indian paint industry mrp-1 raj 92

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INTRODUCTION OF THE

INDIAN PAINT INDUSTRY

PAINT INDUSTRY: YESTERDAY TODAY TOMORROW

Just imagine the world without color; like life without air. Paint a well

known subject to mankind for coloring, decorating, identification and signaling

from thousand of years. Man knows about colors since 200 B.C. during the same

period world famous AJANTA CAVES were painted.

In India, way back in 1902 the first Indian Paint industry started

manufacturing paints near Calcutta, namely SHALIMAR PAINTS. In last 100

years paint industry is equally dominant by more than 20-25 organized sector and

over 2500 small scale units scattered all over India.

Presently, Rs.6000 crores Indian Paint Industry producing at 6.50 lac tones

of paint & other allied coating material per/annum. Approx. 40% of total output is

contributed by SMALL SCALE SECTOR to PROTECT AND DECORATE the

national assets.

The Indian Paint Market is widely perceived as one of huge potential and

partly owes its continued growth to rising personal wealth and innovation on the

part of its leading paint companies. While the Organized sector is responsible for a

majority of the market, the contribution from the small scale remains appreciable

at about 40% of the market. Recent growth estimated from the paint industry have

been placed at 8 to 10% per/annum.

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Industry is planning to launch a major awareness campaign in a bid to

enhance the per capita consumption of paint in the country. The paint industry is

growing at a rate of 12% per annum: the per capita consumption is measly 650-

700 gms as against 8.8 kgs in Malaysia, 2.9 kgs in Thailand, 1.55 kgs in China,26.8 kgs in Singapore and 19 kgs in Germany and 31 kg in USA. India has measly

0.6 % share in the world paint market; this is because of non-level playing field for

Indian companies in the areas of high cost of credit, high power cost, poor labor

laws, high freight cost and red tapism.

PAINTS

Paint consumption in India is highest is highest for decorative paints, which

account for 70% of paint sales in India. The Rs.30,000 million organized sector

paint industry has a relatively small numbers of players. The top five players

[Asian Paints, Berger Paints, Goodlass Nerolac, Jenson & Nicholson (J&N)]

account for close to 80% of total sales. The Indian Paint Industry has come a long

way from the days when paints were considered a luxury item. Today the

awareness level on preventing corrosion through paints is relatively high, a

development that should be a huge boost to the paint industry.

US$ 925.0 million (2000-01) worth Indian Paint Industry, offers profitable

scope for revenue streams to manufacturers of both decorative & industrial paints.

Factors that have been given emphasis include the low per capita consumption of

paints (1.0 kilogram), growth in construction sector (It is being offered industry

status) & growth in the auto/white goods market respectively spurring demand for

decorative & industrial paints. The industry has also witnessed increased activity

in the industrial variety of plants with the entry of MNCs in auto, consumer

durables etc. which has been gaining steadily over decorative paints in the last one

decade.

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Following are the major players in the Indian Paint Industry:

ASIAN PAINTS INDIA LTD (APIL)

BERGER PAINTS

ICI PAINTS

GOODLASS NEROLAC PAINTS LIMITED (GNPL)

SNOWCEM INDIA LTD

JENSON & NICHOLSON

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TYPES OF PAINTS

THE INDIAN PAINT INDUSTRY AT A CROSSROAD

This industry has traditionally been divided into two separate segments:

The Organized sector and the Unorganized sector. The former consists of the

major manufacturers numbering around 12 to 14, while the unorganized sector is

said to consist of nearly 2500 small-scale units (SSU).

Paints can be of the following types:

1) Powder Paint

E.g. Dry distempers, cement paints, industrial powder coatings.

2) Paste Paints

E.g. Stiff white paints or Safeda, Oil Paints, Oil bound washable

distempers, Acrylic distempers.

3) Liquid Paints1. Water Based Paints: e.g. Plastic emulsion paints.

2. Solvent Based Paints: e.g. Air-drying synthetic enamels,

stowing synthetic enamels, lacquers, and varnishes.

3. High Solid Paints: mostly for industrial applications.

4. Solvent Less Coating for Industrial Application: e.g.

Unsaturated Polyesters, Solvent less Epoxy systems.

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APPLICATIONS OF PAINTS IN DIFFERENT FIELDS

1. ARCHITECTURAL & DECORATIVE PAINT SEGMENT:

Also called bazaar paints, and ignorantly called by someone as

DECORATIVE paints perhaps because they are used for decorative purpose, are

generally sold through paint dealer for common house hold application, building,

steel structures, bridges, factories etc for use in non corrosive environments.

Unlike in the developed countries where Industrial Paints contribute a

major share in their total paint market, it is the Architectural or Decorative Paintthat contributes between 65 and 70 % of the total Indian Paint Market. The 1

billion populations will require housing and the Governments Policy towards

housing development to provide the Indian Decorative Paint segment

opportunities for growth. Demand for decorative paints will be pushed not only by

new construction but also by refurbishment of existing buildings. Residential and

commercial construction is expected to record growth rates of around 8% over the

next few years. Building maintenance and concrete restoration industry will also

get a boost as more and more owners realize the need for better maintenance.

Decorative Paints

Within the decorative paints segment, there exists considerable scope for new

products and for enhancing performance of several of the existing products. From

the generalized applications of todays products, The Indian

Paint Industry could move to products for specialized applications and

create altogether new markets. In the emerging business era with imports

becoming easier and large international companies willing to dump goods at

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cheaper prices, creating niche markets will act as insurance. Product development

and investing in technology should become priority Areas.

Interior Decorative Paints:

Paints for interior use holds close to 50% of the market for Decorative

Paints. Traditionally water based emulsion paints have found use on interior walls

and ceilings. There exists scope for product innovations in paints for interior use.

Multi-colored decorative paints for walls are one of the many new products that

can enhance the general aesthetics and create new markets. Low odor and anti-

bacterial paints is another product with immense promise. Water based transparent

and pigmented wood coatings for domestic and commercial furniture, doors &

windows, etc is another use. We could also have medium duty commercial floor

coatings competing with marble, granite and other types of floor coverings. Floor

coatings can be formulated to provide designs, textures, etc unlike other types of

floor materials.

The Exterior Paint

It is the exterior of buildings and civil structures that is undergoing far-

reaching changes. The traditional cement paint has competition from other

products, perhaps for the first time in India. Possibility of a rapid expansion in the

paints for Exterior cannot be ruled out. It is also likely that the current five-year

life guarantees will increase to 10 year and even 15 year and more life guarantees.

Emulsion-based paints for exteriors with 10 or 15 years plus performance with

guarantees are norms in many countries. Water and Solvent based Anti-

carbonation coating is another product that has the ability to become a sought-after

product for exterior concrete surfaces. Anti-carbonation coatings provide stain,

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fungus and mold free surfaces and have low dirt pick up characteristics to ensure

high levels of aesthetics. Anti-carbonation coatings are specifically designed to

stop or slow down the ingress of atmospheric carbon dioxide thereby protecting

the reinforcements from early corrosion.

Cement paints itself could undergo modification to improve its performance

attributes, and still remain as a single-pack dry powder that requires only on-site

mixing with water prior to application. The modified cement paint would not only

make it more durable than its present form but also give it a competitive edge

against emulsion-based exterior paints. A new niche could become available in

between the existing type of cement paint and emulsion paints for exterior.

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2. INDUSTRIAL PAINTS:

The industrial paint segment will also grow at a faster rate, especially due

to its low base and the fast growth rates in the major user industries like

automotive and consumer durables. The major users of industrial paints are the

transport segment consisting of Railways passenger and goods carriers,

Commercial vehicles, Passenger Cars and Two-wheelers and the several Off-The

Road Vehicles used in construction. Indian Railways have one the largest

consumers of paints and would continue to dominate because of their sheer

volumes. The Passenger cars, two-wheelers and the Commercial Vehicle segments

where the Indian Paint Industry has been witness to technology changes can be

compared to the best in the world.

The common man in India is more aware of the aesthetic part of paints

rather than its protective properties, and so far it is the decorative segment that has

been aware of. But with the industrial and infrastructural development taking

shape, things are changing. The use of industrial paints especially for maintenance

is extremely low in the country. The developments of roads, bridges, power plants,

development of ports, refineries and natural gas installations etc would enhance

the use of protective paints. And it is here that the future of the Indian Paint

Industry.

A principle concern for the Indian Paint Manufacturer is a lack of the value

of coatings by executives and managers responsible for protecting corporate and

government assets. With many such agencies, coatings and corrosion controls donot have a high level influential internal advocate. Coatings are perceived as non-

glamorous and non technology. The Indian Paint Industry therefore must increase

the awareness of the criticality of protective coatings.

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3. Powder and Coil Coatings:

The use of powder coatings is most often directly dependent on the fortunes

of the consumer durable appliance and the white goods sectors. Conversion in

these industries from liquid paints to powder has been slow, which has not

provided the impetus to the growth of the Indian Powder Coatings. The

automobiles ancillary industry is another prospective area for Powder Coatings,

which in turn is dependent on the performance of the automotive industry.

4. Infrastructure & Industrial Maintenance Coatings:

It is solid directly to the industrial manufactures of various equipments,

appliances, cycles etc. these are generally stoving type but fast air drying paints

may also be used in the cases, where stoving facility is not available.

This is one area of immense potential for the Indian Paint Industry, not only

to carve out a niche business area but also for technology inputs. The vast

countryside and its varying climate, urban and industrial centers provide one of thebiggest challenges for the use of paints and coatings for protective purposes with a

primary objective to enhance the service life of the structures from reinforced

concrete are the targets for high-performance protective coatings.

The Indian Paint Industry could collectively review existing practices,

which although may serve many situations but is not necessarily the best available

coating products, systems and practices. The Paint Industry is best suited to redraw

and reset performance specifications that would guarantee surface protection to the

users. Each specification could provide alternatives to its expected life span to first

maintenance, which would allow users to choose the system that best suits him.

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Naturally specifications would be separate for different substrates like for steel,

galvanized steel and for vertical and horizontal concrete including specifications

for reinforcements used in concrete etc. Separate specifications would be required

for industrial and commercial floors as well as for vehicle parking decks,basements etc.

Heavy duty chemical & corrosion resistant coatings & Linings that

compromise the products in this segment find application at off-shore oil

platforms, refineries, petrochemical plants, chemical & fertilizer plants, storage

tanks, in the paper, dyes & dye intermediates, pharmaceutical intermediate

manufacturing industries, etc. They are used for structural protection as well as

linings & membranes on metal, concrete for verticals as well s horizontal

structures.

Although this segment is currently not a significant contributor to the

industrys revenues, it is a segment that cannot be overlooked. If the Indian Paint

Industry is to garner a position of the huge loss due to corrosion, this segment can

become a significant revenue contributor. It is estimated that the worldwide

market for Heavy-duty Chemical & Corrosion Resistant Coatings is 1.5 billion

US$ annually, and despite this large expenditure the worlds assets remain under-

protected. Many countries are known spend 4% of their GDP in annual

maintenance for corrosion and corrosion control.

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5. Industrial OEM & Automotive:

The stowing paints for the original painting of cars, trucks, light

commercial vehicles, scooters, and motorcycles are sold directly to the automotive

manufactures. They are not sold in market since their application is only possible

in the factory set up.

Increased paint transfer efficiency, high solids, better finish, improved

curing, lower energy usage are some of the challenges faced by the manufacturers

of Industrial finishes. The transport sector is another that can do with better

performing paints as well as improved applications procedures. The Indian

automotive coatings can said to have standards. However within the automotive

coatings segment several innovations are still possible. Paints with heat resistant

properties for ancillaries, interior plastics are some that could be considered.

Automotive refinish coatings are still the traditional nitrocellulose types.

Although international manufacturers have come in with their internationally

established 2K systems, these are still in their infancy. The commercial vehicles,

off-road vehicles, railways, defense vehicles all could do with technology and

innovate products and it is here that The Indian Paint Industry has one of its

biggest challenges.

6. Marine Paints

For the application on ships, submarines, dockyards, offshore drilling

rigs/platforms etc.

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7. Aircraft Paints:

Special paints are used to meet the very exacting and specialized

requirement in the Aircraft.

8. Defense Paints:

The defense industry has its own norms and specialized requirement like

camouflage and special paint are required which can be applied under prevailing

conditions.

9. Specialty Paints:

A vast variety of the specialized paints for use in nuclear plants,

rockets/satellite with very heat resistance, electrode position paints.

10. Paint For Railway:

INDIAN RAILWAYS-THE LARGEST SINGLE CONSUMER FOR

PAINTS:

The Indian Railways is one of the largest consumers of paints and coatings

in the country. The Indian Railways have its own captive manufacturing, repair

and refurbishment establishments for passenger coaches, freight and tanks wagons

and locomotives and also use large quantities of paints for their buildings,

workshops and other establishments. Indian Railways have always relied on their

own specifications for paints drawn from the Indian Standards. Unfortunately,

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these specifications have remained without major updating for many years and can

at best be considered as outdated and not in line with modern international

standards. For the Indian Railways it is an opportunity to not only lead the paint

users in the country in using the highest quality paints and coatings similar tothoseused internationally but also to innovate into using coatings with Low Volatile

Organic Components. To the Indian Paint Industry, it becomes a collective

challenge with the Indian Railways in re-designing specifications for paints and

coatings and help in modernizing national assets.

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PAINT RAW MATERIAL

Paint is a mixture of four elements: solvent, binder, pigment and additives.

Solvent gives the paint a liquid flow while the binder binds it to the surfaces.

Pigments impart color and opacity to the paint and the additives give it special

resistance properties. Paint production involves mixing of various raw materials in

a balanced proportion. Based on the predetermine formula, pigments, extenders,

resins and additives are grouped together in a dispersion or grinding mill. The

ground mixture is then dispersed in a medium, which could be approximately 70%

of the production cost.

Three hundred different types of raw material are used in paint

manufactures and about 50 to 60 % of the inputs are petroleum based. The most

critical input in paint manufacture are titanium dioxide (TiO2), phthalic anhydride

(PAN) and pentareythritol (Penta). There are other raw material such as castor,

linseed and soyabean oils and turpentine. The Industry imports around 30% of the

raw material requirement.

INPUTS

The major inputs are Titanium dioxide (rutile and anatase grade), phthallic

anhydride, organic pigments, pentaerythritol and resins.

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The major manufacturers of the important raw material and the status of

their availability are below:

Titanium dioxide:

This is the most and account for the 50% of raw material cost. It is

available in two grades: Rutile and Anatase. Rutile grade titanium dioxide, the

more expensive of the two, is used in high value decorative paints and industrial

paints. In India, Kerala Minerals & Metals Ltd. manufactures rutile grade titanium

dioxide while three producers viz Travancore Titanium Products Ltd. and Kilburn

Chemicals Ltd. Manufacture anatase grade titanium dioxide while the quality of

Indian rutile grade is good. It is not the case for anatase grade. A large portion of

Titanium dioxide is met from imports.

Phthalic Anhydride:

This is available in large quantity in India. There are alkost seven producers

with a total capacity of over 280000 tones. I G Petro and Thirumali Chemicals are

the major players accounting for nearly 80% of the capacity.

Organic Pigments:

The pigments consist of white or colored particles, usually in the form of

powder, which gives paint its color and opacity. Though the quantities used are

small, their prices are very high. The major manufacturers are Sudarshan

Chemicals, Color Chem and Clariant.

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Pentaerythritol:

It is used for the manufacture of synthetic resins. Availability of the Penta

is not a problem as there are quite a few players including Asian Paint, whichmanufacture the product.

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TRENDS

The trend is seen in the India. The share of small-scale industry is

continuously coming down with reduction of excise duty. Earlier, the excise duty

used to be more than 40 %. Now, this has come down to 16%. Now we are able to

effectively compete with small-scale units. So, the industry is consolidating

continuously since liberalization.

TINTING MACHINE CONCEPT IN INDIAN PAINT INDUSTRY

The tinting machine concept in India has picked up in the last three to four

years and the machine numbers at the dealers counter has been increasing

continuously. This in fact has revolutionized the paint selling. Under this concept

the tinting machine, which can be manual or computerized operated, are kept at

the dealers counters. The computer attached to the machine is loaded with

visualizing package, though which the customer can see various color schemes

and select the shades liked and same tinted instantly. From the companys point of

view it has reduced the product launch time, as you are now offering economy of

scale, and develop shades by using various proportions of colorants, Which can be

tinted with the machines. Handling of stock has become easier and so is the

forecast with the reduction in number of SKUs. There are about 5400 machine

already placed and the trend will further pick up.

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While Jenson and Nicholson was the first company to go for this concept,

others have overtaken. Like Asian has over 2000 machine, Goodless over 1400

and Jenson is having around 375. Goodless has gone one step ahead by launchinga new concept known as Magic Eye whereby a spectrometer is attached to the

computer and it can pick up shade from a sample of any substrate like fabric,

panel, shade chip, or old paint chip. With this any shade of customers choice can

be made at the shops having this facility.

Paint companies have started the concept of providing help to the

consumers through help lines. The concept was test launched by Goodlass at

Ludhiana in Punjab and subsequently promoted aggressively by Asian Paint. We

now have Help Line/Home solutions from Asian, paint Line from Goodlass and

Home dcor from Berger. The consumer gets the benefit of right applicator:

advisory service of the company and work to his satisfaction. This will further

culminate as full-fledged supply &Apply concept at a later stage.

Mega Mills offering a complete range of building material, including paints

have started coming in India now with first such store started at Gurgoan, in an

area measuring 33000 sq.ft. Which a restaurant as well the name Arcus.

Understandably they are in process of setting up a similar store in Mulund at

Mumbai measuring 55000 sq.ft.

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GLOBAL SCENARIO

The total output of the world paints and coating-manufacturing industry

was valued at $54 billion in 1996. The industry supported some 12,250 activefirms. This industry is forecast to expand 4 per cent annually to nearly 26 million

tones by the year 2005. The valued would be $77 billion.

Tonnage gains in the industrial coatings segment will be constrained by a

shift in trend towards higher solid coatings ( such as powder coatings), which

often weigh less per kilo than solvent-borne coatings, and generally require fewer,

thinner coats. On the other hand, the architectural segment is seeing a continuing

shift towards water-based stronger tonnage gains. These trends are evident around

the world but have had the most impact in more nature markets.

Most of the development world has already affected such a switch to water-

based formulations for most architectural applications. The development world is

also experiencing this trend- India included.

The world paints and coatings industry is becoming increasingly dominated

by a small group of highly focused, globally positioned firms. For many of these

companies (e.g. Sherwin Williams, Kansai Paint, Nippon Paint, and Asian Paints)

coatings represent the primary line of business. In other cases (e.g. Akzo Nobel,

ICI, BASF, Hoechst, Dupont & Courtalds), the firms strong position has arisen

from involvement in various upstream petrochemical activities, including

production of many of basic raw material uses in coatings production.

The most rapid gains in paints and coatings production will be registered in

the development regions of Latin America and Asia-Pacific. Although the Asia-

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Pacific rejoin holds excellent long-term prospects as a market for paint and

coatings, regional Production has been lower, primarily due to the financial crisis

that has hit this region. However, India was not severely affected by the crisis.

The wave of currency devaluations and a sharp rise in interest rates will

seriously dampen spending in key paints sectors such as construction and durables

in the short term. Particularly in Indonesia, South Korea and Thailand India, in an

earlier budget, has announced a new housing policy, which should in a boom for

the construction sector, which will boost demand for architectural coatings.

A very interesting trend is emerging in the architectural coatings segment.

We are experiencing a shift from solvent-based coatings to water-based coatings.

Water based coatings now account for most of household paint demand in

development countries and are gaining ground in developing countries too. During

the 1990s, the drive has spread to the industrial coatings have necessitated intense

product reformulation efforts, leading to a number of alternative technologies

Meeting environmental regulations another challenge for paint companies

in the development world. Even companies in development regions must be

prepared in this area, as paint products are soon adopting global standards, hence

all paint companies will have to comply with environmental regulation Global

trends towards free trade will have an impact on product mix, since exports goods

must meet the environmental codes of the establishment of more environmental

regulations for member nations.

Global production of paints and coatings can be divided into two broad

sectors architectural paints and industrial coatings. In 1996, architectural paints

accounted for 58 per cent of the total output, with industrial coatings accounting

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for the remainder. However, the industrial coatings segment is slightly larger in

value(dollar) terms because industrial coatings tend to cost significantly more than

architectural products.

In 1998, the worlds top ten paint and coating suppliers accounted for nearly 42

per cent of the market. The next ten producers accounted for an additional 13 per

cent of sales, which gives the top 20 firms a collective market share of over 50 per

cent.

The most basic division in the market is between architectural coatings and

the industrial coatings. Akzo Nobel, the worlds top player, has a strong presence

in both segments (60:40 in favor of the industrial coatings). Sherwin Williams,

ICI, Total, Asian paints, and Benjamin Moore for primarily on architectural paints

whereas PPG, Kansai Paint, Courtaulds, Nippon Paint and RPM focus heavily on

the industrial segment. BASF, Dupont, Lily Industrial and DAI Nippon focus

entirely on industrial coatings.

Globally industrial paints are the major segment, accounting for around 70

per cent of the market. Global trade is overall sparse, due to relatively simple

technology, and especially the need to maintain higher inventory at the dealer level

and high transportation costs. Per capita consumptions is 26 kg. in the US, 4 kg. in

the Philippines and 16 kg. in Taiwan.

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WORLD PAINT INDUSTRY PLAYERS

Ranking by volume and value for top Asia-Pacific companies:

Company Country Coating sales

$ million

Rank

volume

Nippon Japan 1900 1

Kansai Japan 1775 2

Asian Paints India 774.54 3

DNT Japan 600 4Orica Australia 434.79 5Wattyl Australia 335.63 6

Korea Chem. South Korea 312 7Chugoku Marine Japan 310 8

Berger India 264 9

DIC Japan 254.43 10

Rock Japan 224.79 11Yung Chi Taiwan 220.5 12

DPI South Korea 190 13Shinto Paint Japan 171.89 14

Tophe Japan 142.87 15

Coatings worlds global ranking of the top manufactures of paints,

coatings, adhesives and sealants

No. Rank Company Country Coating Sales1. Akzo Nobel Netherlands $ 6.974 billion2. Henkel Germany $ 6.236 billion3. ICI UK $ 5.817 billion4. Sherwin-Williams USA $ 5.728 billion

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5. PPG USA $ 5.566 billion6. Dupont USA $ 3.78 billion7. BASF Germany $ 2.714 billion8 Valspar USA $ 2.713 billion9. RPM USA $ 2.556 billion

10. Sigma Netherlands $ 2.215 billion11. 3M USA $ 2.00 billion12. Nippon Paint Japan $ 1.9 billion13. Kansai Paint Japan $ 1.775 billion14. H.B. Fuller USA $ 1.512 billion15. Sika Switzerland $ 1.29 billion16. Masco USA $ 1.264 billion17. COMEX Mexico $ 1.22 billion18. Rohm and Haas USA $ 1.158 billion

19. Jotun Norway $ 1.042 billion20. AB. Wilh. Becker Sewedn $1.008 billion21. Benjamin Moore USA $ 1.00 billion22. DAW Germany $ 952.7 million23. Hempel Denmark $ 814.4 million

24. Asian Paints India $ 774.54 million25. DNT Japan $ 600 million26. Tikkurila Finland $ 569.76 million27. Brillux Germany $ 530 million

28. Forbo Switzerland $ 505.54 million29. Orica Australia $ 434.79 million30. Barloworld South Africa $ 404 million31. Arch USA $ 358 million32. Kelly-Moore USA $ 345 million

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33. Wattyl Australia $ 335.63 million34. KCC South Korea $ 312 million35. Chugoku Marine Paint Japan $ 310 million36. Helios Slovenia $ 285.9 million37. Dyrup Denmark $ 280.96 million

38. Dunn-Edwards USA $ 280 million39. Yasar Turkey $ 275 million40. Berger India $ 264 million41. Sico Canada $ 257.78 million42. D I C Japan $ 254.43 million43. National Paints Jordan $ 234.93 million44. Flugger Denmark $ 228.64 million45. Rock Paint Japan $ 224.79 million46. CIN Portugal $ 221.7 million47. Yung Chi Taiwan $ 220.5 million

48. Altana Germany $ 218 million49. Ameron USA $ 210 million50. Renner Brazil $ 209 million

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ASIAN PAINT INDUSTRY COUNCIL

Formed in 1995, The Asian Paint industry council (APIC) was organized to

provide a forum for trade associations representing the paint and coatings industryto meet and communicate on broad matters affecting industry development in asia.

APIC meets annually, with a discussion agenda covering regulatory and

environmental mattress, technical and scientific presentations, and business-related

forecasts and economic analysis. The secretariat (provisional) for APIC is the

japan paint manufactures participate at IPPIC meetings; one representing the

Indian sub-continene, and one representing southeast asia. Currently APIC has

representatives form the following associations:

China National Coatings Industrial Association

Indian Paint Association

Indonesian Paint Manufactures Association

Japan Paint Manufactures Association

Korea Paint & Printing Ind Cooperative

Malaysian Paint Manufactures Association

Philippine Association of Paint Manufactures, Inc.

Singapore Paint Manufactures Association

Taiwan Paint Industry Association

The Fderation of Thai Industries

Ministry of Industry (Vietnam)

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INTERNATIONAL ISSUE

Raw material should be levied a lower duty. The united states has been

dumping certain variety of paints in India and the association is planning to take

up the issue with the commerce ministry soon. Recently, a large quantity of

architectural paints was dumped in India fro the US. This has affected all local

manufactures and as such the government should increase import duty on paints

and the anti-dumping mechanism should be modified to address such issues

without waiting for damage to the local industry to happen. The IPA has been

collecting data and would soon furnish it with the commerce ministry for action.

Cost of many imported products did not even cover the cost of some basic raw

materials.

The easy availability of raw materials, a trained and skilled wordforce, a

technically qualitied managerial cadre bas and low production costs have made

Indian an attractive sourcing destination for global MNCs. Many overseas

companies are also undertaking collaborative research with local companies and

instutions.

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How important are exports for the Indian paint industry?

In any country where industrial development starts, paint industry is the

first one to start locally. The transportation cost is high. Paint is a build item.

Except for specialty industrial coating., nobody wants to import paint. Even within

the country, a big company should have multiple bases to reduce transportation

cost.

In house paint, globally you will always find a strong local player. He may

be a leader in that country. But he does not exist outside that country. Along with

your ablity to formulate paint, your ability to distribute the product is also

important. This is not the case in industrial coating.

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SSI paint industries will survive WTO onslaught

Despite the devastating effects of liberalization, and the future threat of

WTO, the much-touted death of the decorative paint industry in the SSI sector will

not happen.

In the annual VSKD nadir memorial workshop organized in Chennai under

the auspices of the Indian paint association, chairman DG Rajan (southern region)

said that the small industries would have to address foreseeable problems and

opportunities if they wished to live long in the next millennium.

Even though the paint industry was having a growth rate of 10 percent, this

did not seem to rub off into southern India. While differential sales taxes in the

southern states prove a hindrance to growth in some states, small companies

would have to lood at becoming contract manufacturers for larger players or enter

into strategic alliances with technology savvy companies in order to survive.

However subrmanian felt that small companies in the decorative segment

had a strong brand presence in regional markets wit the advantages of lowered

overheads and better prices. It would be impossible for any MNC or large

company to weed them out. According to statistics, SSIs contributed to per cent of

the paint industry turnover, the remaining coming from national level players.

With the small- scale having good presence in primers, distempers, exterior paints,

thinners, all perceived as growth areas, they had good future, according toSubramanian.

The rural markets offered very high opportunities with 83 percent of the

population having success to only 20 percent sale. The manufacturer who cashed

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in the rural markets big or small would have the competitive advantage. The future

growth areas would be in distempers, emulsions, wood finishes and economy

enamels.

While quality enamels will witness a growth of 8 to 9 percent, economy brands

will witness higher growth. Industrial paints will have even better growth, 12 to 13

percent in volume and 15 to 16 percent in value.

POST WTO PERIOD:

Apprehension exists some that the withdrawal of restrictions will encourage

large-scale imports of decorative paints into India. Such a seenatio is unlikely to

take place quickly. First of all, current duty structure foes not encourage imports

of finished paints and still remain competitive. Even should the current duty

structure get reduced, a likely situation over the next few years, the distribution

and the operational logistics would continue to be a hindrance for imported

product. Add to that the necessity of brand building especially for decorative paint,

its cost and time requirements, and you have a situation that does not encouragelarge-scale imports of decorative paints, for the next few years al least.

On the other hand, international manufacturers could taste the India market

by selective introduction of niche products of by selective introduction of the DIY-

Do it yourself concept. Aerosols for instance could be one of the product groups

and could include handy products for home repairs, wood finishes, zinc-aluminum

spray for metal protection. Etc. aerosols could also expand the existing retail

distribution set up by including convenience shops, shopping malls, and furniture

and home furnishing retailers, etc. decorative protective coatings or functional

coating are another set of products with potential.

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FUTURE OF PAINT INDUSTRY IN INDIA

In fact it is quite bright with the awareness level now improving and

customer now getting more, involved in purchase process. The industry, as ishappening worldwide is likely to consolidate. This will amount to a limited

number of players in the field. The foreign companies will wither get into joint

venture with Indian companies or will takeover the existing ones to take benefit of

the established network. Today distribution network, brand image of the existing

players and the customization of the products are the biggest entry barriers.

The industry is likely to register year on year growth of 7 to 8% in next 4

to 5 years. The growth in the industrial will be guided by the overall industrial

growth, increase in automobile industry and in while goods sector. On the

decorative front it will be guided by the availability of funds in the hand of the

consumers with rise in income, increase in agricultural income and improvements

in the construction industry.

This then is the background in which we operate at the present moment.

Where do we go from here? What does the future hold n store for our industry?

Will, I for one is thoroughly confident that the paint industry has indeed a very

bright future ahead. We have the capability, the wherewithal and the dedication to

achieve a quick take-off to a higher tangent of performance. Given the right policy

framework, I have no doubts that the paint industry will be going great guns in the

near future and add significantly to the overall well being of our economy. I am

sure that the plan of action and the modus operandi for the coming years would

throw new lights and open up new vistas of prosperity and growth for the paint

industry in India.

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INDUSTRY ANALYSIS

Analysis of any industry will help to know the position and attractiveness

of any particular industry. By making industry analysis, we come to know that

what is the structure of the industry, growth rate, market size, customer group, any

possibility of backward or forward integration, what are the entry and exit barrier,

what is the technological aspect that it is changing or stable, product characteristic,

it there any possibility of scale economy or learning and experience effect to the

industry, capacity utilization position i.e. having utilized full capacity have an

competitive advantage to the competitor and to know the profitability of the

industry all this shall include the industry analysis.

INDUSTRY BACKGROUND

Paint business in India has been growing at a responsible pace of 9 to 10%,

in the past five years, though there has been some down witnessed in the last two

years. Till the year 1999-2000, paint industry was the third fastest growing

industry in India, next to the Lubricant oil and automobiles. If we go back to the

period 94-95 and 95-96, the growth rates were real high at 26 and 24 %

respectively, triggered by the industrial growth and rationalization of excise duty.

The slow down is not very different than the overall industrial growth. Hence keep

the hope that it will continue to grow as economy grows. If we compare this

growth with China there CAGR for the past five years has been 7.5% to 8%. In a

way our growth has been better.

The current consumption rate of 650 to 700 grams per person is low as

compared to developed countries where the consumption rate is 31 kg/person in

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USA and 1300 grams in Sri Lanka. This however should be viewed in the context

that over 50% of the population in India does not consume paint as it is having low

income. Moreover the consumption is mostly in urban or semi-urban areas as the

home in most of Indian villages are made of bricks and mud with no plaster. Thesituation is however changing fast with improves agricultural income in hands of

the farmers with continues good monsoon records in India.

The industry can do much better if the government correctly understands its

status. The primary function of paint is to protect and the secondary one is to

provide artistic value. It is not a luxury asset of the country. As per the estimate of

the experts at corrosion institute at Karaikudi, India loses over Rs. 2000 crore

annually on account of corrosion- a wealth, which can be served by increasing

awareness about the protective aspect of paint and making it more affordable by

rationalization of excise and taxes. Currently the excise on paints is on MRP at the

rate 16% rationalized for cost.

CURRENT OPERATING ENVIRONMENT

For the industrial business most of the companies have foreign tie-up or

separate joint ventures. Like Birlas, Nerolac has automated coating technology

from Kansai paints of Japan and Du Pont. Asian Paint has a joint venture of PPG

for the success in this segment the Asses to latest technology provides a definite

edge over the others. Besides these the associations of collaborators with the OE

customers parent companies also matter. In the case of decorative business the

technology is generally indigenous except in the case of Goodlass Nerolac. Where

they have assessed to Kansai technology for the decorative products, being their

holding companies.

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With the growth rates deeming the competition among the major players

have been intense and rather cutthroat. Even though the prices have been dropped

quite frequently to boost sales in the market. The market growth in the past threeto four years is lead by the growth in the exterior emulsion products, which has

encouraged the companies to launch new products at a different points meant for

elite top of the line customer and down the line.

Some of the products, which got launched where Apex exterior emulsion

and Ace in economy by Asian Paints. This segment is likely to grow at a similar

pace in the next 3 to 4 years as well. Exterior products which include lower end

cement paints as well, accounts for 12% of total paint volume.

INDUSTRY STRUCTURE

In the Indian Paint Market, one important factor is the presence of the

unorganized sector as a substantial force. Paint business in India can be divided

into organized and unorganized. In the organized sector there are six dominating

companies who enjoy a majority of the market share and this business account for

72% of the total paint business estimated of 6000 Crores. In the organized sector

the split between decorative and industrial business is in the ratio of 76:24 %,

unlike advance countries where it is other way round, which means the industrial

business dominates. While in the decorative business Asian Paints is the clear

market leader, Goodlass Nerolac leads in the industrial sites. On overall basis

Asian Paints is the market leader followed by the . Other major players are Berger,

ICI, Shalimar and Jenson & Nicholson. Historically Shalimar paints was the first

entrants, way back in 1902. The paint industry is highly fragmented. Both the

large organized sector and the small unorganized units make paint.

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The Indian paint industry is dominated by the organized sector (60%

market share). There are around 25 large and medium companies in the organized

sector having a capacity of 36000TPA about 2200 units in the unorganized sectorhaving a total capacity of 24000 TPS share the balance 40%.

The products of the paint industry can be classified as:

1. Decorative/Architectural finishes

2. Industrial finishes

Decorative paints form 70% of the market and include lime stones

coatings, acrylic and oil-bound distempers, enamels, cement paints, super acrylic

and plastic emulsions (Apcolite). They are used in household painting,

architectural and other display purpose. This segment is price sensitive, sale of

these paints is seasonal with over 50% of sales taking place during the September-

December festival seasons.

Industrial paints comprising 30% of the paint market include automotive

paints, high performance coatings, coil coatings and powder coatings. This

segment is relatively priced inelastic, but is susceptible to end user business

cycles.

Industrial paints business is technologically intensive, most Indian

companies have tied up or are tying up with international majors to have access to

the latest technology as it is not available locally. A tier up with global paint

manufacturers also enables the domestic company to supply to local customers of

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its partners (E.g. Goodlass Nerolac is the major supplier to Maruti Suzuki because

of Kansai, its Japanese collaborator and Suzuki relations).

The paint industry is the raw material intensive, with over 300 inputs

(50% are petro based derivative) going into the manufacturing process. Key rawmaterials that go into paint manufacture are pigments (Titanium dioxide), solvents

(Orthoxylene), binders, additives and white cement/urea all of which together

account for 55% of the total cost.

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There are six large companies and over a 1000 small, some of them in the

tiny sector, that are players in the decorative paints market. Most decorative paints

are sold through trade channels. Contractors and painters apply almost all the

decorative paints sold in the country, the do it yourself market is extremely small.As there are large number of manufacturers and several 1000 retailers marketing

decorative paints, reliable information on the size of this market is not available.

We estimate that the market for decorative paints would have been around Rs.

46000 million in 2000-01. The total coatings market would probably have around

61000 million. The average annual growth rate has been around 8 to 10 %, the

market grew at over 15% in the previous year, 1999-00. Six major companies

share approx 55% of this market and over a 1000 other units share the rest.

MARKET SIZE

The Indian Paint Industry is about 100 years old industry. The first

company was established in 1902 of Shalimar Paints after that the market size of

the paint industry is getting bigger and bigger. The market size of the Indian Paint

Industry is about 6 lac tones per annum, which consist of 250000 TPA by

unorganized sector of nearby 2500 small-scale units and 360000 TPA by

organized sector.

Market size by volume(TPA)

Organized

sector

30%Unorganized

sector

70%

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The organized sector account for 70% of the total paint volume as

compared to 30% by the unorganized sector.

The market size of the Indian Paint Industry is getting bigger and biggeryear by years. The overall growth in economy lead to the more income to the

middle class consumer has resulted into higher demand of decorative and

automotive paint. The big market size will attract new competitor will lead to

increase in the competition as also global players also interested in the Indian

Paint Market as it shows good growth.

The organized are acquiring the small-scale company to expand their

market share in rural areas because the rural market has been dominated by the

unorganized sector and now a day this market has good potential for further

growth. The top six company account for 80% of the organized sector production

in terms of sales value. The six companies may include:

1. Asian Paint

2. Berger

3. Goodlass Nerolac

4. ICI

5. J & N

6. Shalimar Paints

The total business of Indian Paint industry is about 6000 crore out of 4000

crore is account by the organized sector. The market size is probably 1000000

TPA by 2003 which indicates the market of the paint is getting big and big.

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MARKET SHARE OF THE MAJOR PLAYERS

The paint industry was divided into two consumer segments: Industrial

(such as automotive) and Decorative (such as Housing).The organized sector was divided as follows:

COMPANY DECORATIVEINDUSTRIALOVERALL

ESTIMATED

PAINT

REVENUES

ASIAN PAINTS 38% 14%-16% 32.50% Rs. 6980MM

GOODLASS NEROLAC 7.80% 40% 17.50% Rs. 3750MM

BERGER PAINTS *14% 14% 14% Rs. 3007MM

ICI INDIA LTD 8%-9% 12% 10.50% Rs. 2254MM

JENSON & NICHOLSON *6.9% 6.90% 6.90% Rs. 1482MM

GROWTH RATE 8%-9% 18% 11%

TOTAL (Rs.) 15033MM 6442MM 21476MM

Since these companies strive to match their product sales to the

market (i.e. 70%: 30%)

They maintain similar market share in each segment.

OVERALL GROWTH RATE

0.00%10.00%20.00%30.00%40.00%

ASIAN

PAINTS

GOODLA

SS

NEROLAC

BERGER

PAINTS

ICIINDIA

LTD

JENSON

AND

NICOLAS

ON

COMPANY

PERSENTAGE

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Market Growth Rate:

Over the years, Indian Paint Industry has good growth rate. The overall

demand for the paint is getting higher and higher. The paint business in India hasbeen growing at a rate of 8 to 10% per annum, in the last five years; though there

has been some slow down witness in the last two years till the year 1999-00, Paint

Industry was the third fastest growing in India, next to lubricant oil and

automobiles.

In the period, 94-95 and 95-96 the growth rate was real high at 26% &

24%respectively, triggered by the industrial growth and rationalization of the

excise duty. Te slow down is not very different than the over all industrial growth,

hence keep the hope alive that, it will continue to grow as the economy improve.

If we compare this growth with China, their CAGR for past five years has

been between 7.5 to 8% in the way our growth has been better.

The paint sector grew at a slower rate of 6.5% in FY03 due to general

slowdown in the economy and subdued demand in western region, which were

affected by communal riots. While the decorative paint demand grew at 7%,

industrial paint volumes increased by 6.5%. The fastest growing segments in the

sector are the exteriors (20%) and powder coatings (12%). Demand in FY03 was

aided by a 6% growth in farm output, which is one of the key drivers.

In the industrial paint segment, automotive paint demand was higher in

FY03 on the back of a number of new model launches and overall recovery in

automobile demand. Key automotive paint manufacturers like Goodlass Nerolac

and Asian-PPG posted impressive performance in the same period.

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CUSTOMER

The customer are to be classified as that most of the demand of the paint is

coming from the urban and semi urban area where the customers have to spend on

paint the home. Nowadays, customers are involving their self in painting process

of the home. This is because that the new trend of the tinting machine which help

to have perfect matching of shade to the customer requirement. The advertisement

of Asian Paint Mera wala Cream has involved the customer in the painting

process.

The customers are purchasing the paint on the basis of the brand and

availability of different shade. In decorative segment, Asian Paint is the

market leader with maximum market share.

The 83% of the consumers are in rural area, which account for the 20% of

the sales value of the paint industry.

On the basis of the different customer group, companies have product range

for each income group of the customer.

Asian Paint Utsav Economy class

Asian Paint ROYALE Premium class

The purchasing behavior o the consumers has also affected by the Pinter

DEGREE OF VERTICAL INTEGRATION

The vertical integration refers to that backward ir forward integration in the

industry. The backward integration refers that production of the raw material by

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the company and vertical integration refers that company itself in the process of

the distribution of the final product.

As far as Paint Industry is concern the backward and forward integration is

possible. In Paint Industry most of the raw material are imported and of petroleum

nature. The industry is facing the problem of theee shortage of the raw material,

which resulted into backward integration for the production of raw material.

EASE OF ENTRY/EXIST

The entry into industry has certain barrier, which result into not an easy

entry in to the industry. The following are:

High working capital intensive:

The industry has been characterized by high working capital in the

production of raw material and finished products. The company ahs to maintain

high stock of the raw material because of that 50 to 60 % are of petroleum nature

and are to be imported. So it require High working capital which is an entry barrier

for a new company.

Distribution Channel

The development of distribution channel will require extensive effort from

the part of the company. Company has to build new distribution channel which

require huge amount of time and management of the inter mediatories.

Brand

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The brand in paint industry has effect in paint industry. The brand

development will require much more time and promotion effort to build brand. So

it would not be easy for new entrance to enter into the industry, which is mostly

dominated by brand of the company.

Tinting Machine

The new trend of the tinting machine has caused one more entry barrier in

the paint industry. The tinting machine helps to have perfect shade of the color,

which is required by the customer. To make available tinting machine thought the

distribution.

Technological Factor

Technological factor has consideration for the industrial paint

manufacturers. The industrial paint companies have to have advance technology

for the competitive advantage, which may be an entry barrier into the paint

industry.

TECNOLOGY AND INNOVATION

Certain industry may be that is facing problem of changing technology day

by day. As far as Paint Industry is concern, in decorative segment it is not facing

the problem of changing technology apart from the Tinting Machine in

distribution network. The change in decorative segment is very low in the

production process.

In industrial paint the technology changes fast as compared to the

decorative segment and company need to have latest technology in the age of

competition to have competitive advantage over the competitor. Most of the

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company is having foreign collaboration to have latest technologies, which helps

for the best quality product with the minimum cost.

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SCALE ECONOMIES

In the paint industry scale economies have not competitive advantages on

the competitor. The scale economies have moderate effect because all company

has virtually equal manufacturing cost.

LEARNING AND EXPERIENCE EFFECT

Some of the industry has certain learning or experience effect, which may

help the company to produce products with high quality and low cost. This is

because that after having certain years of experience in the industry company has

expertise which helps to produce at low cost.

As far as paint industry is concern, in industrial paint have certain learning

and experience effect because of that it require latest technology and relation to the

related industry players. In decorative segment it does not have any learning and

experience effect so that it would be easy for the new players to enter into the

Decorative segment of the paint industry.

COMPANY COLLABORATIONS AREAS OF COLLABORATONS

ASIAN PAINTS

PPG INDUSTRIES, US

NIPPON PAINTS, JAPAN

BV, NETHERLAND

ELECTRO DEPOSITION TECHNOLOGY

AUTO & POWER COATING

MARINE & HIGH PERFORMANCE COATINGS

GOODLAS NEROLAC

KANSAI PAINT, JAPANE 1 DUPONT, US

VALSPAR CO-OPERATIONS, US

AMERON COATINGS, US

AUTO & INDUSTRIAL COATINGAUTO COATING

POWER COATING

HIGH PERFORMANCE COATINGS

BERGER PAINTS

HERBERTS, GERMANY

ORICA AUSTRALIA PVT LTD, AUSTRALIA

DU PONT PERFOMANCE COATINGS, GERMANY

NIPPON PAINTS, JAPAN

BECKER INDUSTRIFARG AB. SWEDEN

TENDOUR NV, NETHERLANDS

AOTU COATINGS

HEAVY DUTY COATINGS

AUTO COATINGS

AUTO COATINGS

COIL COATINGS

POWDER COATINGS

JENSON & NICHOLSON

CHOGOKU MARINE PAINTS, JAPAN

TIKKURILA OY, FINLAND

BIO-FRIENDLY MARINE PAINTS

INSTACOLOR SCHEME

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CAPACITY UTILIZATON

The capacity utilization level in the paint industry is low, at around 55 to 60 %, aspaint capacity are generally designed to meet the peak demand requirements

during festival season. Besides capacity utilization is also affected by factors such

as product mix variety, batch size, batch proc4ssing time and down time between

bacthes. Capacity utilization will not help to produce product at low cost upto

certain extent.

IS THE INDUSTRY WORKING TO CAPACITY?

It must break the myth to capacity in the paint industry. No body in the industry

has ever been constrained by the capacity except in the rare cases. There is always

capacities available in this industry. If not in your company, may be in some other

units where you can get the paint process. Constrains exceed only in the firm of

your ability to sell.

NEW PRODUCT INTRODUCTION

By the introduction of Tinting machine, the new product introduction time has

reduced from 6 months to 1 month.

INDUSTRIAL PROFITABILITY

As far as industrial portability is concerned in the industry paint segment the

profitability will be less, as company has to approach to the professional buyers

like Goodlas Nerolac supplying the paint of the industrial major in the automobile

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i.e. Maruti & Tata Motors. In the decorative segment, the profitability will be

more as compared to the industrial paints.

OPPORTUNITY:

India, the worlds fifth largest economy in term of purchasing power, is

emerging as an attractive market for global investor in the paint industry. Low per

capita consumption of paint of 0.6 k.g. Against the world average of 15 k.g. Offers

lucrative scope for stable revenue stream to manufactures of both decorative and

industrial paints.

Improvement in cement off takes in urban area and increasing housing loan

disbursement figures, both in retail and institutional, segments indicate

immense opportunities in paint industry.

The countrys historical GDP growth trajectory of 3% per annum has

clearly shifted to 6%. In all likelihood, the country will move to 7-8%

growth path in near future. This should lead to further expansion of the

market for all consumer products.

The standard of living of the rural population is gradually improving.

The advertisement in the multiple television channels has increased the

brand consciousness of this class of consumer. This has opened up

opportunities for branded and moderately priced quality paints.

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The house hold construction industry is expected to grow almost at 8% in

the next 5 years considering the shortage of housing and government trust

on encouraging housing activities. This should favorably impact demand

for decorative paints.

At present the per capita use of paint in India is less than a little while in the

develop countries the per capita use is estimated to be over 20 liters.

Therefore, the growth opportunity for the paint industry is immense.

In case of industrial paints, more than 50% of demand comes from

industrial sector followed by 15-20% from consumer durables. With the

entry of MNCs in both these sector, the emphasis on paint quality has

increased. Beside, the industrial business will grow faster due to the lower

base and fast growth in major use industry like consumer durable and

automobiles.

Increasing influence demand of rural and semi urban consumers would

ensure a reasonable demand for paint.

The changing life styles indicated an increase in demand for luxury paint in

the mid price segment.

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THREATS: -

The competition in the paint industry has always been severe. The opening

up of the economy, does not pose any serious threats to decorative paints

trade.

The threats associated with the paints industry are similar to those

impacting other industrial that are mature and well established. Political un

certainties, social unrest, nature disasters and transport strikes etc. disrupt

the business and also adversely effect the demand.

The cost of retaining the customer is increasing day by day with increased

expectations regarding the availability of choice and service.

In the present competitive environment, the paint companies are spending

large sums to install tinting systems retail outlets so that the customer may

be provided with the widest choice of Increase demand for higher skills and

knowledge is increasing employee related costs at am accelerated pace.

The recent Increase in petroleum product prices has increased the cost of

input materials, fuels and transportation.

The advertising media, especially T.V. channel are multiplying and the

viewer ship is getting fragmented. This has substantially increased the cost

of advertisement to reach the same viewer ship.

Environmental concerns are now very important and the paint industry and

the paint industry have to address these and cope. Investments in the

pollution abatement are significant and especially so when facilities have to

be expanded or newly established.

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PEST ANALYSIS

The pest analysis refers to four main factors:

POLITICAL

ECONOMICAL

SOCIAL

TECHNOLOGICAL

The analysis will focus towards the industry that how the political stability,

rules and regulation, and the legal system of the country affecting the

overall industry. The economic condition, liberalization, policy toward

foreign investment, and growth rate of the economy as a whole also help to

analyze the overall industry attractiveness and potential for the growth. The

social aspects like people are more involved in the painting process, trend

of nuclear family; low interest rate of housing loan, increase of urbanization

and change in thinking of the people all this is helpful for the industry

consideration, also the change in technology, production process,

distribution channel and more use of tinting machine that help for better

shading of color.

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POLITICAL ENVIRONMENT

The analysis of the political and legal environment will consider the

following aspect:

Largest Democracy.

Taxation policy i.e. reduction in excise duty and custom duty on raw

material and final products.

Fair amount of political stability.

Era of coalition governments.

Political consensus on economic reforms and higher target of growth of the

economy.

Sound legal system a factor contributing large foreign direct investment.

Growth in the early nineties was constrained by high excise duties. After

the rationalization of the excise duty structure in 1992 and consequent pick up in

industrial growth, the paints segment began posting increasing growth.

The organized sector has grown at a CAGR of about 10% of over the last

five years, though the growth for the financial year under consideration was

estimated at about 5% on account of the deceleration in the rate of growth in the

paint industry consequent to the recession in the economy as a whole.

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Taxation policy:

Duty structure for Raw Materials Used in the Paint Industry

PRODUCT

EXCISE%

EXCISE%

EXCISE%

CUSTOMBASIC%

CUSTOMBASIC%

CUSTOMBASIC%

1999-00 2000-01 2002-02 1999-00 2000-01 2002-02

Titanium dioxide 16 16 16 40 35 35

Phthalicanhydride 16 16 16 40 35 35

Pigments 16 16 16 40 35 35

Orthoxylene 16 16 16 40 15 15

Paraxylene 16 16 16 40 5 5

Pentaerythritol 16 16 16 40 35 35

Raw materials account for nearly 70% of the production cost of

paints. The industry is critically dependent on imported titanium

dioxide.

Lowering of excise duty over the past few years has resulted in

major gains for the organized sector in terms of market share.

The Indian Paint Market is skewed in favor of decorative paints. In

developed countries, industrial paints account for the bulk of the

paint market.

Fortunes of the paint industry are directly linked to growth of end-

user industries such as the automobile, construction and white goods

industry.

Inflation continues to be high; the overall growth in GDP and the

Governments continued efforts to tackle economic issues provides

the desired confidence to the The Indian Market Opportunity.

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INDUSTRYS DEMANDS FROM THE UNION BUDGET 2003-04

The Indian Paint Associations has asked for a reduction in customs

duty on raw materials from the current level of 35%. Titanium dioxide is critical for paint manufacturing and import of

the same should be brought under fast-track clearance.

BUDGET MEASURES

Interest rates for all administered interest rates have been lowered by

50 basis points.

Peak customs has been slashed from 35% to 30%.

The finance minister expects the housing industry to grow at 35% in

the next fiscal. Besides, he has initiated some measures to rationalize

stamp duty and modify the land ceiling act.

Corporate are now exempt from paying dividend tax.

BUDGET IMPACT

One of the big positives for the paint industry is the reduction in customs

duty. Titanium dioxide prices, which account for ^0% of raw material cost for

paint companies, will fall significantly. Operating margins as a result, might

increase notably thus enabling the companies to post better profits. However

lowering of customs duty will also results in higher imports in the coming years.

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Housing demand might increase in the coming fiscal as a result of

lower interest rate. This will benefit paint companies in a large way. As their

prospects are closely linked with housing demand.

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INDUSTRY RESPONSE

Presently the basic customs duty on raw materials is levied at the highest

rate of 35%. This has an adverse effect on the cost structure of paint productiongiven the fact that the import basket forms 60% of the total consumption. Further

the import duty on finished paints is also 35%. This is not justified as both finished

goods and raw materials attract the same import duty. Hence the import duty on all

organic and inorganic chemicals should be brought substantially below the duty of

finished products.

The construction industry generates numerous employment opportunities,

particularly labor workforce. The Finance Minister has taken steps in the last 2

budgets particularly by raising the exemption limit on interest on housing loans.

The Finance Minister should further increase this limit as it will not only help the

housing industry but will also help the paint industry.

WHAT CAN GOVERNMENT DO TO PROMOTE THIS

INDUSTRY

Government must continue to encourage investment in housing sector

through tax concessions. The excise tariff should be brought in line with essential

goods understanding the value of paint from asset protection point of view. There

should be a legislation to paint the exterior of all the building once in 3 or 5 years

so that the urban India wears a new modern look. Some of these measures will not

only support the industry, but also have recurring losses.

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ECONOMICAL ENVIRONMENT

The Economy

The Indian Economy is the midst of a sea change over the last few year

when we set about to restructure it. The results are finally showing up in the way

in which our policy makers intend them. GDP growth is expected to touch 7%.

Foreign Exchange reserves will cross US $ 25 billion. Inflation, hope fully will be

contained below 8% industry. After a long reversionary spell, is already growing

at 8%. Indeed the economy is poised for a take-off.

The country experienced economic slow down during the financial year

2002 and GDP growth slipped to around 6% from the growth rate of 6.4% for the

previous year. While the monsoon was consider as normal for the thirteenth

successive year, the agriculture production suffered due to unfavorable distribution

of rainfall over time and regions. The food grains production is estimated to have

declined to 199 mn tons from the record production of 209 mn tons in 1999-2000.

The sustained growth of service sector, better performance of mining

industry and a growth of around 20% in exports prevented the otherwise likely

steep decline in GDP growth. The inflation based on wholesale price index was

higher at 6.5% as compared to 3.5% in 1999-2000. The rupee depreciated by

6.9%.

A devastating earthquake struck large parts of the Gujarat in January 2002.

Many villagers and towns in the district of Katch, Saurashatra region and part of

north Gujarat suffered total or partial destruction. A few thousand lives were lost

and some estimates place the value of properties destroyed at over Rs. 200000 mn.

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These parts of Gujarat may take years to recover and attain normally. This tragic

disaster has cause a severe setback to the economy of the state as the cost of relief

and reconstruction is enormous.

In these adverse economic conditions, the paints market was subdued and

the demand for paints is estimated to have grown at around 8% to 9%. Although

the economic score board is quite impressive, there is no scope for any

complacency or the stage is not yet ripe for throwing caution to the winds. For

one, inflationary pressures can erode the competitive edge. Secondly, the export

surge needs to be mainted. So that the trade balance is mainted. Thus while the

performance of the economy initially is definitely a cause for optimism, efforts

must continue in the coming years to ensure that growing is sustained.

The paint Perspective:

The Question that arises at this is, what about the paint Industry? In the

rapidly changing economic scenario how our own industry is fairing?

The demand for paints is dependent on the general economic conditions

such as goods overall economic growth, agricultural growth, the performance of

related industries likes steel, cement and construction. In advance economics, the

growth rate of Indian coating market mimics the GDP growth rate. In developing

countries like India, increasing urbanizing and the increase of standard housing are

major drivers of growth. Therefore the growth of the coating industry is 1.5 to 2

times the rate of growth of GDP. Nearly, 70% of paints are health of construction

industry is important.

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As the market develops, customers are demanding products superior to the

traditional low cost coating, branded products and greater choice. This has led to a

huge increase in demand for economy finishes. At the same time, opportunities

have increased for sophisticated and niches comparable to the best availableanywhere in the world. Within all categories, customers demand greater choice in

shade and effect. The rapid increase in the market for good quality exterior

finished is a part of this overall trend.

Consideration of immediate past of the Indian paint industry:

Towards the late eighties and early nineties the duty rates on paints were

progressive increased, to rapid decline in the industrys performance for four

successive years. During 1989-90 to 1992-93 the duty rate was increase in steps

from 26.25% to 40.25%. Corresponding the percentage growth record over

respective previous years was :(-) 6.20, 0.25, (-) 5.91and 0.67. Added to this was

the bane of over increasing raw material costs. An inevitable decline in the

demand for paint followed leading to the industry being forced to cut capacity

utilization from 69% to 55% over the period. Growth was virtually stagnant and in

fact there was negative growth also on some occasions.

This is the picture of the immediate past. Things, however, started to

change for the better about a few years ago with the introduction of the policy of

liberalization. Although the paint industry has not been yet been given the full

benefits of the Chellish committee recommendation on tax reforms, the industry

has nevertheless responded admirably to the small reduction in the duty rates

affecting in the last few budgets. Thus, while the effecting duty rate went down

from 40.25% to 35% during 1993-94, a drop of about almost the entire reduction

in revenue collection due to lower rates. Similarly, in 1994-95, when the rate has

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been reduced from 30% to 35%, i.e. a little over 14%, we expect the industry to

grow by about the same proportion. We are certain that Government will not lose

duty collection because of this rate cut, rather the collection may actually be more.

Firstly, the paint industry has the potential to grow and elevate itself to anaggressive growth path if it has the support of a reasonable duty structure. We

pointed out that the paint industrys growth was fastest during 70s when the rate

was 15%. If a similar rate is reintroduced, as was also the recommendation, as the

idle capacity of about 45% would then be straightway energize. The resultant

additional production would more than offset revenue losses.

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SOCIAL ENVIRONMENT

Making home is the important matter for Indian common man. It has also

connected the belief and value for the decoration of the home. So, socially paint is

highly connected with people because time to time they decorate their home with

paints in the occasion like Diwali, Marriage. The Diwali is the most occasions

when the paint is used. The most of the demand of the decorative paint is in the

Diwali and Marriage Season. So, socially paint is highly connected to the

consumer. In the different occasion Indian uses different color. Every color has its

socially acceptance. The increase in the middle class also helps to boost thedemand of the paint. For different need of the different consumer for this company

introducing more color in cars, bikes, e.g. LML introduce the Freedom with 15

colors.

The following are the characteristics of the Indian social environment:

Large middle class

Increase the awareness regarding paint as the protection not luxury.

Major changes in life style.

Major increase in urbanization.

Both parent working

Nuclear families

Leisure activities

Environment Consideration

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Every society has responsibility to so operate that it leaves a healthy and

clean environment for posterity and the Paint Industry is committed towards its

obligations in this respect. Research and Development is being directed more and

more towards water based and water thinnable products with lower consumptionof petroleum solvent, thus serving a dual purpose of providing environment ally

friendly products and also conserving scarce petroleum based solvents. There is

need to encourage this and Government should consider giving substantial benefits

for expenditure on this account and additional benefits by reducing levies on sales

of such paints. Indian paints Association is also Co-operating effectively with the

Bureau of Indian standards in the matter of Standards for Eco-friendly paints.

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TECHNOLOGICAL ENVIRONMENT

The technological environment refer to the how the change in the

technology will affect the working of the industry. In the paint industry

technological development. In production process is not much but in distribution

channel connection and making of shades is the main change in the technology.

In the Decorative paint segment, technology has not impact in the

production process. But in the connection of the leader technology help to have

efficient operation of the business. The development of the tinting machine is

revolution in the filed of technological development. The tinting machine helps to

have perfect shade as per the customer requirement. The introduction of tinting

machine helps to reduce to introduction period of the new product. Before this

introduction of new product will require about six months compare to one month

nowadays.

Distribution reach of Paint Majors

Size of Dealer Network No. Of Tinting Machine

Asian Paints 14,000 2,800

Goodlass Nerolac 11,500 2,000

Berger Paints 12,000 1,500

1400011500 12000

0

5000

10000

15000

size of dealer

network

Asian paints Goodlass

Nerolac

Berger Paints

company

Distribution Reach Of Paint Major

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2800

20001500

0

1000

2000

3000

no. of tinting

machine

Asian paintsGoodlass

Nerolac

Berger

Paints

company

No. of Tinting Machines

In the industrial paint segment, technological collaboration helps to

have good business. In this segment technology factor comes in to the

mind. The manufacturing of the industrial paint will require efficient and

reliable technology that will help to produce high quality paint, which can

be used for the industrial purpose. The present company that is

manufacturing industrial paint having collaboration with the foreign firm

with regards to the technological aspects.

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CRITICAL SUCCESS FACTORS IN THE INDUSTRY

Brand image, market research, distribution range of products and tinting

machine are critical for the success of any industry. All the companies have been

vying for bringing in improvements in this area. Most of the companies have

increased their advertising budgets in the last financial year and have thus spent

heavily on promoting the brands. Roughly Rs. 100 crores have been spent last year

with maximum share of Asian 40% followed by Goodlass Nerolac 23%. The two

companies Berger and ICI have been also active this year. Goodlass, Nerolac nad

Asian paints are the two companies, which have invested heavily in building up

connectivity across their factories and branches with the implementation of SAP

R3 ERP operating system. This has brought in total transparency in system and

improved service to the customers remarkably. Both the companies are also

looking at have implemented advanced IT solution for handling distribution.

1. Cost and Price Drivers :-

The paint industry costs and price are driven by raw material costs which

constitute about 57% of the cost of the sales, and government levies which

constitute 38% of the cost of the paints. There are more than 300 inputs going into

the manufacture of the paint and about 70% of them are based on the petroleum.

The petroleum prices, therefore, are one of the important cost drivers. The price

drivers include the extent of the concentration in the paint industry which is very

high. This lead to very low margins at each level with the final retailers making aslittle as 4-5%.

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2. Working Capital Management:-

The industry has high raw material content: the no. of products is also large

with varying pack sizes. Sales in the decorative paints segment are seasonal withmore than half the sales coming in the September November festival Season. A

debtor level also tends to be high in this industry.

3. Distribution Channel:-

Distribution Channel is one of the critical success factors for the success in

the paint industry. Marketing of the decorative paint require extensive dealer

networks; especially in the urban and semi urban markets.

4. Plant Location:-

The nearness the plant location to the market and raw material supply may

have success factor for any industry. Plant location helps service distribution

network and bulk consumers.

5. Technology:-

This is particularly important in the industrial paints segment. Foreign

collaboration is important for the players in this segment.

6. Brand Image: -

The brand image of the company may have success factor for the any

company. Development of the brand requires extensive promotion, good quality

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product, well service to the customer all this help to build the brand image. In the

paint industry brand image has great effect to the customer mind. In the decorative

seg

indian paint industry mrp-1 raj 92

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