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Paints Sector Analysis Report 

[Key Points | Financial Year '19 | 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 this 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.
  • 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.
  • The paints sector is raw material intensive, with over 300 raw materials (50% petro-based derivatives) involved in the manufacturing process. Since most of the raw materials are petroleum based, the industry benefits from softening crude prices.
  • 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% buy 2022 from existing 16%.
  • Manufacturing sector has the potential to reach US$ 1 trillion by 2025 and India is expected to rank amongst the three growth economies and manufacturing destinations of the world by 2020. These factors expected to significantly boost industrial paint consumption.

How to Research the Paints Sector (Key Points)

  • Supply
  • Supply exceeds demand in both the decorative as well as the industrial paints segments. Industry is fragmented.
  • Demand
  • Demand for decorative paints depends on the housing sector and good monsoons. Industrial paint demand is linked to user industries like auto, engineering and consumer durables.
  • Barriers to entry
  • Brand, distribution network, working capital efficiency and technology play a crucial role.
  • Bargaining power of suppliers
  • Price increase constrained with the presence of the unorganised sector for the decorative segment. Sophisticated buyers of industrial paints also limit the bargaining power of suppliers. It is therefore that margins are better in the decorative segment.
  • Bargaining power of customers
  • High due to availability of wide choice.
  • Competition
  • In both categories, companies in the organised sector focus on brand building. Higher pricing through product differentiation is also followed as a competitive strategy.

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Financial Year '19

  • The first half of FY2018-19 was impacted by supply chain disturbances due to the GST rate reduction from 28% to 18% leading to a bit of de-stocking in the distribution channel. The longer festival season ensured that there was good growth in the paint industry in the September-October period.
  • The paint industry experienced significant raw material price inflation during the year with rising crude prices and depreciating currency and this led to a few rounds of price increases by the industry players to shore up margins.
  • The Indian paint industry has been witnessing a gradual shift in the preferences of people from the traditional whitewash to high quality paints like emulsions and enamel paints, which is providing the basic stability for growth of Indian paint industry. Besides, it is creating a strong competitive market, where players are utilizing different strategies to tap the growing demand in the market for a larger share.

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Prospects:

  • In FY19, the paint industry has expanded at the rate of 12% in volume terms and about 15% in value terms. Going forward, the growth shall be dependent on a number of factors like disposable income in the hands of public, urbanisation, economic development, regular monsoons, raw material prices, growth in the infrastructure and recovery in the real estate & automobile segment.
  • The market for India paints and coatings is expected to expand at a CAGR of 8.56% during the forecast period of 2019 – 2024. Growing demand from the construction industry, coupled with rising infrastructure activities, is driving the demand for the market studied.
  • Government’s focus on infrastructure development would support the industrial coatings demand. The volatility affecting critical raw materials including crude oil as well as volatility on the exchange rates will need to be critically monitored to cushion the impact on profitability.
  • Huge domestic market 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%.
  • The Indian paints and coating industry are expected to grow steadily in the short and medium term on the back of strong growth in Indian economy. India’s young population represents a huge opportunity as more young Indians join the workforce and will have disposable income available.
  • 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.

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Related Links for Paints Sector
Quarterly Results | Sector Quote | Over The Years

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