 Budget 2004-05: Paints
The Indian paints sector is valued at Rs 66 bn in value terms and is very fragmented. The organized sector accounts for about 70% of the business while around 2,000 players in the unorganized players accounts for the remaining. Read more
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A pool of Rs 400 bn will be pooled in by a consortium of financial institutions to provide finance for various infrastructural activities like power, ports, roads and civil aviation. |
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Continuation in interest exemption on housing loans. Besides, income from housing projects for the construction of residential units of prescribed specification and approved from local authorities is exempt from income tax. This exemption is available for project that is approved upto March 31, 2005. |
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Allocation of Rs 22 bn to provide a subsidy upto Rs 10,000 and loan upto Rs 40,000 for the eligible households. |
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1.0 m dwelling units financed so far and National Housing Bank has offered to reduce the rate of refinance by 25 basis points this year. |
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Historically paint industry has grown at 1.5x-2x GDP, depending on the performance of the housing and industrial sectors. Last year, the sector grew by 13%. With the government emphasizing more on infrastructure development, industrial paint demand could rise over a period of time. Housing sector is likely to outpace industrial paint demand in the future. In such a scenario, decorative majors like Asian Paints are likely to benefit going forward. The budget, per se, did not have any direct proposals for the sector. |
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The Indian paint sector, in the last six years, has grown at 1.5 times to 2 times GDP on the back of robust housing sector growth, shift in market share from unorganised to organised players and new product launches. The fastest growing segment in the paint sector in the last four years has been exterior paints (CAGR of 15% to 20%). With the fall in customs and excise duty, we expect organised players to further consolidate their presence in the paint sector in the future. With the housing sector cushion and increased demand for industrial paints, we expect the paint sector to grow at 1.5 times to 2 times GDP growth rate in the next three years. Asian Paints is likely to outperform the industry. |
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The government has given great impetus to the housing industry and I hope that the same consideration will be given in the current budget also. Housing sector revival boosts the growth of the general economy and thereby the paint industry. I request the finance minister to increase exemption of interest from taxable income on housing loans and provide further incentives to boost the sector. |
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The government should give incentives to companies that invest money in R&D activities by way of weighted deductions for revenue spends and accelerated depreciation rates for investment in R&D equipments. This will help the Indian industry to become globally competitive. |
| Budget 2001-02 |
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Budget 2002-03 |
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Budget 2003-04 |
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| Increase in housing loan interest exemption to Rs 150,000.
Dividend tax reduced to 10%
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Peak customs duty reduced to 30% from 35%.
Continuation of housing incentive.
Administered interest rates lower by 50 basis points.
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Continuation in interest exemption on housing loans.
Peak custom duty reduced from 30% to 25%.
Spending in health, education and housing given priority by the government.
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| [Read more on Budget 2001-02] |
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[Read more on Budget 2002-03] |
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[Read more on Budget 2003-04] |
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| Key Positives |
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| Of the estimated Rs 66 bn paint industry, the share of organised players has grown to 70% as compared to 30% before five years. Going forward, the organised sector is likely to increase its share in the industry. |
| Due to cheaper interest rates, housing demand is expected to be strong going forward. This will benefit the decorative segment of the paint industry. |
| The Government's focus on infrastructure projects viz. roads and ports and capacity expansion plans of the manufacturing sector are likely to benefit the industrial paint segment of the industry. |
| Continuous fall in excise duty in the past has benefited organised players and the impending consolidation will add to the pricing power. |
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| Key Negatives |
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| Raw material cost account for around 50% of sales of the organised players. Though there are more than 300 raw materials used in manufacturing of paints, titanium dioxide, being the key raw material, accounts for around 30% of sales. Being a crude derivative, the higher crude oil prices affect the profitability adversely. |
| The fiscal state of the economy is a cause of concern. Slower progress of reforms (especially land reforms that are vital for the sector) is also limiting growth prospects of the economy. |
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