The Indian paint industry estimated at Rs 49 bn for FY00 is growing at 10% to 12%. Four companies namely Asian Paints, Goodlass Nerolac, Berger Paints and Jenson & Nicholson command almost 80% of the total paint sector. With the organised sector steadily gaining market share from unorganised players, the market has become extremely competitive. In terms of market share, two companies command the decorative and industrial segment by some margin over the other. Asian Paints dominates decorative segment with more than 40% market share followed by Goodlass Nerolac with 19%. In the industrial segment, Goodlass Nerolac commands a 40% market share followed by Asian Paints with 20%.
A number of policies cum structural changes have changed the dynamics of the paint industry over the past three-years. The primary reason is the rationalization of the excise duty structure, which has come down to 16% from 40% in five years. This reduction has helped major players to bring down prices in line with the unorganised manufacturers. The second major step is the reduction in import duty of titanium dioxide, the key raw material for manufacturing paints. The most important is the increasing end-consumer involvement, thanks to the initiatives taken by companies in building brands and setting up computerized colour dispensers.
FY00 was a good year for the paint sector in terms of overall growth in volumes. The tax sops to the housing sector spirited the demand for new houses and in turn paints. The automobile sector witnessed a 33% growth in sales with a number of new launches from multinationals like Hyundai, Daewoo, Ford and Maruti. But the increase in global crude prices has created some unrest among paint companies as pigments and titanium dioxide prices have risen. Under these circumstances the paint companies are contemplating whether to increase prices of their products or absorb the cost and boost volumes.
What could be the best possible solution for these companies? One, to increase prices to safeguard margins. But this would affect sales volume. Second, absorb cost instead of shifting price increase to the end users. This will ultimately put pressure on the company to improve operational efficiency, if margins are to be protected. Wisely, paint companies have started to focus on the latter i.e. to improve their plant operating efficiency. Technology, also in a way, has helped these companies. Asian Paints, for instance, with the implementation of i2 technology, anticipates the order fill rate to go up to 75% from the current 65%. Already the inventory period has come down by 5 days as dealer orders are met on time in most cases (85%). Other companies are in the process of implementing such technologies by the end of the FY03.
Till now, major share of the Indian paint market is accounted for the decorative paints. The decorative paint market should post better results thanks to the good monsoon, as demand in the rural areas would rise. However, with the increase in production of automobiles and white goods, the industrial paints segment is expected to register better growth in future compared to the decorative segment. After an astounding 33% growth in passenger car sales in FY00, the growth is expected to be around 15% for the current year. The white goods segment, which includes air conditioner, refrigerator and washing machines, are expected to show good growth in sales compared to the previous year.
However, as automobile sector accounts for more than 60% of the demand for industrial paints, the realisations and the volumes are expected to be lower for the current year. Moreover, these companies would be exposed to stiffer environmental regulations in future and this would pressurize the paint companies to have a state of art manufacturing facilities that meet those norms.
The biggest challenge for these companies lies in understanding the market place combined with value-driven pricing. This would also enable them to invest in technology, as this is imperative to integrate their operations and to maintain profitability in the long run.