Well done dear.

 
did that study, he/she is really did fabulous job. Well done dear.   Thanks so much
did that study, he/she is really did fabulous job. Well done dear.   Thanks so much
did that study, he/she is really did fabulous job. Well done dear.   Thanks so much
did that study, he/she is really did fabulous job. Well done dear.   Thanks so much

Thanks so much for giving useful information

did that study, he/she is really did fabulous job. Well done dear.   Thanks so much
did that study, he/she is really did fabulous job. Well done dear.   Thanks so much
did that study, he/she is really did fabulous job. Well done dear.   Thanks so much
did that study, he/she is really did fabulous job. Well done dear.   Thanks so much

@ vishal sharma, @ Amit Kumar Pandey, @ Digvijaybhaskar - We are glad that the articles written by us are useful to you. Stay updated on our blog for articles on sectors/industries like FMCG, Auto Ancilliaries etc. Thanks a lot for your appreciation.

on sectors/industries like FMCG, Auto Ancilliaries etc. Thanks a lot for your appreciation. 7 of 10

Paints- Indian Paint Industry Analysis & Research Report 2011 | Stock Shastra

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Report 2011 | Stock Shastra http://stockshastra.moneyworks4me.com/paints-indian-paint-industry-analysis-and-research-repo

thanks for the above information

its been very useful for me

thanks for the above information its been very useful for me I appreciate your information,for me

I appreciate your information,for me it is too good and i hope you will provide such kind of articles in future.

Thanks

Amit Kumar Pandey

such kind of articles in future. Thanks Amit Kumar Pandey You are really providing a very

You are really providing a very useful and correct information at a very right time.Thanks

useful and correct information at a very right time.Thanks M Subscribe by email S RSS Reactions

M Subscribe by email S RSS

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right time.Thanks M Subscribe by email S RSS Reactions T r a c k b a

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