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Contents
Growth drivers for Indian paint industry......................................................................................4
Rising income levels:.....................................................................................................................5
Increasing media exposure:..........................................................................................................5
Rising urbanisation:......................................................................................................................5
Urban Share of total population...................................................................................................5
Increase in nuclear families:.........................................................................................................5
% of population in 15‐64 age group..............................................................................................5
Healthy growth in consumption levels expected for both, urban and rural India.......................5
Growth in Auto Sector..................................................................................................................5
Growth in Auto Segments (FY06‐10)............................................................................................5
The emerging trends in the decorative industry are:...................................................................5
3. RISK IN THE PAINTS INDUSTRY IN INDIA.....................................................................................5
Organised Market Segment Division............................................................................................9
Decorative Segment......................................................................................................................9
5. Key Market Players.....................................................................................................................9
While prices in the decorative segment go up by 2.5-3%, industrial paints get steeper by 6-7%....15
Input cost hike.................................................................................................................................16
Impact on demand..........................................................................................................................17
9. Conclusion...............................................................................................................................21

SUBMITTED BY:

Aakansha 2019125
Aatish Agrawal 2019127
Kaiwal Shah 2019149
Megha Goel 2019155
Nikunj Agarwal 2019159
Nitin Singh Bundela 2019160

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 1. INTRODUCTION TO PAINT AND COATINGS INDUSTRY
Like the greater part of the present compound industry, the paints and coatings division is
experiencing a time of real solidifications to help development, increment efficiencies and
increase more noteworthy influence with providers and clients. The inquiry looked by the
business is whether solidification will stay a practical development system for this part even
with unpredictable costs, nationalistic concerns, against restraining infrastructure laws, and
different components around the world.

As per investigators at MarketsandMarkets, the paints and coatings market is anticipated to

develop from US$160.54 billion of every 2017 to US$209.36 billion by 2022, at a CAGR of
5.45 percent.

At present, Asia represents 52 percent of the volume and 45 percent of the estimation of the
worldwide coatings advertise. Asia is additionally the quickest developing business sector.
Rising populace levels, increasingly working class customers, huge framework improvements
and across the board urbanization in the area have expanded interest for paints and coatings
for structures, open foundations, individualized living spaces, vehicles, and a developing
number and assortment of shopper items. In 2017, the Asian coatings industry was
evaluated to have developed by 5.7 percent in volume and 6.3 percent in worth. As anyone
might expect, the biggest coatings advertise in Asia is China, with 56 percent of the market
and an estimation of US$53.3 billion. The following biggest Asian markets are India and
Japan.

Market development in the US, Western Europe, and Japan will stay consistent yet at a more
slow pace, relating to the general economy of that district. Generally speaking interest from
2016 to 2021 is required to increment at a normal yearly pace of 3 percent in the US and 2
percent in Western Europe.

For paints and coatings, solidification has turned into a long haul pattern, particularly in
Western markets with restricted natural development. In North America, for instance, the
industry has been solidifying for quite a long time. In certain end market fragments, less

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than ten players (and now and again, five or less) authority more than 90 percent of the
market. In most other North American markets, less than ten organizations keep up at any
rate 75 percent of significant worth. Around the world, be that as it may, the business
sectors are still very divided in general. As per 2016 information assembled by PPG
(Pittsburgh Plate Glass) , the worldwide business is driven by ten organizations, however
roughly 50 percent of the worldwide market is constrained by littler organizations, huge
numbers of them at the territorial or neighborhood level.

In 2017, the greatest arrangement for paints and coatings was the Sherwin-Williams/Valspar
merger. Sherwin-Williams has a conspicuous market position in design paint in North
America, South America, China, Australia and the UK. In modern coatings, the consolidated
organization will be a worldwide market pioneer in bundling coatings, loop coatings, general
mechanical coatings and mechanical wood coatings.

Effective unions can help paints and coatings organizations to take advantage of
development lucky breaks, enter new showcases, improve abilities, increment efficiencies
through scale or improved procedures, broaden their items, and support their benefit
portfolios. In any case, challenges stay for a paints and covering organization thinking about
a combination. Likewise with any industry, an economically difficult market can transform
into a wide open market before the arrangement is finished.

2. PAINT AND COATINGS INDUSTRY IN INDIA

Today the world has come to perceive the matchless quality of India and Indians in varying
backgrounds because of the flexibility appeared by the nation in the ongoing past. World
pioneers are recognizing India's monetary quality, HR and political will. They are contrasting
China's economy and Indian economy and many are of the assessment that India could turn
into a financial superpower in the following two decades

One industry, which has seen critical development in India in the ongoing past is lodging
industry. The expanded discretionary cashflow, simple accessibility of lodging advances from
business banks and lodging money related foundations, consolation given by the
administration through tax reductions have contributed for higher development of the
business. Alongside this industry, another industry which has demonstrated high
development in later past is the vehicle business. Both these enterprises have colossal
multiplier impact on Indian financial movement. One regular calculate watched these two
enterprises is the requirement for utilizing paints. Lodging area just as vehicle industry needs
gigantic amount of paints and accordingly the paint business additionally has seen a huge
development. In spite of the fact that the item paint seems an extravagance item, it can
likewise be considered as one of the basic items throughout man's life. Each person wants to
assemble their own home. Regardless of whether little or huge, a large portion of the houses

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require paint. In the entire structure movement, the paint assumes a significant job. It
ensures structures, and makes the structures appealing. The monetary changes have
additionally helped the Indian paint industry. Paint was one of the exorbitant things in the
structure material industry. In the eighties, extract obligation on paints used to be as high as
40%. After changes bit by bit the extract obligation began declining from 40% to a lower
level. Today the extract obligation is as low as sixteen percent. The modvat and cenvat
offices additionally have helped the business to develop. The weakening of MRTP Act and
FERA has somewhat added to the development of Indian paint industry.

Indian paint industry is the second biggest in Asia. In the course of recent years soak
development is being knowledgeable about the nation's paint industry. Development is
keeping pace with the GDP development rate and in certain years considerably higher. In the
course of recent years the paint business has developed colossally and has grabbed the eye
of significant worldwide players.

The Paint Industry is required to develop INR 75,000 crore (USD 10.6 Billion) in incentive for
the period 2018 to 2022. The per capita utilization of 4 kgs for each individual in India is as
yet viewed as underneath in contrast with the normal utilization of paint in the created
western countries, yet as the nation is creating at a fast development rate the per capita
utilization is assessed to improve.

The chaotic part adds to 35% of the paint advertise and the sorted out division holds the
majority of the remaining. Top composed players in this segment incorporates names like
Asian paints, Kansai Nerolac, Berger Paints and ICI. Two classes drive the interest for paints
which incorporates Decorative and Industrial. The Decorative paint section adds to 70% of
the market and the Industrial fragment takes up the staying 30% of the market.

Real sections in Decoratives incorporate outside divider paints, inside divider paints, wood
completions, lacquer and auxiliary items

Three principle sections of the Industrial paint incorporates car coatings, powder coatings
and defensive coatings. Kansai Nerolac is the market chief in this fragment. Client
enterprises for Industrial paints incorporates car part and buyer durables (which
incorporates Marine paints and other OEM's).

Growth drivers for Indian paint industry

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Per capita consumption at 1.5kg is currently very low as compared to the developed
countries (20kg/annum). Usage of lime extracts (chuna) in rural and semi-urban markets as
well as lesser awareness of the protective attributes of paints can be one of the reasons for
lower consumption levels. With growing income levels, both in urban as well as rural India
on the back of various government initiatives like NREGS, Farm loan waivers, pay
commission led salary hikes etc, the per capita consumption will improve in the medium as
well as long term.
Rising income levels:
According to McKinsey, proportion of low income groups was expected to decline from 24%
in FY05 to 10% in FY10e, and it has. This has acted as a significant catalyst for demand
growth in decorative paints.
Increasing media exposure:
With better awareness levels, a gradual shift from unbranded to branded segment as well as
improvement in product mix for various players like Kansai Nerolac, Asian Paints as demand
for emulsions continues to outpace enamels and distempers.
Rising urbanisation:
This has led to creation of new homes, in-turn, fuelling incremental demand. Currently, only
28% of Indian population is urban.
Urban Share of total population
Increase in nuclear families:
This is a consequence of younger demographics (60% of India’s population is below 30 years
of age), with proportion of working population expected to increase from 40% in FY05 to
48% in FY15e.
% of population in 15‐64 age group
Healthy growth in consumption levels expected for both, urban and rural India
Growth in Auto Sector
With production of passenger cars expected to grow, demand for automotive paints will
continue to remain healthy as sales are expected to grow in double-digits. And with realty
majors launching new projects, construction activity is expected to gain momentum and
generate demand for decorative paints. Globally, the industrial paints segment accounts for
a major share, indicating that this segment offers many opportunities for paint
manufacturers.
Growth in Auto Segments (FY06‐10)
The emerging trends in the decorative industry are:

 Consumers are increasingly involved in making purchase decisions.

 Consumers expect better and more relevant functional benefits from paints.

 Emulsion paints are outgrowing the industry growth rate.

 Trend of dark shades complementing light shades continues.

 Tinting systems at store level are the order of the day.

 Companies are getting more consumer-centric and a lot of value-added services are being
offered, like application support, colour consultancy etc.

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  Strong growth in the Indian powder coatings segment, as new applications and their
advantages are discovered

 Greater interest in water-based coatings technology while awareness of VOCs and legislation
increases.

3. RISK IN THE PAINTS INDUSTRY IN INDIA

The major risks in the paint industry which had a solid growth structure over the past year include higher
interest rates and rising raw material prices. In recent months the slowing home sales due to rising
interest rates and higher real estate prices in addition to the decreasing automobile sales growth has
dwindled the growth rate of the paint industry.

The Rising cost of raw materials has affected the growth of paint sales. The paint industry is not immune
to the slowing economic growth of the country. A slowdown in real estate development will dwindle the
sales growth. The Paint industry is raw material intensive with more than 300 raw materials of which 50%
is petro-based derivatives. So the cost of production is directly proportional to the cost of crude prices.

Hence the rise in crude oil prices will dent the profitability. The major costs associated with the
manufacturing of paint includes Raw material costs accounting for 56%, the marketing costs occupying
23% and labour cost of 12%.

4. TYPES OF PAINTS (CATEGORIES)

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Paints from a client's point of view can be characterized into two particular classes – design,
for structures and structures (the two outsides and insides), and mechanical for cars, marine
structures and powder coatings. In India, the enhancing section rules the business with a
portion of more than 60 percent as far as turnover. This was resurgence of the modern
coatings section driven by the cosmic development of the Indian car industry. This has seen
an expanded portion of the mechanical section. With the expanded interest in the FMCG
and white products division, the powder covering business sector has likewise been account
noteworthy development figures. The mechanical paints are the defensive coatings and are
the uncompromising coatings. Climate safe coatings, Can coatings, Coil coatings, Powder
coatings, Automotive coatings, and Aircraft coatings and so on go under mechanical paints.
The Indian paint industry got progressive changes Indian industry as market direction, client
center, new and one of a kind items, huge assortments, aggressiveness, faster advertise
reaction, item unwavering quality and even the money related help to clients. New items
and creation advancements, worldwide assembling strategies and frameworks,
computerization and a large group of different developments have come in, making the
challenge extreme. The Indian paint industry is evaluated to be esteemed at somewhat over
Rs.13,600 crores. This is scarcely 1 percent of the world piece of the pie. The absolute
creation is in the area of 9, 00,000 metric tons. The per capita utilization of paints in India
remains at an appalling 0.6 kg or 600grams. This is in unmistakable correlation with the
figure for the remainder of Southeast Asia, which is at about 4.3 kgs. The world normal
utilization remains at 22 kgs. Notwithstanding, these figures don't uncover the monstrous
potential that the Indian paint industry has in the light of its tremendous populace base, and
furthermore the consistently expanding populace. The development rate recorded by the
Indian Paint Industry throughout the most recent couple of years at 22%, with a size of
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Rs.22,000 crores,has been incredibly promising. The Indian paint industry is a crude material
arranged industry. More than 65 percent of info expenses are gathering from crude material
information sources. The Indian paint fabricating industry has been confronting the weights
of expanding crude material expense. The essential expense being the spiraling costs of
unrefined petroleum. The Indian paint industry is still intensely dependent on crude material
imports for satisfying its prerequisites. The assembling of design paints still need 25 percent
of their crude materials to be imported, while the modern fragment is unmistakably
progressively reliant on imports, requiring around 40 percent of its crude material
prerequisite to be imported. The interest for modern paints has expanded significantly in
light of development of numerous enterprises. It might be power plants, petrochemical
plants, manures plants, material ventures, car enterprises, etc. These plants at the hour of
development require a great deal of paints. The prerequisite of destructive safe and
synthetic safe paints increments when the plants are set up in the beach front territories.
There might be a requirement for the ultra violet safe paints relying upon circumstances. The
car business must be figured here. After the financial changes there has been a blast in the
vehicle business. Numerous MNCs began searching for circumstances and have begun their
assembling offices in India. India could see numerous four wheeler fabricating units and
most recent vehicles moving on the Indian streets. The market for both beautifying and
mechanical paints is developing quickly. This has brought about paint assembling
organizations confronting serious challenge. The outside organizations with their advanced
innovation are additionally entering the Indian market making issues of survival for a portion
of the littler organizations. In our nation, there are organizations like Asian Paints Limited,
Kansai Nerolac Limited, ICI Paints (India) Limited, Berger Paints Limited and Shalimar Paints
Limited which go under sorted out division and have more than 60 percent of piece of the
pie. What's more, there are a great many little and mid top organizations creating paints.
The challenge may, over some undefined time frame pulverize numerous little and mid top
organizations.

INDUSTRY SEGMENTATION

The paint business can be sectioned as pursues:

1. End Usage order: Paints are gathered in either beautiful or mechanical paints
Decorative paints are utilized for family and development purposes while last can be utilized
for modern items. Embellishing Paints comprises of heap types like lacquers, acrylic
emulsions, distempers and outside paints. Mechanical ones incorporate the marine, hostile
to destructive metal coatings, and so on.

2. Solvent Based arrangement: Paints which use petro items or water as principle
solvents. Nowadays water put together paints are getting to be prominent with respect to
condition kind disposition.

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3. Solid Content: Classified dependent on sort for example fluid or strong. Powder
coatings discover application principally in white merchandise industry.

The Indian paint industry has shockingly just private assembling units. This can be
contemplated by the way that previously, government saw paints as extravagance item and
subsequently exhausted vigorously, consequently managing the business to a non-center
business.

Sector Wise Division

Characterization of paint industry should be possible either item insightful or part shrewd.
Division insightful suggests sorted out and chaotic segments. The pie outline demonstrates
the equivalent.

Sorted out Sector is commanded by 6 huge players and the sloppy divisions claimed by
around 2500 units producing different classes of paints. Despite the fact that the sorted out
segment controls 65% of paint advertise, chaotic division with 35% of piece of the overall
industry is as yet a power to figure with.

Sorted out part would itself be able to be isolated into 2 unmistakable sections (Product
savvy): Industrial portion which is developing at 15% around and ornamental fragment
which is developing at 8% roughly. As appeared in the diagram, the majority of offers are
represented fundamentally by enhancing fragment. Enlivening fragment appreciates
practically 77% and modern portion possesses 23% of the market.

Organised Market Segment Division

Decorative Segment

It obliges the lodging area. The accompanying falls under embellishing section.

• Acrylic Emulsions: Premium ornamental paints are acrylic emulsions utilized

generally in the metros.

• Enamels: The medium range comprises of veneers, prominent in littler urban areas
and towns. Utilized on substrates like steel, wood, concrete, and so on.

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• Cement paints: Used for outside purposes

• Distempers are economy items requested in the rural and rustic markets. Almost 20
percent of every single improving paint sold in India are distempers.

Industrial Segment

Mechanical Paints incorporate powder coatings, superior coatings and car and marine paints
66% of the modern paints created in the nation are car paints.

5. Key Market Players

Asian paints Asian paint is India’s largest and Asia’s second largest paints corporation based in Mumbai .It
has the largest market share of 53% in the Indian paint industry. The company is engaged in the business
of manufacturing, selling and distribution of paints, coatings and products related to home décor, bath
fittings and providing of related services. Asian paints clocked revenue of $2.2 Billion and net income of
$250 million in the year 2016. Asian paint operates in 16 countries and has 26 manufacturing units in the
world servicing consumers in 65 countries.

Berger paints Berger paints is the second largest paint company in India based in Kolkata controlling a
market share of 17% in the Indian paint industry. The company has presence in 5 countries. Berger paints
has 13 manufacturing units in the country. The company boasts of revenue of $630 million and net
income of $66 million in the year 2017

Kansai Nerolac paints Limited Kansai Nerolac paints is the largest industrial and third largest decorative
company of India based in Mumbai. It is a subsidiary of Kansai paint of Japan .It has the third largest
market share of 16% in the Indian paint industry it serves the Industrial, automotive and powder coating
business. Kansai Nerolac has 5 manufacturing units and about 6-7 contract manufacturers in the country.
The company clocked total revenue of $620 million and net income of $120 million in the year 2016.

The market share controlled by each company is as represented in the below pie-chart.

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 6. FUTURE PROSPECTS OF PAINTS INDUSTRY IN INDIA

The Indian paint market is relied upon to reach Rs.70,875 crore by 2019-20 from around
Rs.40,300 crore in 2014-15, the paint business' peak body anticipated on Friday.

The brightening paint market is relied upon to witness CAGR of 12.7 percent and the
mechanical paint advertise CAGR of 9.5 percent, as indicated by Indian Paint Association
(IPA's) to be propelled report on the Indian Paint Market - "Size and Future of covering
industry" gathered by Nielsen Corporation. The split of the enlivening paint market to
modern market is around 75-25.

Brightening paint market size in the nation was Rs 30,385 crore and the Industrial Paint Rs
9,915 crore in FY 2014-15, the IPA said in a discharge here.

The business had developed at a CAGR of 12.9 percent from 2011-12 to 2014-15 as far as
worth, it said including that for FY 2014-15, the per capita utilization of paint in India was
evaluated at 3.34 Kg.

High development was seen for Exterior and Interior emulsions in the enlivening paints class
and Auto restore and Powder coatings in the mechanical paints classification.

IPA President Jalaj Dani said the Indian paint industry was on a development direction.

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IPA, a relationship of paint producers both huge just as from the MSME segment shaped to
advance and secure the interests of the paint business, is holding its three-day 28th biennial
meeting here from today.

The meet gives a perfect and normal stage for industry talks on giving separated client
experience, openings, challenges, advertise patterns and best rehearses, Dani said.

The residential paints industry had been developing at a fast pace throughout the years yet
it was not joined by supply of sufficient gifted ability, IPA stated, including, it has been
working intimately with National Skill Development Corporation (NSDC) to connect the
ability hole.

Berger PaintsAsian PaintsPaint Companies

When volume development is dull, an appreciated advancement for paint organizations is

the facilitating of information cost expansion. Paint makers Asian Paints Ltd and Berger
Paints India Ltd have cut costs for their polish items by 2-3%, to pass on the control in
unrefined petroleum costs.

In a post-profit telephone call, Berger Paints' administration featured that a value decrease
over its finish portfolio would not materially affect its income. "Finishes represent 15-18% of
the enlivening business deals, in our view," it said.

Examiners will in general concur. Aside from the high relationship of lacquer with unrefined
petroleum costs, the other reason edges are probably not going to be essentially affected is
the low portion of these items in the general income commitment, they said.

Truth be told, with raw petroleum costs on a frail balance now, the point of view toward
edges has improved.

"Net edges of paint organizations declined for the second successive year in financial year
2019 by 100-335 premise focuses (bps). Be that as it may, raw petroleum cost has amended
as of late (WTI rough down c.15% over FY19 normal). We work in 50-70bps extension in
gross edges in FY20 for all paint organizations," ICICI Securities Ltd said in a report on 5 June.
A premise point is one-hundredth of a rate point and WTI is West Texas Intermediate
unrefined petroleum.

Aside from relaxing crude material costs, value climbs taken in the beautiful paints portfolio
by these organizations would likewise help. In FY19, paint creators had declared an about 6%
total value climb.

Brent rough costs have declined almost 15% from their ongoing pinnacle of $74.57 per
barrel found in April 2019. As indicated by investigators' appraisals, about 55% of crude
material utilized by paint organizations are unrefined petroleum subordinates. These record
for 30-35% of the all out crude material expense of the part.

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With respect to volume development, regardless of a dull FY19, organizations are foreseeing
enhancing paints volumes to recuperate to twofold digits in FY20. As indicated by experts,
the point of view toward mechanical paints stays repressed because of quieted vehicle
request. Recovery in enlivening paints would rely upon how soon the utilization lull
facilitates, they said.

In the interim, paint stocks are exchanging at a one-year forward cost to-income different of
50-42 times. These valuations are costly thinking about their poor returns. While these
stocks have been failing to meet expectations the Nifty 500 file this year, a gander at their
valuation products proposes the amendment should proceed.

After enduring development for various years, the Indian paint industry saw one of the most
noticeably terrible years in the closed money related year 2016-17. Development got pace
during the second quarter of the last financial, attributable to a decent storm and positive
speculation atmosphere in the nation. In any case, a few administrative measures embraced
by the legislature affected the paint business in both the third and final quarter of FY 2016-
17. The log jam proceeded in the first and second quarter of current budgetary year (April
2017-September 2017) because of the execution of GST from July 1, 2017.

The need brilliance execution of the paint business in the last monetary can be to a great
extent ascribed to demonetization activities did by the Indian government in November
2016. The Federal Government's choice to demonetize very nearly 86 percent of the money
notes available for use caused a serious money deficiency in the residential economy, which
lean towards money as the method of installments, even today. This money lack prompted a
strain on the paint utilization request and activities of paint makers for a larger piece of the
second 50% of the last budgetary year.

During 2015-16, the general creation of paints in India was evaluated (assessed in light of
the fact that sloppy segment makers don't uncover the correct numbers) to be 4.25 million
tones, enrolling a five percent development over the earlier year. In worth terms, the paint
business developed by around 8 percent to INR 43.5 billion of which the brightening paints
offer was 74 percent and the equalization being mechanical. The business had developed at
a CAGR of 12.9 percent from 2011-12 to 2014-15 as far as worth.

The per capita utilization of paints in India, at 3.23 kgs, is much lower in contrast with a
portion of the other created economies around the globe. In any case, current low per capita
utilization is seen by household paint makers as monstrous future development open door
for the paint business.

Repainting establishes around 70 percent of the absolute paint request in the nation. The
shortening of the repainting cycle from 6-8 years sooner to 3-4 years is driving the interest
for enlivening paints. The retail interest for paints is higher during the months going before
significant celebrations, for example, Diwali, Pongal/Makar Sankranti, Onam and Christmas
as the vast majority of the repainting is done around this period. Request of mechanical
paints as well, gains with the celebration request push for autos, houses and white
merchandise. Since, the majority of significant celebrations of the nation fall in the second
50% of a financial, the real request time frame for embellishing paints and, somewhat,

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mechanical paints is among September and March.

As indicated by Asian Paint's administration, "April to June has been a difficult quarter for
our organization both in the local just as worldwide front. The quarter began a positive note
proceeding from the last quarter of FY2017; in any case, the residential business was
influenced in the long stretch of June in the run-up to the GST execution from July 1, 2017.
The organization saw de-stocking by the exchange because of which deals were influenced
to a reasonable degree."

As indicated by Jayakumar Krishnaswamy, overseeing chief, AkzoNobel India, "Indian

covering business sector is ready to develop because of a low for each capita utilization of
paint and countless first-time clients. We are certain of our development and we have found
a way to develop in front of the market to pick up piece of the overall industry. The majority
of our organizations have reflected positive development in the past despite the difficult
condition."

7. PRICING MECHANISM IN THE PAINT INDUSTRY

In yet another attempt to tackle relentless input cost pressures and curb margin erosion,
paint companies have raised prices.
According to a recent dealer channel check by domestic brokerage house ICICI Securities Ltd,
paint makers have increased prices by 2-2.5%, effective 1 October. However, the quantum of
price hike may not be enough to offset the inflationary impact of raw material costs.
On a year-on-year basis, the price of key input titanium dioxide recorded a 6% increase in
the second quarter of this fiscal year. Prices of other monomers have also inched higher, say
analysts.
Nearly 55% of raw materials used by paint companies are crude oil derivatives and account
for 30-35% of the total raw material cost of the sector. So, a rise in global crude oil prices
hurts. Also, since most of these chemicals are imported, the rupee depreciation will make
their gross margin picture look worse.
It should be noted that in the wake of elevated costs, paint companies announced average
price hikes of 1.5% in March and 2% in May. But in July, despite cost pressures and given the
anti-profiteering clause, companies cut prices by 10% to pass on the benefit of the reduced
GST (goods and services tax) rate on paints.

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So, while volume growth may be healthy in the September quarter earnings, margins are
sure to take a hit. Analysts estimate a 50-200 basis point impact on gross margins of key
paint makers. A basis point is one-hundredth of a percentage point.
In short, a double whammy of rising crude oil prices and the depreciating rupee is a key
concern for investors in paint stocks. Unless steep price hikes are taken, putting the gloss
back on their profitability will be challenging.
However, in spite of this, shares of key paint companies continue to trade at a rich one-year
forward price-to-earnings multiples of more than 40 times.
In its latest report on Asian Paints Ltd, Bank of America Merrill Lynch said that pan-India
checks indicated swelling optimism about future growth, and it expects a healthy second
half for the company led by a solid festive season. Premium valuations are likely to sustain
on robust and visible growth ahead, it added.
Further, after the 2-3% price increase Asian Paints announced in October, another 4-5% hike
is likely in December if crude oil prices remain elevated, added the report.

According to estimates, nearly 55% of the raw material used by paint companies are
crude oil derivatives
In fact, with crude oil prices on a weak footing now, the outlook on margins has
improved

15
While prices in the decorative segment go up by 2.5-3%, industrial paints get steeper by 6-

7%

Abhishek Law

Paint-makers have hiked prices by 2.5-3 per cent since the beginning of this year. This is the

second time prices have gone up in the decorative paints category this fiscal, and the third
during the calendar year. Earlier hikes of around 2 per cent each were initiated in March and

May.

Rising input cost, particularly, driven by northward movement of crude prices and falling

rupee are said to be the reasons for the hike.

Compared to the decorative segment, price hike across the industrial paints sector could be

a bit steeper, at around 6-7 per cent. But, it will be the first hike in the category during this

fiscal.

All major paint companies, including market leader Asian Paints, Berger Paints, Kansai

Nerolac and Akzo Nobel, are said to have revised prices.

16
According to Abhijit Roy, MD and CEO, Berger Paints, an upward revision in price had to be

initiated in order to ease margin pressure.

“Decorative paints have seen a 2-3 per cent price hike beginning October, while in the

industrial segment it will be around 6-7 per cent,” he said.

Input cost hike

On a year-on-year basis, the price of the key input, titanium dioxide, saw a 6 per cent

increase in the second quarter, while price of monomers have also increased, say market

sources. As Roy points out, the chemical is imported and hence the rupee depreciation has

an impact on cost.

This apart, majority of the raw materials used by paint companies are crude oil derivatives

like pthalic anhydride and others (including monomers). These have seen “quite an increase”

in prices with crude prices moving up.

“From Q3 onwards, we expect margin pressures to ease. Ideally, margins should be around

the 15-18 per cent levels for paint companies,” he said.

Impact on demand

17
Despite the upward revision in prices during the festival season, demand is unlikely to be hit,

Roy said.

Paint companies had in July, cut prices by 10 per cent to pass on the benefit of the reduced

GST (Goods and Services Tax) rate on paints. (GST rates were reduced from 28 to 18 per cent

earlier this year.)

“There was a 10 per cent price cut that happened post GST rate changes in July. Now only a

2-3 per cent increase is done over that reduced price. So, prices remain on the lower side

and we do not see much of an impact in volume sales,” he explained.

8. EXTERNALITIES TO THE PAINTS AND COATINGS INDUSTRY

The prices of paints largely depend on the cost of raw material. There are around 300 odd
raw materials required for the manufacturing of paints. The major raw-materials are
titanium dioxide, phthalic anhydride and peutarithrithol. These constitute around 50 percent
to total cost. Titanium dioxide alone contributes 30 percent to the cost. The other raw
materials like linseed, castor, soyabean oils, etc. add up to the whole raw material cost of 70
percent of total cost. So, the prices of paints are very much dependent on raw materials and
any fluctuations in the price of raw materials will eat up the margin of the company.
Nearly 30% of the 300 raw materials are petroleum based derivatives. So, any change in
crude oil prices will lead to change in the prices of raw materials. From last 2-3 years, there
were lot of fluctuations in crude oil prices because of which margins of the paint companies
got hit. The pressure further increased due to recession and there after decrease in
consumption. The positive and negative externalities of the paints industry are:

NEGATIVE EXTERNALITIES
Cyclical nature of decorative paints
The demand of decorative paints is cyclical in nature i.e. it increases for a period, then
decreases and after certain period of time it again increases thus showing cyclical pattern. It
happens because people generally have their houses white-wash during festive seasons.
Also, once houses get painted, then it needs a white wash after 4-5 years.
The demand is influenced by monsoon also. When there is a good monsoon, then there is an
increase in agricultural and industrial output. This has a positive impact on disposable
income with people and hence a good demand. But if the monsoon is not good, then the
demand will get affected especially in decorative paints segment.
Environmental hazards
The majority of paints manufactured in India contain a large amount of lead, mercury and
chromium. These elements are very hazardous in nature and can pose a threat to health of
human beings. Now the policies are becoming very strict and thus companies are required

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to come up with newer manufacturing processes so as to produce paints with a low amount
of VOC (volatile organic compound) and minimal aromatic content. Also, the content of lead,
chromium and mercury should be very less thereby making the paint eco safe.
Other threats
Import policies “The import policies plays a very significant role in determining the prices of
paints because around 30% of the raw materials has to be imported from foreign countries.
So, any change in import tax regime will have an impact on the costing.
Exchange rate ” Since the major raw materials are imported, any movement in rupee-dollar
prices is very critical and hence need to be closely looked. For example, whenever rupee
depreciates against dollar, the buyer has to shelve out more money.
Supply chain ” The paint industry requires a lot of working capital because the manufacturer
has to buy 300 raw materials and from different vendors. So, the company which has a very
robust vendor and distribution network will largely benefit from it.
Technology advancements ” the paint industry is highly technology intensive due to which
small players find it very difficult to invest in newer technologies and thus succumb to
competition from foreign companies. Large players have tied up with foreign companies and
they are still dominant in the market.

POSITIVE EXTERNALITIES
FUTURE PROSPECTS
In India, the per capita consumption of paints is very low as compared to other developed
countries. So, there is a lot of growth potential for paint companies. The major areas where
Indian Paint Companies can leverage their growth potential are:
Rural Market
Around 70% of the total population of India resides in rural areas and the rural sector
contributes only 10-15% of the total consumption of paints. So, there is a large growth
potential in rural market. In rural areas, there are many households who have disposable
income but distribution network is not in place. Also, in this year, improvement in agriculture
and allied sectors, coupled with good monsoon has improved the demands. Also, the various
government schemes have improved the earnings of rural people. the industry can increase
its revenue from rural market by introducing low cost paints and coatings. Also, the
companies will have to increase advertising budget for rural areas coupled with developing
distribution network.
Industrialisation
In India, rapid industrialization is taking place because of liberal policies and huge foreign
investment in India. India is becoming an industrial hub for automobiles, consumer durables
and various other industries. With the rapid growth, demand of Industrial coatings will go on
increasing.
At present, the share of industrial paints is 35-40% which has a potential to touch 50% in few
years. Also, due to large investments in steel, power, refinery sectors, the sales of high
performance coatings and coil coatings is increasing.
Real estate sector
India is registering a constant GDP growth of around 7.5% to 9% after there was a slowdown
in economy two years back. Now the real estate sector is booming with large investments in
housing sector and construction sector. There is a rapid increase in sales of decorative paints

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and architecture paints and it will continue in future. Also, the customer preference in
buying paints is moving towards water paints because of environmental issues.
South Asian countries and Developed economies
Indian paints have a very good market in USA, UK and European countries. With the
recessionary measures taken and the revival of global economy, the exports will revive and
will steadily move in upward direction.
Also, the other avenues of growth are developing economies like Nepal, Bangladesh, Sri
Lanka, Pakistan, Bhutan, Mynmmar and Arabian countries like UAE, Egypt, etc.
India as a paint manufacturing hub
The Indian paint industry saw a significant change in reduction of excise duties, custom
duties which led to reduction in the prices of raw materials. Also, there was a restriction on
increasing the capacity of plant which was removed afterwards by the government. Now,
since India offers cheap labor and various other tax benefits (sponsored by centre and states
for inclusive growth) , it has a deep potential to become a major manufacturing hub of
decorative and industrial paints.
The major Indian players have already started taking steps in this direction. The sector
experienced a lot of capacity expansion, joint ventures with foreign companies, foreign
acquisitions and investments in technology in the last decade. Thus, India has become a very
viable option for establishment of paint manufacturing plants.

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 9. Conclusion
India is in the bright spot in the growth of the paint and coatings industry. India’s
demographic profile is changing in a way that supports the growth of the paint and coatings
industry. Though currently the per capita consumption is very low, factors such as rising
urbanization, disposable income and nuclear families are expected to fuel the growth of the
paint industry for a number of years to come.

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 10. CITATIONS

A Study of Competitiveness in Indian Paint Industry R. Maruthi Ram

https://www.coatingsworld.com/issues/2017-11-01/view_india_asia_pacific_reports/indian-
paint-industry---gaining-steam/

https://www.ukessays.com/essays/economics/the-indian-paint-industry-economics-
essay.php

https://wikibizpedia.com/Paint_industry_In_India_to_be_worth_US$_10B_by_2020

https://www.ukessays.com/essays/management/study-on-the-history-of-paints-
management-essay.php

https://www.livemint.com/Home-Page/hsOwSOFlblbFOGgDrgU3PI/Paint-makers-increase-
prices-in-October-but-margin-pressures.html

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