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Indian Paint Industry

The phenomenal growth on the housing sector front, rapid urbanization, availabil
ity of easy to secure housing loans all have being the prime drivers of growth i
n the decorative paint segment.
An average growth of about 10 percent in the automobile sector contributes 50 pe
rcent to the revenues in the industrial paints segment.
Industrial paints add 30 percent and the decorative segment adds to 70% to the p
aint industry revenue in India. New developments in roads, ports, etc adds up to
the revenues of protective coatings for civil applications.
Per capita paint consumption in India is only 1.2-1.4 liters. The industry is le
ss than half the size of the Chinese market by volume and about one fifth of the
U.S. market by volume. Even Sri Lanka and Pakistan have higher per capita paint
consumption.
The size of the Indian industry is around 940 million liters and is valued at ap
proximately $2 billion. The organized sector comprises 54% of the total volume a
nd 65% of the value.
In the last ten years, the industry has grown at a compounded annual growth rate
(CAGR) of 12-13%.
Price sensitivity factors
The industry is raw-material intensive. Of the 300 odd raw materials, nearly hal
f of them are imported petroleum products. Thus, any deficit in global oil reser
ves affects the bottomline of the players.
The major raw materials titanium dioxide, phthalic anhydride and peutarithrithol
constitute 50 per cent of the total cost. Besides, this, there are other raw ma
terials such as castor, linseed and soybean oils, turpentine. The raw materials
cost sums up to a whopping 70 per cent. Any increase in the prices of these raw
materials could adversely affect paint prices.
Most of the paint majors have to import nearly 30 per cent of their raw material
requirements thus changes in import policies can affect the industry.
The prices of packing materials such as HDPE, BOPP and tinplate have reduced con
siderably. However, the decision of the Central Government to ban import of tinp
late waste could lead to a spurt in the prices of the tinplate in the near futur
e.
India also imports a small volume of specialty wood finishes including polyester
and polyurethane water-based coatings, and special effect emulsions. The Indian
paint market has the potential to grow over the next decade at 15-20% per annum
as the current per capita consumption is much lower than other developing count
ries and less than half of China.
The low per capita paint consumption until recently can be linked to the large n
umber of kuccha (temporary), and semi-pucca homes (semi-temporary), low purchasi
ng power, the small size of homes, the long repainting cycle, and use of chuna (
lime powder) and French polish (paint substitutes).
In the decorative segment, the next decade should see a value growth in the regi
on of 15-20% per annum due to reduction in poverty levels, construction of new h
omes, higher inclination to spend, increasing decor-consciousness and gradual re
placement of chuna.
The automotive OEM segment too should grow at least at 15% per annum powered by
the projected high growth in the automotive segment.

WHAT MAKES INDIA'S MARKET UNIQUE?


India has a large number of paint shops or outlets, more than 50,000. Unlike in
most of the developed world, there is a large number of small paint and hardware
shops that cater to the local population.
The distribution policy of Indian paint companies to directly cater to most of t
hese more than 25,000 shops is unlike other industries where companies operate t
hrough distributors. Each company has a large number of depots to service these
outlets and a large sales force for this purpose.
A large number of shops have automated/manual dealer tinting systems. There are
more than 20,000 in operation, probably the highest for any country. In contrast
, there are only approximately 7,000 tinting systems in China for a market two a
nd half times India's size.
The high volumes of low cost distempers sold in India, which amounts to approxim
ately 200,000 tons per annum at an average cost of Rs35 per kg ($0.88) at the pr
esent rate. This is significantly lower priced than anything sold elsewhere in t
he world.
The high percentage of solvent-based alkyd enamels sold in India. These have bee
n largely replaced by water-based systems across the developed world.
DECORATIVE TRENDS
Premium products have seen significant growth and has been much higher than econ
omy products. The sale of premium and luxury emulsions, high-end exterior finish
es and wood finishes like polyesters and polyurethanes reflect a change in usage
patterns of Indian customers who are willing to spend more on superior products
. This phenomenon is seen across markets, in larger cities as well as smaller to
wns. There is a continuous demand from consumers for newer and better products.
Although a major part of the market continues to be highly price-sensitive.
Conclusion
The industrial paints are slated to grow at an annual rate of 12-13% for the nex
t few years. The industrial paint manufacturers would benefit from the burst in
the passenger car sales. The two-wheeler industry has also registered a good sho
w in the current year. The commercial vehicles segment, a star performer last ye
ar with 33 per cent growth, is expected to average a growth of only 15 per cent
this year. However, the raising titanium dioxide prices and the negligible growt
h in agriculture this year, will play spoilsport. Considering the past trend, th
e paint industry is expected to show at least twice the growth of Indian GDP in
the ensuing years. The reduction of excise duties from a high of 40 per cent to
16 per cent in the last five years, has made the numerous small-scale units unvi
able, as they no longer have a price advantage over the organised sector. This h
as helped the organised paint Industry a lot. The industry is in a consolidation
phase and only those Indian paint companies with a strong technical alliance, b
etter distribution network and an ability to compete in the global markets would
emerge victorious in the paint war.

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