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Paints Sector Analysis Report 

[Key Points | Financial Year '23 | Prospects | Sector Do's and dont's]

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  • The Indian paint industry is over 100 years old. Its beginning can be traced back to the setting up of a factory by Shalimar Paints in Calcutta (now Kolkata) in 1902. Until World War II, the industry consisted of small producers and two foreign companies.
  • The domestic paint industry is estimated to be a Rs 500 billion industry with the decorative paint category constituting almost 75% of the market. The decorative paint market includes multiple categories depending on the nature of the surface like exterior wall paints, interior wall paints, wood finishes, enamels as well as ancillary products like primers, putties, etc.
  • Within the Indian decorative paint segment, Asian Paints and Berger Paints are the two largest players, with the segment contributing more than 80% of their overall revenues.
  • The industrial paint category constitutes the balance 25% of the paint market and includes a broad array of segments like automotive coatings, marine coatings, packaging coatings, powder coatings, protective coatings and other general industrial coatings.
  • Growth of the industrial paint segment is highly dependent on the automotive sector. The auto sector has been the leading consumer of industrial paints with 40-50% of the demand coming from it. Within the industrial paints segment, Kansai Nerolac is the leader, with the segment contributing 45% to its overall revenue.
  • Small unorganised paint manufacturers primarily catering to the lower end of the price points still maintain a sizeable 30- 35% share in the overall paint industry.
  • The paints sector is raw material intensive, with over 300 raw materials (50% crude-based derivatives) involved in the manufacturing process. Since most of the raw materials are petroleum based, the industry benefits from softening crude prices.
  • A rise in disposable income of the average middle class, urbanization, growing rural market, shortening of repainting cycle, and increase in sale of premium-end products are the major drivers that are pushing the growth of the organized paint industry.

How to Research the Paints Sector (Key Points)

  • Supply
  • Supply exceeds demand in both the decorative as well as the industrial paints segments.
  • Demand
  • India's per capita consumption of paints stood at 4.1 kgs in FY19. Compared to the global average of 13-15 kgs per capita consumption, India’s per capita consumption of paints is far behind despite the huge size of the market. Thus, there is immense headroom for the domestic market to grow in the long term.
  • Barriers to entry
  • High, as brand, distribution network, and technology play a crucial role.
  • Bargaining power of suppliers
  • High, as major raw material inputs include crude based derivatives and certain solvents. Crude prices depend on global demand-supply dynamics whereas availability of Titanium Oxide is scarce.
  • Bargaining power of customers
  • High, due to availability of wide choice. In the industrial segment, customers have high bargaining power since they buy in bulk.
  • Competition
  • High. There is stiff competition in the organized market since there are many players.
  • Threat of Substitutes
  • Low to Medium. The use of limestone as a substitute is limited to the rural areas. In urban markets, there is no real substitute for paint. Wallpaper is not very widely used.

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Financial Year '23

  • The Indian paint industry was valued at Rs 620 bn in FY23. It is expected to grow and reach a market size of Rs 1 tn by FY28.
  • During the year, the industry witnessed softening of raw material prices from their previous highs. As raw materials account for approximately 55-60% of the input costs, price corrections in crude oil and other essential components resulted in improved margins for the industry.
  • Digitalization and technology adoption emerged as gamechangers during the year. Companies leveraged digital platforms and tools to streamline operations, enhance customer experience, and optimize supply chain management.
  • From online color selection tools to virtual reality simulations for visualizing paint finishes, technology changed how consumers interact with paints and coatings.
  • Decorative paints gained significant popularity. The use of decorative paint in smart homes enables seamless integration with electrical and heating controls, along with the ability to display digital content on painted surfaces. By applying these integrated paints, the aesthetics and functionality of spaces can be significantly enhanced, thereby augmenting their immersive quality.
  • The market for construction chemicals also exhibited consistent growth. Among the many factors, the key factor driving this growth is growing demand in construction activities and corresponding use of construction chemical that offer both durability and sustainability.
  • The construction chemicals market in India is currently valued at US$ 1.6 bn (Rs 132 bn) in 2023 and is projected to witness a substantial compound annual growth rate of approximately 13.1%, reaching a market valuation of US$ 5.5 bn (Rs 456 bn) by the end of 2033.

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Prospects:

  • The Indian paints industry is expected to grow steadily in the short and medium term on the back of strong growth in the Indian economy.
  • India's young population represents a huge opportunity with a rapidly increasing middle class and overall population. By 2030, Indian middle class is expected to have the second largest share in global consumption at 17% which could drive demand for the paint industry.
  • For the past few years, demand in smaller cities and towns has been growing at a faster pace than metro and tier I cities. Going forward, a rise in disposable income, incremental consumption expenditure, and development of the rural markets will fuel the paint industry’s growth in these areas.
  • Growing demand from the construction industry, coupled with rising infrastructure activities, will also drive the demand for the paints industry. Decorative paints segment is expected to witness higher growth on the back of affordable housing measures by the government. The government’s focus on infrastructure development would also help support the industrial coatings demand.
  • Under the Make in India initiative, the Government of India aims to increase the share of the manufacturing sector to the gross domestic product (GDP) to 25% by 2022 from existing 16%. The manufacturing sector also has the potential to reach US$ 1 trillion by 2025. These factors are expected to significantly boost industrial paint consumption.
  • Many paint companies have been entering into the waterproofing and construction chemicals space in the past few years. The Indian waterproofing market, valued at US$ 0.7 billion is fairly underutilized compared to China’s US$ 22bn market. Thus, there is a lot of headroom to grow in this segment in the next 15-20 years.
  • During the past few years, along with construction chemicals, paint companies have also entered into adhesives market, which could enable them to tap into vast B2B and B2C channels and also leverage their existing distribution network. Some paint manufacturers, though marginal players till now, plan to expand their market share in adhesives and sealants market which may intensify competition in the years to come.

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FAQs on the Paints Sector

When is a good time to invest in the paints sector?

Paints stocks are usually risker as their fortunes are prone to economic booms and busts and for this reason, they are often called cyclical stocks. Generally considered an offensive tactic in investing, cyclical stocks can be used to generate high returns when the economy is doing well.

Therefore, the best time to buy such stocks is at the start of an economic expansion and the best time to sell them is just before the economy begins to slow down.

Where can I find a list of paints stocks?

The details of listed paint companies can be found on the NSE and BSE website. However, the overload of financial information on these websites can be overwhelming.

For a more direct and concise view of this information, you can check out our list of paints stocks.

Which paints stocks were the top performers over the last 5 years?

Indigo Paints, Asian Paints, and Berger Paints were the top performers over the last 5 years in terms of sales and profit growth.

Indigo Paints growth can be attributed to its volume driven growth in scale of operations while Asian Paints growth has grown on the back of its leadership position in the domestic paints sector, healthy operating margins, and strong capital structure.

Berger's Paints has also done well on account of its established position in Indian paint industry, varied product portfolio, and wide distribution network with manufacturing facilities spread across India.

To know which other companies performed well over the last 5 years, use Equitymaster's stock screener.

What kind of dividend yields do paints stocks offer?

There is no consistent trend of dividends across the industry, with different companies having different dividend policies.

For more details, check out our list of top paints stocks offering high dividend yields.

Which are the paints stocks with the highest return on capital employed (RoCE)?

Return on capital employed (ROCE) is a financial ratio that can be used in assessing a company's profitability and capital efficiency by determining how well the management is able to allocate capital for future growth. An RoCE of above 15% is considered decent for companies that are in an expansionary phase.

Asian Paints, Berger Paints and Akzo Nobel are the top paints stocks right now on the Return on Capital Employed (RoCE) parameter.

To know which other paints stocks offer great return on capital employed, you can check out the top paints stocks offering the best RoCE here.

Which are the best paints stocks to invest in currently?

Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.

Two commonly used financial ratios used in the valuation of stocks are -

  • Price to Earnings Ratio (P/E) - It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.

    To find stocks with favorable P/E Ratios, check out our list of paints stocks according to their P/E Ratios.

  • Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.

    To find stocks with favorable P/BV Ratios, check out our list of paints stocks according to their P/BV Ratios.