Sri Lankan Paint Industry

By Roshan Attanayake
Industry Overview

{ Size of Sri Lankan paint market,

- Rs. 15 billion in value
- 30-35 million liters in volume.
{ Comprises of 60 manufacturers.
{ 06 big players controlling 97% of the market.
CIC - Dulux / Akzo / Glidden
Lankem - Robbialac
Asian Paints - Royale / Permoglaze
Causeway - Luxury / Kenlux
Silicon Coatings - Nippolac
Macsons Lanka - Multilac

1
Industry Overview

{ Decorative and industrial paint segments contribute 85% and

15% respectively to the total volume.
{ Western province generates 50% revenue.
{ Seasonal trend,
Seasonal sales turn up on December & March.
Volumes get doubled compared to an average month.
{ Industry is growing in-line with the GDP growth rate unless
special developments occur (eg: construction boom).
{ Average price level has shown a 8%-10% year on year growth.
{ 99% dependence on imported raw materials.

2
 Industry Overview

{ In 2007,
41 establishments
# 1343 persons involved in the industry
# Only 5 establishments had more that 25 employees

generated an output of Rs. 7,092,199,787

# 0.35 % of total manufacturing sector output (Rs. 2,046,816,469,680)
# 5 major players accounted for 99% (Rs. 7,021,504,787)

with a value addition of Rs. 2,711,060,603.

# 0.34 % of total manufacturing sector value addition (Rs. 793,818,688,939)
# 5 major players accounted for 98% (Rs. 2,655,812,453)

Source - Department of Census & Statistics

3
 Products & Services
{ Interior
Premier emulsion - for interior walls
Enamel & wood finishes
Interior
Primers & wall fillers

Decorative
{ Exterior
Weather shield -for exterior walls
Exterior
Roofing paints
Coatings
Industrial
{ Industrial paints
Automotive paints
Epoxy – for industrial floors
Ancillaries
{ Ancillaries - thinner, turpentine

{ After sales services – eg: 5 year warranty

for weather shield

4
Target Market
{ House owners
{ Other building owners
{ Architects
{ Building contractors
{ Professional / non professional painters
{ Engineers

5
Market Shares of Major Players
Others
3%

Causeway
15%
Dulux
34%

Multilac
10%

Nippolac
14%
Asian Paints
10%

Robbialac
14%

6
Popular Brands
{ Emulsion { Enamel & Automotive

7
Demand Drivers of Paint
{ Quality - durability, final finish
{ Price - affordability
{ Colour range
{ Free of hassle - ease of application
{ Distribution - availability
{ Services including after sales services

™ Quality value perception (equilibrium between quality & price)

is the utmost factor driving the demand for a particular brand.
™ Seasonal impact is a critical demand driver for the industry as a
whole.

8
Market Segmentation
{ Geographical Basis – based on hardware density

{ Based on income / buying power,

Top tier – high income earners.
generates a revenue of 40%.

Mid tier – middle level income earners.

accounts for highest volume & 40% revenue.

Low tier– low income earners.

generates 20% revenue.

9
Recent Drawback
{ In 2008 and 2009 volumes dropped by 32% and 18%
respectively due to,
- economic downturn
- then ongoing war
- oil price escalation.

{ Petroleum price,
- directly affects the price of raw materials
- indirectly affects other costs
(fuel for machinery, transportation).

10
Oil Price Vs Paint Price

100 700

90
600
80

Rs. / Paint ltr.

70 500
$/Oil barrel

60
400 Oil
50

40
300 Paint
30 200
20
100
10

0 0
2004 2005 2006 2007 2008 2009 2010

11
 Construction Index
Average Producer Prices 2000 – 2009
Building 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Materials (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

1,000
Bricks
1,736  1,815  1,921  1,995  2,297  2,999  3,462  4,183  4,922  5,320 

Sand cube
600  708  843  945  1,282  1,938  2,475  3,168  3,633  3,682 
Metal 3/4”
cube
2,648  2,741  2,775  2,839  2,979  3,472  3,900  4,575  4,933  5,248 
Paint 1Ltr.
300  340  375  400  440  475  500  520  620  650 
1,000
Bricks 5% 6% 4% 15% 31% 15% 21% 18% 8%

Sand cube 18% 19% 12% 36% 51% 28% 28% 15% 1%
Metal 3/4”
cube 4% 1% 2% 5% 17% 12% 17% 8% 6%
Paint 1Ltr. 13% 10% 7% 10% 8% 5% 4% 19% 5%

12
Forecasts of a Favourable Future

{ Market is expected to grow at a rate of 15% - 20 % in 2010 based on

the experience in the first 2 quarters.
{ This will be helped by the growth in related industries.
{ A construction boom is expected (large ongoing infrastructure projects
such as ports, and north & east rebuilding).
{ 10% market exist in north & east and is expected to double.
{ Construction sector growth will surpass the expected growth in Goss
Domestic Product of 7% - 8% over the next five years -NDB stock
brokers.
{ Over 700 billion rupees worth of construction-related projects are
planned by the government during 2010-2012 - Ministry of Finance
and Planning.

13
Forecasts of a Favourable Future

{ Expected boom in tourism sector – need to build additional

rooms and hotels and refurbish existing rooms.
{ Sri Lanka's tourism industry has set a target of 2.5 million
tourist arrivals by 2016, requiring the development of at least
15,000 new hotel rooms and major investment in large-scale
resorts at new locations – USAID
{ Total number of hotel rooms to grow from about 15,000 now to
22,000 in the next two years –SL Tourist Board.

14
Growth in Tourism
Tourist Arrivals

Source : Tourism Development Authority

15
Threats to the Industry
{ Use of harmful raw materials in manufacturing (methyl
alcohol, lead, mercury, chromium, arsenic).
{ These are prime toxic components that help speedy
drying, increased durability, fresh appearance and resistance
of moisture that cause corrosion.
{ Can lead to irreversible lower IQ & coordination skill
deficiencies of children (has affected 40m children around
the world - Centre for Environmental Justice).
{ No strict Health & Safety Standards in Sri Lanka.
{ SLS voluntary standard permits 600ppm (parts per million)
in enamel and zero ppm in emulsion.
{ Respective standard in USA is only 90 & zero ppm.

16
Threats to the Industry
{ Exchange rate fluctuations
affect raw material cost
{ Uncertainty in petroleum price

{ Development & emergence of substitutes

Tiles
Cladding
Glass curtains

17
 Raw Materials

Solvents Resins
- Makes easier to apply - Helps to dry

Pigments Additives
- Serves desired
- Gives colour
characteristics

18
 Raw Materials
{ Nearly 300 chemicals used in production - 99% imported.
{ 30-35 per cent of the raw materials is crude oil based.
{ Titanium dioxide is the commonly used pigment and preferred
because of its concealing ability.
{ It accounts for a 20% - 30% of the total raw material cost.
{ Other raw materials,
phthalic anhydride carbon
soya bean oil iron dioxide
castor oil metallic salt
linseed oil coconut oil
mineral turpentine calcium carbonate

19
 Tariff Structure – Titanium Dioxide
As a %
of CIF
140
3.5 122.3
13.8
120
5.0 22 %
100.0
100 Levy %

80 PAL 5%

VAT 12%
60
SRL 1.5%
40
NBT 3%
20

0
CIF PAL VAT NBT Total

20
 Tariff Structure – Paint Imports
As a %
of CIF
Levy %

Customs 28%
Duty
Surcharge 15%
60%
PAL 5%

CESS Rs. 85/Kg

VAT 12%

Exercise Rs. 16/Kg

Duty
SRL 1.5%

NBT 3%

21
 Titanium Dioxide - Imports
2009

Qty. Lankem
19%
(Kg)
CIC
CIC 808,000 36%

Multilac 326,500 Nippolac

13%

Lankem 426,000

Nippolac 286,000 Multilac

15% Causeway
18%
Causeway 400,000

22

Source : Sri Lanka Customs

 Titanium Dioxide - Imports
2009
Country Qty. (Kg) % Value (Rs) % Avg. Price/Kg. (Rs)

China 299,100 10% 64,249,634 9% 215

Malaysia 221,200 7% 50,543,241 7% 228

Saudi Arabia 816,500 28% 207,734,777 28% 254

Singapore 429,788 15% 120,199,689 16% 280

Australia 440,000 15% 109,938,188 15% 250

Other 725,146 25% 187,214,226 25% 258

Total 2,931,734 739,879,755 252

23
Source : Sri Lanka Customs
 Titanium Dioxide - Imports
3,000,000

2,500,000

2,000,000 China
Malysia
Imports Qty. (Kg)

1,500,000 Saudi Arabia

Singapore
1,000,000 Australia
Total
500,000

-
2005 2006 2007 2008 2009

Year

24

Source : Sri Lanka Customs

 Paint Manufacturing Process
Forming primary paste - Mixing plant

Pigments mixed with resin, solvents & additives

Dispersing the pigments – Sand mill

Grind pigment particulars & blend them in to solvents Filter to remove sand particulars

Thinning the paste

Agitate with solvents for the type of paint
Transfer the paste to large kettles
desired

Canning & Quality Controlling

25
 Quality Control Procedure
{ Finished paint is inspected for its density, fineness of grind, dispersion and
viscosity.

•Checked by an expert observer

Colour •Matched with standard desired
colour

• Painting over a black & a white surfaces

Hiding power and compare the coverage ratio
• 98% ratio – high quality

•Exposing a portion of painted

Fade Resistance surface to an arc light

•Determining the amount of light

Gloss given off a painted surface.

26
 Cost of Production
Per 1 Liter
Category Cost % Cost %
(Emulsion) (Enamel)
Raw material 182 70% 242 76%

Labour 16 6% 16 5%

Over heads 62 24% 62 19%

Total 260 100% 320 100%

27
Distribution of Margins

Margin

Producer 30% - 40%

Wholesaler/Agent 25 %

Retailer 10% - 15%

28
CIC – Chemical Industries Colombo
{ Market leader of paint for the last 26 years since its establishment.

{ Operates three main brands namely Dulux, Akzo & Glidden.

{ Premier brand Dulux is the most popular among Sri Lankans.

{ No. 01 after sales services provider with 700 authorized dealers around
the island.
{ Differentiation through quality is their major concern.

{ Relatively higher price of products has lead to significant loss of

market share from 55% to 34%.

{ Claimed to be the only player to conform

international standards.

29
Lankem Paints

{ Operates Robbialac brand, the oldest in the local market.

{ Only manufacturer to be awarded with ISO 14001
Environmental Management Systems.
{ Offers the widest range of colours to the market.

{ Introduced ‘Colour Studio’ concept.

{ Joined hands with Akzo Nobel of Netherlands the largest auto
refinishing producer to distribute their products in Sri Lanka.

30
Asian Paints

{ Leading player in India.

{ Offers Royale and Permoglaze brands to the market.

{ Fast growing company through value added services.

{ Operates a strong distribution network of 300 authorized
dealers around the country.
{ Enjoys a cost advantage because of Indian operations.

31
Strategies used by Players
{ Introducing innovative products and features.
eg: Water proofing products
Washable paints
Anti-bacterial protection

Dulux Space & Light – a perfect solution for small dark rooms.
Asian paints providing free paint mixing facilities.

{ Brand variety
eg: CIC introduced Glidden to compete in the rural & inferior
markets.

32
 Strategies used by Players
{ Strategies to change the customer perception.
Robbialac - Colour studio
Tyr to imply that they are not
Multilac – Colour bank just paint sellers but are
providers of colour to life.
Asian Paints – Colour mixing centre

{ Strategies to win social attraction.

Asian paints giving free training for painters.
CSR projects such as providing free paint to Dhalanda Maligawa.

33
Marketing Strategies
{ Both push & pull strategies are extensively used by the main
players.
{ Push strategies are aimed at authorized dealers and hardware
shops.
- Quantity discounts
- Foreign trips
- Annual parties

{ Pull strategies are aimed at attracting customers.

- TV commercials
- Colourful hoardings
™ These strategies become crucial when the season falls.

34
Price Comparison
Brand Price/4ltr. Discount Price paid by
(Rs.) the consumer
(Rs.)
Dulux 2475 5% - 7% 2301

Robbialac 2410 15% 2048

Asian Paints 2275 10% 2047

Causeway 2320 20% 1856

Multilac 2275 12% - 15% 2002

Nippolac 2280 10% - 15% 1938

Other 2092 20% 1673

35
Cost of Painting
A normal sized home with 3 bed rooms.
Total construction cost Ground area * cost/sqft.
(including painting) 624 * 2,500 = Rs. 1,560,000

Cost of painting Wall area * painting cost/sqft.

4200 * 35 = Rs. 147,000

For doors & windows

200 * 45 = Rs. 9,000

For the ceiling

480 * 40 = Rs. 19,200

Total = Rs. 175,200 11% of the total

construction cost

Cost of labour included in the total 34% of the total

cost of painting = Rs. 60,000 cost of painting

36
Cost of Painting - Enamel

Furniture Cost/sqft
(Rs.)
Furniture, Timber Preservative 10.00
ceiling, Wooden doors Exterior
Top coat 32.00
Total cost/sqft. 42.00

Wooden floors Sealer clear 50.00

37
Cost of Painting – Distemper / Samara
For 100 sqfts. – 2 coats

Samara 10 Kgs @ Rs. 50 Rs. 500

Lime 25 Kgs @ Rs. 20 Rs. 500

Salt 1 Kg @ Rs . 15 Rs. 15

Labour Painter 0.75 days @ Rs. 750 Rs. 562

Helper 0.75 days @ Rs. 650 Rs. 487

Scaffolding Rs. 150

Total Cost Rs. 2,314 Rs. 23.14/sqft.

38
Porter’s 5 Forces Analysis
{ Threat of new entrants – low
- Dominated by strong international & local players
- Strong distribution network
- Specialized technology & labour
- Unutilized capacity (40%) of existing players
- Brand name strength

™ How ever the number of small players growing rapidly as a lot of

niche segments not catered by organized players are available.

39
Porter’s 5 Forces Analysis
{ Threat of substitutes – low
- Low availability of substitutes
- Potential substitutes are expensive
eg: cladding & glass curtain

{ Bargaining power of customers – low

- High switching cost to customer

{ Bargaining power of suppliers - low

- Low switching cost

40
Porter’s 5 Forces Analysis
{ Rivalry – high
- Very high competition among existing players

{ Overall attractiveness of the industry - moderate

- Growth potential
Per capita paint consumption in Sri Lanka less than 2 L
In Europe & USA 8 – 10 L
- Trend is to build big houses.

Yet, - Unutilized capacity (40%) of existing players

- No government support
- High labour cost compels customers to postpone their decisions

41