Paint Industry

The Indian paint industry has evolved a lot in recent times, both in terms of industry structure and product portfolio. Not long ago, paints were largely considered to be a luxury item. Such a mindset has changed significantly of late due to the growing awareness on preventing corrosion through paints, by providing a massive fillip to the paint industry. Indian paints industry is Rs.15,000 crore market. Based on these 11 major economies, the AsiaPacific paint market has been rated at almost 13.9 million tons in 2009, and is forecast to grow by about 7.9% per year in the period to 2014. Country Market Size in 2009 (Tons) China and India are the major growth drivers in the region with paint demand in these two countries likely to continue growing at more than 10% pa in the coming years. Decorative paints contribute nearly 75% of the pie with Industrial paints accounting for the rest. Nearly 65% of the market is accounted by organised players. Structural growth story with strong linkages to economy The Indian Paint Industry is a direct play on the growing India Consumption story. Analysis of the past data trends suggest strong correlation between paints volume growth and India GDP growth. A boom in the Indian housing sector, increasing urbanisation, easy availability of housing loans and a shift from semipermanent to permanent housing structures have been driving growth in the decorative paints segment, which accounts for nearly 6570% of the Indian paint industry. There is seasonality involved in the demand for decorative paints. Consumption peaks around festive time. Asian Paints Nerolac Berger ICI Asian Paints enjoys leadership position in the Indian Paints industry, with nearly 55% share of the organized segment. Growth drivers for Indian paints industry Per capita consumption at 1.5kg is way below the developed (20kgs) as well as the developing market standards. Usage of lime extracts (chuna) in rural and semiurban markets as well as lesser awareness of the protective attributes of paints can be one of the reasons for lower consumption levels. With growing income levels, both in urban as well as rural India on the back of various government initiatives like NREGS, Farm loan waivers, pay commission led salary hikes etc, we expect the per capita consumption to improve in the medium as well as long term. o Rising income levels: According to McKinsey, proportion of low income groups is expected to decline from 24% in FY05 to 10% in FY10e. This will act as a significant catalyst for demand growth in decorative paints. o Increasing media exposure: With better awareness levels, we expect a gradual shift from unbranded to

branded segment as well as improvement in product mix for players like Asian Paints as demand for emulsions continues to outpace enamels and distempers. o Rising urbanisation: This will lead to creation of new homes, inturn, fuelling incremental demand. Currently, only 28% of Indian population is urban. Urban Share of total population o Increase in nuclear families: This is a consequence of younger demographics (60% of Indias population is below 30 years of age), with proportion of working population expected to increase from 40% in FY05 to 48% in FY15e. % of population in 1564 age group The history of Indian Paint Industry is as old as the history of the Indian people. The earliest examples of Indian painting are cave paintings going back to 10,000 B.C. The tradition of painting in Indian subcontinent grew and developed over time, resulting in a fully developed and finest style, incorporating the culture and faith of the region and religion. Indian paints always embrace rich color and clear symbolism, using specific iconography to make religious figures clearly recognizable.

History of Indian Paint has fascinated culture throughout the years. Color has been the major attraction for more than 20,000 years. Two anthropologists conducted a worldwide study of color naming in 1960's. Many languages only contained two color they are the white (light) and black (dark).Today after all the research and finding we have numerous combination colors of : black, white, red, orange, yellow, green, blue, purple, pink, grey and brown. Paint is generally made up of a pigment. The types of paints available in the market and their utility are:

Acoustic Paint: specially designed for acoustic tiles Alkyd Resin Paint: good trim, doors, faux finishes and other maximized use areas Drip less Paint: This paint is thicker and is most suitable for application on ceilings Latex Paint: good for applicability and it dries much quickly & easier to wash. One-Coat Paint: It is the more expensive version of the latex and alkyd paints and is mostly chosen for surfaces that require flawlessness in color. Primers: paint used in the initiation for all interior paint works. Rubber-Base Paint: This is best for concrete and bricks. Textured Paint: If need is to cover any flawed surface in your house get this paint. It works well on ceilings. Brief Introduction

There is a phenomenal growth on the housing sector front with rapid urbanization and availability of easy to secure housing loans which have become the prime drivers of growth in the decorative paint segment, which comprises 70% of the $2 billion Indian Paint industry. An average increase of growth of about 10% in the automobile sector contributes to 50% of the revenues in the industrial paints segment. Paints can be classified as Decorative Paints & Industrial Paints. Decorative Paints are usually meant for the housing sector. Distemper is mostly affordable by all and used in the suburban and rural markets. Interestingly, 20% of all decorative paints in India are distempers. Indian Paint products are highly in demand in countries of United States, China, India, United Kingdom, Australia, Pakistan, Hong Kong, Canada, etc forming the turning points in the Paint Industry of India. The paint products are being governed by FERA (Foreign Exchange Regulations Act) and MRTP (Monopolies & Restrictive Trade Practices Act), Indian companies were restricted from enhancing their production capacity. Due to liberalization there shackles were taken off and the industry expanded. Today manufacturers in India hardly face any threat from the foreign players. Most of them have deals with global players in terms of latest technology and markets accessibility. Prominent Destinations to source Indian Paint Products Mumbai, Ahmedabad, Coimbatore, New Delhi, Surat, Chennai, Delhi, Jaipur, Bangalore, Kolkata, Karur, Tirupur, Ludhiana, Bhilwara, Erode, Jodhpur, Rajkot, Noida, Panipat, Amritsar, Vadodara, Kanpur, Madurai, Gurgaon, Hyderabad, Navi Mumbai, Tiruppur ,Thane, Shanghai, Pune, Karachi, , Faridabad, Indore, Ghaziabad, Varanasi, Faisalabad, Alappuzha. The Indian paint market in many ways is different from other markets. It has been unique market when compared to the other markets in the world. India has over more than 50000 paint shops or outlets. Indian paint company's distribution policy directly cater to more than 25,000 shops and is unlike other industries where companies operate through distributors. Each Paint company has a large number of depots to service these outlets and a large sales force for this purpose.

Size Of the Industry A large number of Paint outlet or shops have automated/manual dealer tinting systems. Today India has more than 20,000 outlets in operation, probably the highest for any country. There are only approximately 7,000 tinting systems in China for a market two and half times of India's size. 30% to the paint industry revenue in India is accumulated from Industrial Paints. The size of the Paint Indian industry is around 940 million litres and is valued at approximately $2 billion. The organized sector comprises 54% of the total volume and 65% of the value.In the last ten years, the Indian Paint Industry has grown at a compounded annual growth rate (CAGR) of 12-13%.

Total contribution to the economy/ sales The market for paints in India is expected to grow at 1.5 times to 2 times GDP growth rate in the next five years. With GDP growth expected to be over and above 7% levels, the top three players are likely to clock above industry growth rates. There are high volumes of low cost distempers sold in India, which amounts to approximately 200,000 tons per annum at an average cost of Rs35 per kg ($0.88) at the present rate. Top leading Companies

Asian Paints India Nerolac India Paints Berger Dulux India Paints Shalimar Paints

Employment opportunities The employment potential in this industry is huge. Job prospects are many for the one who is professionally qualified in Paint Technology. One will find employment in large paint manufacturing companies like Asian Paints India Limited, Shalimar Paints, Jenson and Nicholson, Berger Paints India Limited, Nerolac Paints Limited, etc. One may also be posted in the technical service department as a Technical Assistant or Technical Executive. In this capacity, one will have to visit the site when required. Moreover, one can also work in the research and development department, if one has an M. Tech. Degree under one's belt. Besides, one will also find employment as a Supervisor in the application unit of an auto industry. There is huge demand for Paint Technologists in companies which are into the manufacture of home furnishings like almirahs, refrigerators, etc. One will be able to find employment in such home furnishing industries. Latest developments

Indian Paint Industry today is about Rs 49 billion sector which has demands for paints which is relatively price-elastic but is linked to the industrial and economical growth. Indian per capita consumption of paints is at 0.5 kg per annum if compared with 4 kgs in the South East Asian nations and 22 kgs in developed countries. Organized sector in India controls 70% of the total market with the remaining 30% being in the hands of nearly 2000 small-scale units. In India 30% accounts for the industrial paint segment in paint Industry while the decorative paint segment accounts for 70 % of paints sold in India.

Indian housing sectors boom, increasing urbanization had made easy availability of housing loans and a shift from semi-permanent to permanent housing structures have been driving growth in the decorative paints segment accounting for nearly 65-70% of the Indian paint industry. Seasons are also involved in the demand for decorative paints, where consumption peaks around festive time. Globally, Indian Industrial Paints segment accounts for a major share which indicates that this segment offers many opportunities for paint manufacturers. In June 2009 with a recovery in realty sector, the production volumes in the sector have substantially recovered. In the year 2009-2010 the Production of paints grew by a robust 25.2% during as compared to a 40 basis points drop in production in the corresponding year-ago period. As the production of passenger cars is expected to grow by 15.3% in 2010-11 the demand for automotive paints will continue to remain healthy as sales are expected to grow in double-digits. And with realty majors launching new projects, construction activity is expected to gain momentum and generate demand for decorative paints. Rise in demand is expected to be supported by higher supply as the industry is expected to commission additional capacity in 2010-11. MICHAEL PORTER ANLYSIS:-

Buyers and their behavior

Last among the key factors of competition in Porter's model is the threat from substitutes and this is one issue which is, slowly but surely, irking the paint suppliers. As countries in the Asian region become affluent, there is an increasing demand for more trendy and easy-to-use alternatives to paints. Colorful patterned wallpapers and wall paneling are being preferred by some for architectural use instead of regular emulsion paints. In terms of industrial use, the use of coatings for office equipment is decreasing significantly. Equipment suppliers prefer to use metallic finishes and oxidation process to give a more matt and sleek look to the equipment. Also, these metallic options are considered more hassle-free as there are no issues of paint chipping, re-painting etc.

Complementary products
Complementary products are Paint brushes, roller, turpentine, thinner,

Substitute Products
As the taste of people is changing not only as an individual but also in corporate where the architectural requirement get low for eg in house people use to decorate the house with antique look there by reduces the use of paints and increase the use of antique looking items, cultural show giving items. In addition, in corporate office nowadays the glass wall gives more look there by reduces the use of paints.

Porter 5 Force Model

In this context, we had applied Porter Five Force Model to analyze our Indian Paint Industry. The paints and coatings industry is highly dynamic and one which poses several challenges to suppliers in the market. Strong price sensitivity, rising raw material prices and the resultant squeeze in profit margins are issues paint suppliers have to deal with on almost an everyday basis. To understand the competitive landscape of the paint market better, it can be useful to employ Michael Porter's model of market competition. In this model, one can analyze the paint market from 4 key angles: the buyers, raw material suppliers, potential new entrants and threats from substitute products being introduced into the market. After looking at all these factors, this article will finally conclude what the key challenges are in this market and what companies can do to succeed in it.

Buyers becoming stronger

For any industry, the key factor affecting the competitive scenario in the market is the endusers or the buyers, and the paints industry is no exception to that. Paints are sold through direct sales as well through distributors. While architectural paints mainly follow the retail channels, industrial paints are sold directly to end-use companies. It has been observed that these buyers, both direct end-users and retail channel, are becoming increasing powerful with their growing bargaining power. End-users are demanding higher quality paint for the same or a lower cost. Paint manufacturers are continuously being forced to reduce prices, and those who fail to do so are losing out to the closely fought competition. In recent years, it has also been seen that, due to economic recession, end-users have lower purchasing power and this is forcing paint companies to reduce prices in order to keep up their sales volumes.

High raw material prices squeezing paint supplier's margins

To aggravate the situation, the cuts in price of product are being accompanied by increase in the raw material prices. Resins prices have been rising in the past few years for almost all kind of paints. Thus, paint companies are getting squeezed from both directions resulting in thinning of their profit margins. Another challenge on the resin front is that the introduction of newer technologies and newer types of resins are pushing out few conventionally used resins. Governmental regulations

against paints containing volatile organic compounds (VOC) will be a major factor in throwing out certain kinds of paints from the market. This will definitely affect the resin situation in the market and would require the paint companies to adjust accordingly. Companies have to be proactive and cannot sit back and wait for other companies to act because these will be the companies which will surely lose out in the market in the medium run, if not the short.

Large companies becoming larger

Paint markets in Asia are dominated by multinationals and a few large local companies. These companies are now looking to expand in the region and almost all of them are looking at the golden goose of the region, China. Multinationals like Akzo Nobel have already done very well in this direction and have made a significance presence in the Chinese market. Thai paint giant, TOA, is among the top local companies which are also aggressively looking at the Chinese market. Besides China, these large companies are also looking into new unexplored markets like Vietnam and Cambodia as these countries are showing tremendous growth potential for the paints industry. These countries are slowly opening up and purchasing power of customers is on the rise. This will encourage the growth of industries like construction and manufacturing and will correspondingly encourage paints. Besides being a growing market for sale of paints, Vietnam is also being looked at as an important country for production and export for various kinds of coatings. This is due to the low cost of labour and other resources making it an ideal manufacturing base.

Paint consumer looking to other alternatives to paint

Last among the key factors of competition in Porter's model is the threat from substitutes and this is one issue which is, slowly but surely, irking the paint suppliers. As countries in the Asian region become affluent, there is an increasing demand for more trendy and easy-to-use alternatives to paints. Colourful patterned wallpapers and wall paneling are being preferred by some for architectural use instead of regular emulsion paints. In terms of industrial use, the use of coatings for office equipment is decreasing significantly. Equipment suppliers prefer to use metallic finishes and oxidation process to give a more matt and sleek look to the equipment. Also, these metallic options are considered more hassle-free as there are no issues of paint chipping, re-painting etc.

In conclusion
Based on the above-stated factors, it can be clearly concluded that the paints & coatings industry is facing challenges from almost all directions in the competitive landscape. Paint suppliers have to act aggressively and efficiently to stay abreast in this highly competitive market. The key to success in this market lies in building a strong brand image through aggressive marketing strategies and gaining customer loyalties. Paint manufacturers have to be very creative in the way they package and sell their paints. This market, like many other markets, is moving towards being service-oriented rather than just being product-oriented. Companies need to sell more than just paint to flourish in this market. Companies have to understand their consumers' needs and preferences; and package

products accordingly. Companies who do so promptly and efficiently are sure to see success in this market.

. Major factors affecting paint industry and sectored change

The dormant paint industry has turned three shades pinker. It has been aroused out of its perennial slumber. Sleepy days are gone, an MNC in its midst has done a volte-face, and grabbed a pie out of the largest Indian player, Asian Paints. ICI's entry into Asian Paints heralds a new era in the industry. There are two ways of looking at the new era -- either as an era marked by consolidation among the top players, or as an era where Indian market shares, painstakingly built through decades of protected existence, being sold out to stronger foreign companies in an era of free competition. The ICI-Asian Paints tussle is just a case in point -the entire paint industry is undergoing a metamorphosis. Traditionally Indian managements are averse to destabilization but are open to a technological tie-up. While a political debate rages between the swadeshi and videshi lobbies on the issue, there is room for analysis on core, hard business issues. What are the factors that underline MNC presence in the paint industry? Why MNCs must be here: It is almost impossible to import paint, because it is difficult to carry the huge inventories of shades that the market wants. Housewife whims decide that they must be here and now, therefore an Indian manufacturing operation should turn out on demand the shades that blow the Indian minds. And in these manufacturing operations, what may allow them a competitive edge in future is their technology. Raiding MNCs bring in certain innovative attitudes and strategies.

Technology: Cross-border tie-ups in industrial paints are becoming the order of the day with massive investment thrusts in automobiles and consumer durables. None of the Indian paint manufacturers possess the requisite technology to manufacture autopaints. What this means is more collaborations on the cards, mainly for auto paints. Besides technological assistance, tie-up with an international paint manufacturer catering to a foreign auto company translates into orders from the latter's local venture (for instance, Asian Paints is the sole supplier of paints to DCM - Cielo and Opel Astra to whom PPG of the US caters abroad). Such tie-ups will involve imparting technology for a specific fee or setting up of separate joint ventures. The lack of technology also affects the chances of Indian paint companies in setting up manufacturing units abroad. Only Asian Paints has being innovative in setting up a number of subsidiaries abroad with independent manufacturing units to broaden its base. APL has a holding of 51 per cent in two of them - Asian Paints Fuji& Asian Paints Nepal, while 25 per cent is held in subsidiaries at Tonga and Queensland. APL owns 45 per cent in the subsidiary at Solomon Islands, and 20 per cent in Asian Paints, Vanuatu. Jensen & Nicholson has the honour of being the first paint company in India to join the prestigious Nova Paint Club - an association of eight exclusive paint companies all over the world. This enables it to access the latest technology in the paint industry.

Unorganized sector: The unorganized players usually small, have been relegating to lower priced paint producers and conversion agents for the bigger players. The paint

majors in the organized category will in due course expand their reach and consolidate their positions taking advantage of the lower tax differential between the organized and the unorganized sector. Lower excise duties and extension of MODVAT benefits to petro-based inputs have been the reasons for the lowering of the differential in price. This factor, coupled with the large amounts of expenditure required in the industry will mean that the small scale sector will slowly get edged out. However, the flexibility of the SSIs and their ability to move from one product to the other or from one specification to the other will continue to stand them in good stead. The big players therefore stand to gain by sourcing from the SSIs.

Rising demand: The industry can broadly classified into decorative and industrial segments with the former accounting for a major chunk of 70 per cent of the total market in value terms. While there undoubtedly is currently a slowdown in demand, this is part of the economic cycle. Looking ahead, analysts estimate substantial lag in demand till the end of the century. Sluggish capital markets too have been responsible for the failure of capacity creation to catch up with demand. The response of paint companies to this scenario will be to initially increase outsourcing. Paint companies had developed subsidiaries and processing units for sub-contracting of high-volumelow value products. But all that has changed. As of now, with captive capacity shortages, the trend is towards outright purchases from external sources. As a matter of fact, the lag in capacity creation is likely to force existing companies to takeover the weaker players to enable quick augmentation of capacities.

Expansion: Yet another fast-changing aspect is geographical expansion. Earlier days, when a fragmented market was served by different companies, seem to be destined to end. On a longer horizon, paint companies would be setting up new plants in regions where they do not have a manufacturing facility presently. While this will mean more expenditure on fixed capital, the presence in different territories will enable paint manufacturers to bring down their investment in working capital and distribution costs. These costs are very high in the industry, not only because of the distribution network required but also because of the requirement of stocking different shades and pack sizes. Needless to say, taking over companies would serve the purposes of geographical expansion just as well, and will even work out cheaper.The huge logistics requirements and money needed for large advertising budgets as a result of increasing competition mean that cost-cutting is all-important. This is one reason for the trend towards backward integration in the industry. Asian Paints, for instance, is getting into the manufacture of pthalic anhydride and pentaerythritol and Goodlass Nerolac is getting into pigment manufacturing.

Rural market: The huge rural market in India offers huge potential for paint companies. For example ICI Plc which till now has a presence in the premium segment, after having taken a stake in Asian Paints might try to penetrate the rural segment by forging strategic alliances with APL.

Bargaining power of buyers:For the housing requirements, the buyers can be customers(building contractors who buy in bulk) and end consumers(people who paint/re-paint their house). Customers havehigher bargaining power as they buy in bulk and are more price sensitive. For the end consumers, a number of options are available and decisions are made based on quality, price and differentiating factors( like weather protectition, environment friendly paints). The unorganished market also has a large chunk of the market share providing many options to the lower income segments. The industrial segment is a low margin high revenue businesss and the buyers of these segments are knowledgeable about their needs.