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Paint Manufacturing Industry Analysis

Uday Natoo (17PGP196)
Ujwal Gali (17PGP197)
Vipul Kumar (17PGP200)
Vishal Vinit (17PGP201)
Yugam Bansal (17PGP202)
Aditya Kumar Yadav (17PGP204)

Indian Institute of Management Raipur


Paint Manufacturing Industry Analysis

The industry facilitates in mass production of decorative or architectural and industrial
paints. Decorative paints cater majorly to the housing sector. The same can be divided into
premium, medium and distemper segments. Close to 20% of the decorative paints sold in India are
distempers and dominated by the unorganized sector. The rural and suburban markets demand
economy products like distempers. Medium segment comprises enamels, widely in demand in
smaller cities and towns. Premium paints are acrylic emulsions mostly used in metros. Industrial
paints contain powder coatings, high performance coating, automotive and marine paints.
Automotive paints comprise 2/3rd of the industrial paint. The two broad segments are Decorative
and industrial paints which are in the proportion of 70:30.
Brand equity, a range of shades, a robust distribution network and efficient working capital
management are a few key success factors in decorative paints segment. There exists a strong
distribution network in the paint industry which also acts as the entry barrier for other firms to
compete in this segment. Within the decorative segment, enamel is the largest sub-segment with
over 50% of the current existing market, followed by wall finishes, primers and wood finishes.
The demand for decorative paints is usually in a season and period which are normally filled with
festivals like Diwali especially the period from October to March. Automobiles are primarily the
major segment that the paint industry caters to in which technological competence, product range
and customized solutions are of utmost importance and are the main factors which determine the
particular paint company that will satisfy the unique requirements.
Thus, technological strength is another critical entry barrier in the paint industry. Because
of this the slowdown in automobile sector has affected the overall growth of the paint industrial
segment as the sector alone contributes around 50% of the industry’s revenues. Apart from
automobile segment, other sub-segments include marine paints, powder coatings for white goods
like refrigerators, washing machines and industrial coatings. However, the paints segment is
growing at a fast pace and it is expected that within the paints sector the proportion of the industrial
paints segment is going to increase in the next few years with the ratio increasing to become 50:50.
As for the demand for decorative paints, it is very price-sensitive and also cyclical as it caters to a
whole different segment of population.

Factors affecting Paint Industry

Increasing level of income & education
Increasing urbanization
Increasing share of organized sector
Development of the Realty, Automobile and Infrastructure sector
Greater penetration into the Rural Markets

The Paint Manufacturing Industry produces a huge number of products for various types
of protection and coatings. It can be broadly categorized into two segments.

Decorative Products
Paint Emulsions
Water based paint that can be washed and are durable
A type of Wood Finish used to protect and shine wood
Provides a good finish to metal along with atmospheric protection
Used for interior walls and ceilings to protect concrete, brick and plastered
Metal Finishes
Used to protect and shine metal
Specialized Paints
Used for special requirements such as Weather Protection and Non Toxicity

Industrial Products
Powder Coatings
Electrostatically applied coating that is mixed before application for increased
longevity and durability of a product.
Surface Coatings
A type of synthetic paint used to protect surface of an object from effects of its
Floor Coatings
High quality tough protective layers used in industries where high wear and tear
of the floor is expected to occur
Specialized Coatings
Used for special requirements such as Thermal Protection, Rust Protection etc.

This category is more technologically sensitive compared to decorative products and its
demand arises significantly from automobiles engineering and durable goods production.

Major Markets
The market size of the Indian paints part has been pegged at Rs 170 bn in esteem terms
and is exceptionally divided. India's share of the world's paint market is only 0.6%. The
unorganized division controls around 35% of the paint advertise, with the organized area
representing the remainder. In the unorganized sector, there are around 2,000 units having little
and medium estimated paints producing plants. Top players incorporate Asian Paints, Kansai
Nerolac, Berger Paints, Akzo Nobel and Shalimar Paints.
The Market share of the top 10 companies for the 2010- decade can be observed below.
Asian Paints is the industry leader, growing its market share by almost 5% during this period,
while the market share of Nerolac Paints dropped by about 3% during the same period.

However, in the Industrial paints sector, Kansai Nerolac leads the race, followed by Asian
Paints. It is a more technological advancement-based sector and with its higher technological
expertise and foreign collaborations, Nerolac makes for a better player and leads the market.

Similar Industries
An aspect of interior decoration where a material as plain as "lining paper" used to cover
and decorate interior walls of buildings. Generally sold in rolls and put onto a wall
using wallpaper paste. Apart from cost optimisation benefits it also helps cover uneven surfaces
and minor wall defects thus giving a better surface finish for instance, textured with a regular
repeating pattern design, or a lesser used, single non-repetitive large design carried over a set of
Similar to Distemper, this is a breathable finish used to decorate and protect porous stone
and lime-rendered surfaces but is very traditional finish suitable for old and dampened walls.
Limewash is problematic as it penetrates the surface and the colour has to be built up through
applying successive coats but has some advantages like it is water-based, environmental friendly
and it covers approximately 6 square metres per litre (a single coat)
Glass walls
A structural material used as a continuous elevation of frameless structural glass units
connected and joined together with precision through use of specialist silicone joints. It creates a
modern design aesthetic to any structure. A large elevation of glass will bring in abundant rays of
natural light and help connect internal space with the outside
with no interrupting frames.

Current Performance of the Indian Paint Industry

The growth of the Indian Paint Industry has been appreciable as it has been growing at
around 12-13% over the last 5-6 years. The decorative paints segment experiences sales peaking
in festive seasons in the months of September to December. Around 65% of the market share is
held by the companies in the organized sector, while the rest 35% is held by the unorganized
players. Top 5 companies account for more than 80% of the market share of the organized paint
market in India. Paint industry performance is largely dependent on the performance of the real-
estate sector, industrial and infrastructure sector.
Over the last decade, many top global paint companies have entered Indian markets by
acquisition because of huge potential and opportunities owing to a high-growth Indian GDP.
Akzonobel, the largest global paint company, entered Indian market by acquiring ICI Paints,
while Kansai of Japan merged with Nerolac of India to market paints under the brand name
Kansai Nerolac Paints.

Market leadership varies with segment too. Asian Paints is the market leader with around
60% share in decorative paints sector, while Kansai Nerolac is the market leader in industrial
paints sector with a share of more than 70%.
Major players, apart from Shalimar Paints, have shown a growth of more than 7% in the
year 2016-17 over 2015-16, because of changing customer preferences for high quality products
and market boom in real-estate, industrial and infrastructure sectors.

Key External Drivers for the Industry

Political factors
Government’s push for building infrastructural and industrial projects through initiatives
such as Make in India, has led to tremendous increase in consumption of paints in various
industrial sectors. GST has been a major influencing factor in promoting organized sector
industries in India.
Economic factors
Factors like rapid urbanization and increasing disposable income levels has enabled
greater demand for real-estate and automobile products, which in turn benefits the paint industry.
Social Factors
Greater disposable income levels and education has made people more brand conscious
for high quality products, across different urban and rural regions of the country, generating more
demand for high quality products, as owning well-designed houses and automobiles have
become style statement, which in turn drives growth of paint industry.
Technological Factors
Increase in technological capability of the paint companies has enabled them to provide
superior quality products at affordable prices. Companies are placing more emphasis on product
innovation in the paint sector, offering different paint colour and features, according to customer

Industry Outlook
The growth of the Indian Paint Industry has been appreciable as it has been growing at
around 12-13% over the last 5-6 years. The decorative paints segment experiences sales peaking
in festive seasons in the months of September to December.
The top 5 companies make up for more than 80% of the market share of the organized
sector, and the penetration of organized sector is increasing because of changing customer
preferences for high quality branded products.
Asian Paints is the market leader in India, particularly in the Decorative paints segment,
mainly due to its strong brand equity and strategic distribution network. Over the last 5 years, the
company has attained a CAGR of 22% for Net Sales and 27% for Net Profit. Kansai Nerolac
comes second in India, and is the market leader in the industrial paints segment, where it’s
market share is more than 60%. Berger paints, Akzonobel India and Shalimar Paints are other
major players in the organized sector.

The Indian Paint market size is expected to grow upto Rs. 70875 crores in 2020 from
around Rs. 40300 crores in 2015, which is equivalent to a CAGR of around 12% during the
period 2016-17 to 2021-22.

The high CAGR of around 12% over last five years shows that the Indian paint market
has got tremendous potential due to rapid urbanization, increasing disposable income levels,
brand consciousness and enhancement in distribution networks of paint companies. For finding
greater success, the paint companies can following aspects as mentioned below.
Innovation in products
Product innovation will help the companies to offer variety of high quality paint products
with features like water-based paints, stain resistant paints, teflon-coated paints, waterproof
paints etc. which may act as product differentiation points, and thus help in market positioning of
the paint products.
Market penetration
Efficient distribution networks expanding into Tier 2 and 3 cities as well the rural
markets will help companies tap the lesser-tapped markets.
Portfolio diversification
Product portfolio diversification with a wide variety of product offerings will help
increase brand market and market sectors for the paint companies, suiting varied paint

Competitive landscape
To understand the competitive landscape of any industry, there are several frameworks
that were developed. The two main frameworks are as described below.

Industry lifecycle analysis

The Indian Industry boasts of more than a century of experience and growth in the sector,
with the first firm to be set up by Shalimar Paints in Kolkata in 1902. Though only two foreign
players existed in the colonial times, the end of the World War II brought with it multiple local
entrepreneurs showed interest in setting up their industries. However, most players in current
Industry are of foreign origin with British companies such as Goodlass Walls (Nerolac Kansai),
British Paints (Burger Paints) etc. One Indian firm that grew to dominate the Indian Paints
scenario is Asian Paints, completely made Indian firm.
The move by the Government of India in 1993-94 by progressively reducing the duties by
derecognizing paints from being luxury goods. Until then, paint was considered a luxury
afforded only by the rich. This move has helped the industry grow, starting from a mere 8% to a
double-digit growth currently. Today, India is the second biggest paint company in Asia with a
yearly demand of more than two million tons. The Indian paint industry has been developing
always finished the most recent decade. Development has been reliable with the GDP
development rate and for a few years much higher as well. In the course of recent years, the

Indian paint Industry has significantly developed and gotten the consideration of numerous
global players.
Rapid industrialization along with a parallel growth in the infrastructure has bolstered the
Paints industry further. There has been a constant increase in demand for both the Decorative as
well as Industrial products, which has led to a huge number of indigenous developments and
technological innovations. The nation keeps on getting a charge out of a sound development rate
contrasted with different economies, upheld by the expanding level of expendable pay, and
demand from various sectors such as automotive, industrial and infrastructure.

Porter’s five force model for Indian Paint Industry

Threat of new entrants
Need of high working capital to meet day-to-day trading operations makes the life
of new entrants and small players tuff. Another factor is that the High brand equity and
aggressive promotional activities of the existing players pose serious competition to any
new entrant. Paint industry is pretty much a raw material intensive, out of which 18%-
20% are imported, which may not be a favourable condition for all new players.
Well established players like Asian Paints, Kansai Nerolac Paints etc. dominate thE
industry big time in all aspects leaving a very little space for new entrants to project their
value proposition.
Threat of Substitutes
Although few substitutes, like Wallpaper and lime wash (in rural areas) are
present, the buyer propensity to substitute is really low because of the high relative price
performance of products from pain industry.
Bargaining power of Suppliers
Since the paint industry is raw material intensive, lot of raw materials (nearly 300-
400 raw materials are required to make a final product) must be obtained from suppliers
which results in high bargaining power of suppliers.
Due to supply shortage of major pigments globally (like Titanium Dioxide) used in the
production of paint, the bargaining power of such raw material suppliers has further
Bargaining power of Buyers
Since the number of options (products from different competitors) that are
available are high, customer has become pretty much price sensitive.
The buying decision is based on quality, price and other unique features that define the
value proposition of the product. The advent of e-commerce empowered customer to
easily compare the prices of offerings from different companies and choose accordingly.
Due to all these factors, the bargaining power of buyers as a whole is medium.
Industry Rivalry
Nearly 80% of the organized sector is contributed by top 3 players and the market
share of those players over the years has been pretty much static or with little movement.

The competition among the present players within organized sector is low as the
boundaries of market share and other growth parameters are well defined, unless
someone comes up with any innovative product that can change the entire dynamics of
paint industry. Presence of unorganized sector can pose some competition to present
industry players.

Key Success factors

Increase in level of income and education
The increase in the level of income led to an increase in the disposable income of people
in India. This paradigm shift has transformed the Indian economy from savings economy to
spending economy and people now, are opting for better products which included products from
paint industry as well.
Improvement in education standards has helped people of India to be more brand
conscious and to be aware of what and how features that are offered by paint manufacturing
companies will be useful for them.
Increasing urbanization
As urbanization in India grew, people began to have their own houses and are much more
concerned about the interior and exterior look of those buildings, due to which, a massive market
has been formed for products from organized sector of paint industry.
Growth of Realty, Automobile and Infrastructure sector
Paint industry heavily depends on realty and housing sector which accounts for 70% of
total demand in decorative segment.
Automobile segment generates 66% of demand of industrial paint. Infrastructure segment
creates direct and indirect demand by supporting growth of industries where paint is used.
The growth of all these 3 sectors have boosted the growth of Indian paint industry over
past few years and will continue to be in the same increasing trend in coming days as well.
Availability of financing options
The presence of easy financing options for housing and automobiles resulted in, people
buying more houses and automobiles which thereby benefited paint industry bigtime as housing,
automobiles and infrastructure are heavily dependent on paint [as explained above].
Increasing penetration into rural and semi urban markets
In rural markets distemper segment is the primary product used and is dominated by the
unorganized players mostly. There is a lot of untapped market in rural areas which is being
slowly captured by big industry players by entering those areas. Since the quality and value on
money offered by products of organized sector is pretty much high, people in rural and semi
urban markets are biased in buying those products leading to the overall growth of paint industry
in India.

Cost structure benchmarks

As mentioned above, paint industry is raw material intensive and, on an average, raw
materials account for 60% of overall net sales. Nearly 300-400 raw materials are required to
manufacture a product which results in high working capital. Most of the raw materials are
petroleum based and any hike in the prices of petroleum products raises input costs. Raw
materials frequently run into short supply, resulting in high inventory cost. Roughly,18-20% of
raw materials are imported and costs for these materials are affected by the exchange rate with
Indian rupee.
Titanium Dioxide (TiO2) is the largest consumed raw material for manufacture of paints.
It constitutes around 30% of the total manufacturing cost.

Business Locations
In the current scenario, India has about the highest shop operations with about 50,000 or
more outlets operating across the country. The market for paints is expected to grow by 1.5 times
to 2 times the GDP in the next five years. India has always been a slightly different market,
compared to the world markets around. It is unique in the way that it has more than 50000 paint
shops or outlets around the country. Further, unlike the foreign markets, where the companies
operate through distributors; the Indian paint Industry’s distribution caters directly to more than
25000 shops around the country. Each of these paint companies has a large sales force to cater to
its numerous depots necessary to service the outlets.
The major locations of the Indian Paint Industry classified across North, West, East and
South sectors are mentioned below.
New Delhi, Jaipur, Ludhiana, Bhilwara, Jodhpur, Rajkot, Noida, Amritsar, Panipat,
Kanpur, Gurgaon, Indore, Ghaziabad, Faisalabad
Mumbai, Ahmedabad, Surat, Vadodara, Pune, Thane
Coimbatore, Chennai, Bangalore, Hyderabad, Karur, Erode, Thirupur, Madurai,
Kolkata, Varanasi

Operating Conditions
The Paints and Coatings manufacturing is raw material intensive. The manufacturing
process requires over 300 raw materials of which approximately 30% is petroleum based. Thus,
the industry is benefitting highly from the recent decline in crude oil pricing. The Rapid
urbanization in the last 2 decades has led to a significant growth of the industry. The viability of
small scale units has eroded considerably due to a steady decline in the excise duties from 40%

to 16% over the last five years. This regime has led to a larger share for the organized sector
because the unorganized sector can no longer compete on price.

The organized sector currently holds about 65% of the market share with the remaining
35% going to the unorganized sector. About 2000 manufacturing plants make up the small and
medium sized units among the unorganized sector. The per capita consumption of paint in India
is 3.23 kilograms which is significantly lower than the developed nations. After a decade of
steady growth, the industry faced one of worst performances in FY 2016-17.

The pace did pick up in the second quarter owing largely to a good monsoon and a good
capital investments environment. However, the third and fourth quarters saw a rapid decline due
to regulatory measures taken by the government along with the Demonetization in November
2016. The trend continued into the first and second quarters of 2017 due to the implementation
of the Goods and Services Tax on 1st July 2017.

The overall consumption of paint in India is estimated to be 42.5 lac tonnes (this figure is
estimated owing to the lack of disclosures by the unorganized sector). The decorative paints have
the highest share of about 74% and the remaining 36% is that of the industrial sector. The
industry has experienced a CAGR of 12.9% from FY 2011-12 to FY 2014-15. Repainting
constitutes 70% of the total demand and with the shortening of the repainting cycle from 6-8
years to 3-4 years presents a rapid growth opportunity especially for decorative paints.

The demand of paints is highly skewed in India with a great majority consumed either
post monsoon or preceding the festive season of Diwali and Eid. Christmas and New Year is also
a high demand period.

Capital Intensity
The Paints Industry is highly raw material intensive with over 300 different raw materials
required. Raw materials constitute about 60% of the total sales value. The raw material sector for
paint industry features high cost and erratic availability. This accompanied with high no. of raw
materials and finished good make it a high working capital industry.
Also, the skewed seasonal nature makes the working capital condition worse as resources
are tied up in buffer inventory and finished goods. High inventory cost is also a feature of the
industry due to importing a lot of raw materials. Also, there is a need to invest significantly in the
distribution channels and supply chain management tools. The investment in the manufacturing
unit is relatively low. A significant investment is also made in the R&D structure.

Due to commoditization to a certain extent, the marketing expenditure is high resulting in

large capital investments especially in brand ambassadors. Thus, the capital intensity for the
paints industry is low to moderate in nature.

Annual Change
The paint industry in India has grown from a forty thousand crore rupees industry in
2014-15 to a seventy thousand crore rupees industry in 2019-20 with a CAGR of over 12%. The
tax rate has also constantly gone down from 40% in 2011-12 to 16% in 2016-17. However, the
tax rate has gone up for decorative paints to 28% under the new GST Regime.

Paints have not been classified as a luxury item under the GST Regime, so no Cess to be
levied. The new tax regime is supposed to be beneficial in the medium run. The decorative paint
market is projected to show a CAGR of over 9.5% for the next half a decade.

The per capita consumption is also estimated to grow by 15-20% over the next half a
decade from 3.34 Kg per capita to over 4 Kgs per capita. The organized sector is estimated to
grow to 75% of the total market by end of 2019-20 financial year.

Road Ahead
Indian paint industry market is projected to grow at 1.5 to 2 times the GDP in next five
years, as the expected GDP grows between 5-6% levels. The Indian paint market is expected to
reach Rs.70875 crore by 2019-20 from around Rs.40300 crore in 2014-15.
As per Indian Paint Association (IPA)'s launched report on Indian Paint Market, compiled
by Nielsen Corporation - "Size & Future of coating industry", the decorative paint market is
expected to grow at 12.7 percent and the industrial paint market at 9.5 percent. Indian paint
industry has strong future prospects and the key market players with attractive marketing
strategies and comprehensive product portfolios are expected to gain even greater market share.
Additionally, the increased focus on research and development of the paints will lead to greater












Indian Paint Market size ('000 cr)




Indian Paint Market size ('000 cr) 30



FY'2013 FY'2014 FY'2015 FY'2016 FY'2017

Fig: Indian Paint Industry Projections based on Revenue, FY’2013-FY’2017