Assignment -1

Submitted by:
Anisha Pillai (40404)
Aziz Umrethwala (40405)

EIC ANALYSIS
A) Economic Analysis
Generally, investor carries out the fundamental analysis framework to determine the future of
his/her investment. So, the first step is to determine the economic conditions in a country. When
the economic conditions are favourable for the performance of a particular industry then the
company in the particular industry group would expect better prospects. It is observed that
when the economic conditions are unfavourable then stock prices are likely to decline as the
economic environment affects the performance of the company in which it operates. The
selection of a country for the purpose of investment totally depends on the direction of countries
economic activities. The operational policies, administrative procedures, tax structure,
corporate profits are based on the economic performance. The prices of stocks are always
subject to market risk. Therefore, utmost precaution is taken before investing in the stocks. The
main macro indicators considered for this research are
 GDP of a Country
 Inflation Rate
 FDI
 Unemployment

Let us discuss in detail the economic indicators of India:

1. GDP (Gross Domestic Product)

Every economy is measured in terms of GDP. GDP is basically the total value of all goods and
services produced in the country in a particular year. The income earned by the individual
staying within the boundaries of a country is considered for the valuation of GDP.

The Indian economy advanced 7.1

percent year-on-year in the third quarter
of 2018, well below 8.2 percent in the
previous period and market expectations
of 7.4 percent. It is the lowest growth rate
in three quarters, mainly due to a
slowdown in consumer spending amid
high oil prices and a weaker rupee. Also,
inventories, financial services,
manufacturing and the farm sector rose
less.

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2. Inflation Rate in India

Annual consumer inflation in

India declined to 2.33 percent in
November of 2018 from an
upwardly revised 3.38 percent in
October and below market
expectations of 2.8 percent. It is
the lowest inflation rate since June
of 2017 as food prices fell the
most since the series began in
2012. The Reserve Bank of India
revised down its inflation
forecasts to 2.7 percent-3.2
percent for the period Oct 2018-March 2019, amid lower food and fuel prices. Inflation
Rate in India averaged 6.37 percent from 2012 until 2018, reaching an all-time high of
12.17 percent in November of 2013 and a record low of 1.54 percent in June of 2017.

3. FDI in India

Foreign Direct Investment in India increased by 1898 USD Million in August of

2018. Foreign Direct Investment in India averaged 1322.17 USD Million from 1995
until 2018, reaching an all-time high of 8579 USD Million in August of 2017 and a
record low of -1336 USD Million in November of 2017.

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4. Unemployment Rate in India

Unemployment Rate in India increased to 3.52 percent in 2017 from 3.51 percent in
2016. Unemployment Rate in India averaged 4.05 percent from 1983 until 2017,
reaching an all-time high of 8.30 percent in 1983 and a record low of 3.41 percent in
2014

Findings on Economic Analysis

From the economic analysis, we can say that Inflation rate has been decreased which is a good
sign. Also, GDP rate is diminishing due to a slowdown in consumer spending amid high oil
prices and a weaker rupee (71.90 Rs / $) Also, inventories, financial services, manufacturing
and the farm sector rose less in this quarter. The trend looks like increasing in respect to the
flow of FDI due to Government initiatives at various levels which attracts the foreigner to
invest more in a country like India. In all there is positive atmosphere for the growth of a
country. The growth of paint industries may generate more employment opportunities in a
country.

B) Industry Analysis:
We have decided to choose PAINT Industry for this assignment and hence our findings were
as below:

Over the last few years, India has been experiencing a major growth in paint sales. Increasing
levels of income, education and increasing urbanization has helped the paint market to grow
considerably. In addition to this, usage of enamel and emulsion paints over traditional white
wash, increasing penetration in the rural market and digitalization are also driving the paint
industry.
The Indian paint market is expected to grow with over 75000 crores in terms of value for period
of FY 2017-18 to FY 2022-23, on account of change in lifestyle, urbanization, and increase
level of education, high margin on paint. Overall the paint market is segmented into Organised
market and Unorganised market.

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Apart from that market is divided into Decorative and Industrial market.
 Decorative Paints: Major segments in decorative include exterior wall paints, interior wall
paints, wood finishes and enamel and ancillary products such as primers, putties etc. Decorative
paints account for over 75% of the overall paint market in India. Asian Paints is the market
leader in this segment.
 Industry Paints: Three main segments of the industrial sector include automotive coatings,
powder coatings and protective coatings. Kansai Nerolac is the market leader in this segment.
The industrial paints segment is far more technology intensive than the decorative segment.
Demand for decorative paints arises from household painting, architectural and other display
purposes.

Demand in the festive season (September-December) is significant, as compared to other

periods. This segment is price sensitive and is a higher margin business as compared to
industrial segment.
 India’s share in the world Paint Market is just 0.6%

Major drivers of the paint market are changing customer needs, growth of automobile and
infrastructure sector, entry of various Indian and international brands and easy availability of
financing options. Along with growth factors there are challenges too such as seasonal demand
and competition from unorganised players. Some other restraints are inventory management at
dealer level.

Market Trends & Developments

 Be Home & Dry with Digitalization
 Paints using water in place of solvent
 Introduction of solar Reflective Coating
 Emulsion & Enamel paints taking over Traditional White wash
 Introduction of Tinting machines to lower working capital cost
 Eco-Friendly Paints

Key Players in the Market

 The Paint Industry has divided in two categories: Organised & Unorganised. The 35% market
been controlled by unorganized market. The rest has been controlled by the organized market.
The top players in this market are
 Asian Paints (30% market share),
 Kansai Nerolac (20% market share),
 Berger Paints (19% market share) and
 ICI (12% market share).

Prospects of this Industry

 With the economy poised to grow at a rate of 7.1%, consumer spending will get a huge
boost, resulting in higher demand for paints. India's young population represents a huge
opportunity as more and more young Indians join the workforce and will have
disposable income available. The trend toward nuclear family augurs well for the paint
industry.
 Since there is a GST cut rate recently for Paints, there is a sparkle in the paint industry

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  Decorative paints segment is expected to witness higher growth going forward. The
fiscal incentives given by the government to the housing sector have immensely
benefited the housing sector. This will benefit key players in the long term.
 Although the demand for industrial paints is lukewarm it is expected to increase going
forward. This is on account of increasing investments in infrastructure. Domestic and
global auto majors have long term plans for the Indian market, which augur well for
automotive paint manufacturers like Kansai Nerolac and Asian-PPG. Increased
industrial paint demand, especially powder coatings and high performance coatings will
also propel top line growth of paint majors in the medium term.
 Going ahead, FY 18-19 is expected to see a gradual upward trend in input costs. This
rise may impact industry profitability in the longer run, affecting both top line as well
as bottom line growth.

Analysis as Follows:

1. Porters 5 forces Analysis

Threat of New Entrants:

 Paint market in India is dominated by few players, making it difficult for anyone
newly entering the industry to complete.
 It is estimated that 18-20% of the total raw material used in the industry are
imported
 Working Capital needed is high difficulty to local players & big firms enjoy
economies of scale
 Big players have high brand image & quality products & good promotional
activities to attract customers

Threat of substitutes:
 In rural areas lime wash is used as substitute.
 Another alternative for decorative wall paints available today is wallpaper.
 Varieties of paints are available.
 Buyer propensity to substitutes is low.

Bargaining power of buyers:

 Raw material intensive production- over 300 raw material make the final
product.
 Raw materials-pigment, binders, additives, solvents etc.
 Titanium dioxide is one of the key pigment used in the production of paint and
facing a global supply shortage. Thus the supplier of this material has a solid
bargaining power
 Other raw material- crude derivatives- have high price fluctuation affecting
industry profits. Bargaining power of supplier is Medium.

Bargaining power of Buyers:

 Households and industrial users are the main customer of this industry.
 For housing requirement, the buyers are building contractors who buy in bulk
and end people who paints their house.

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  Customers are more price sensitive because for them number of options are
available and decision are made based on quality, price and differentiating
factors like weather protection, environment friendly paints.
 Industrial segment is low margin, high revenue business and buyers of these
segment are knowledgeable about their needs. Therefore, price comparison is
done effectively by the customers. However, the leading industrial paint
suppliers have their expertise in their favour, which limits the bargaining power
of buyers. Bargaining power of buyer as a whole is medium.

Competitive Rivalry:
 About 80% of organized sector contributed by top 3 players.
 Current market growth rate provides ample room of opportunity for all the
players of the industry to flourish.
 Asian paints are the only paint company that manufactures PAN (phthalic
anhydride) which is one of the main raw material for paint industry.
 Presence of unorganized sector- can cause competition. So, competitive rivalry
in the paint industry is low.
2. PESTEL Analysis

Political Factors
 India is the largest democracy in the world.
 The political situation is more or less stable in nature
 Our Economy is mostly export oriented.

Economic Factors
 Market based economy.
 Second Fastest Economy growing in the world
 India is the 3rd largest in term of purchasing power
 Introduction of FDI in Paint sector

Social Factors
 India is the second largest populated country in the world.
 Rise in price of Raw Material
 Import of Raw Material

Technical Factors
 Emerging of IT sector
 Modernisation of Paint like (waterproof paints, Teflon coating, creating
colours shops etc.)
 Lead Free paints

Environmental Factors
 Impact of volatile organic compounds (VOC’s)
 Lead Free Paints
 Season and climatic changes

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 Legal Factors
 Pollution Control Law
 Health and Safety Law
 Environmental Law

Findings of Industry Analysis

While studying the Indian paint industry it is observed that there is excess supply than demand
in both Decorative and industrial paint segment. The Demand for paint industry depend upon
the growth of housing, auto, engineering & consumable things. As the Govt has taken intuitive
in housing Facilities & infrastructural Facilities to auto industry it is expected the growth of
paint industry also. There are ample of opportunities for paint industries due to increased
spending capacities of consumer, availability of disposable income and rise of nuclear of
Families. The Govt initiative in bringing reforms in GST, infrastructure and power will benefit
the paint industry.

C) Company Analysis
Well we have chosen Asian Paints as our company for the analysis purpose. The overview of
the company in short is as follows:

Asian Paints is the largest paint company in India and second largest company in Asia. It has
a turnover of Rs.141.83 billion. It has operations in 19 countries with 26 paint manufacturing
facilities, which serve consumers in over 65 countries. The group has operations around the
world through the following subsidiaries:

 Asian Paints in South Asia (India, Sri Lanka, Bangladesh and Nepal)
 SCIB Paints in Egypt
 Berger in Asia (Indonesia and Singapore), Middle East (Bahrain, UAE and Oman),
Caribbean (Trinidad & Tobago, Barbados and Jamaica)
 Apco Coatings in South Pacific (Solomon Island, Vanuatu, Fiji and Tonga)
 Kadisco in Ethiopia
 Taubmans in South Pacific (Samoa and Fiji)

Asian Paints was setup in 1942 by four friends, as a partnership firm. The company has been
the market leader in paints sector since 1967. It manufactures multiple variants of paints for
decorative and industrial use. It has also introduced new and innovative concepts in the industry
over time such as Colour Worlds, Home Solutions, Kids World, Colour Next and Royale Play.
It has also setup Signature Store in Mumbai, Delhi and Kolkata for enhanced consumer
experience. In the industrial sector, the company caters to the automotive coatings, floor
coatings, road markings and light industrial coatings market.

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Some Key Financial Stats for observation:

Current Stock price and an upward trend tremendously in a decade.

We will be doing some other analysis on the same company such as:
 SWOT Analysis
 BCG Matrix

1. SWOT Analysis

Strengths
a. Strong Market Share
b. Covers wide market from rural, urban and semi urban areas.
c. Wide variety of Product range is available
d. Wide Distribution network and transportation Facilities through-out the countries.
e. Large network of Dealers
f. Pricing strategy based on the nature of consumer
g. Highly qualified staff, majority are possessing MBA
h. Proper coordination between production marketing activities.
i. Innovative and user friendly, reliable products.
j. No compromise in quality.
k. In house production and highly reliable on suppliers

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Weaknesses
a. Asian Paints has covered only 14% market of Industrial Paints. There is tremendous scope
for growth in future.
b. Wide variety of product mix & expanding market shares pulls strain on production
distribution, inventory management, accounting and administration.
c. Asian Paints has major weaknesses on the technology of industrial paints. Nerolac has a tie
up with Kansai Paints so can very easily tap Maruti in India. Berger has tie up with Herbets,
Germany for automotive paints
d. Difficult to position the premium brands in Rural areas. e. There is seasonal demand for
certain products which creates cash flow issues.

Opportunities
a. Asian Paints has tremendous opportunities in Automobile industry which company can
encash it. The company has shifted its focus on industrial paints.
b. With growth in Indian Economy and developing infrastructure, Asian Paints has a chance
to increase revenue base and venture into smaller cities, to increase sales.
c. Asian Paints’ vision is to become one of the top five decorative coatings companies in the
world. This can be achieved by focusing on the emerging economies of the world.
d. Change is always constant. So, although Asian paints is leading the market due to Royale
play, there are other factors which it can bring in to dazzle its customers and therefore keep the
majority market share.

Threats
a. Some Foreign companies are entering in the Paints market.
b. Asian Paints has threat from Nerolac and Berger as these companies may capture the
market of Industrial paints.
c. Hi tech Facilities have provided many opportunities for the customer in no of shades, interior
and exterior.
d. Any Economic slowdown will have a direct negative impact on the construction industry
and consequently paint industry will also get affected.

2. BCG Matrix

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Conclusion
Asian Paints is one of the undisputed market leaders in the decorative paint industry in India
and is gradually emerging as one of the key players internationally. Against all odds and weak
domestic demand company reported stellar volume growth and strong margin expansion.
While, company believes demand sentiments are still subdued, it expects economic activity to
further improve resulting in better volume trajectory. Likely uptick in urban demand will
further drive volume uptick. The future presents challenges and opportunities for the company
in equal measure, both domestic as well as overseas.

Thank You.

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