Paint Industry

IN DEPTH STUDY ON PAINT INDUSTRY
MANAGEMENT RESEARCH PROJECT- I
Submitted
In the partial fulfilment of the Degree of
Master of Business Administration
Submitted by
Name of Students Roll No

Patel Ashish.B 13044311054
Patel Chintan.B. 13044311059
Patel Kiran.G. 13044311085
Ansari Azhruhussain.A. 13044311002
Chadhary Dhaval.N. 13044311013
Modh Nirali.A 13044311038
M.B.A. Semester-III
Unde r the Guidance of
Prof. (Dr.) Mahendra Sharma
Prof. & Head
V. M. Patel Institute of Management

&
Dr. Harsha Jariwala
Dr. Abhis hek Parikh
Faculty Members
Submitted To:

Ganpat University,Kherva
(December- 2014)
CERTIFICATE BY THE GUIDE
This is to certify that the contents of this report entitled In Depth Study On Paint
Industry by Patel Ashish (13044311054), Patel Chintan (13044311059), Ansari
Azhrhussain (13044311002), Patel Kiran (13044311085),Chaudhary Dhaval (13014311013),
Modh Nirali (13044311038), submitted to V. M. Patel Institute of Management for the
Award of Master of Business Administration (MBA Semester -III) is original research work
carried out by them under my supervision.
This report has not been submitted either partly or fully to any other University or Institute
for award of any degree or diploma.
Prof. (Dr.) Mahendra Sharma,

Professor & Head,
V. M. Patel Institute Of
Management,
Ganpat University.
Date :
Place :
i
CANDIDATES STATEMENT
We hereby declare that the work incorporated in this report entitled In Depth Study On
Paint Industry in partial fulfillment of the requirements for the award of Master of
Business Administration (Semester - III) is the outcome of original study undertaken by me
and it has not been submitted earlier to any other University or Institution for the award of
any Degree or Diploma.

Patel Ashish.B 13044311054
Patel Chintan.B 13044311059
Patel Kiran.G 13044311085
Ansari Azhrhussain.A 13044311002
Chaudhary Dhaval.N. 13044311013
Modh Nirali.A. 13044311038
.
Date :
Place :
ii
PREFACE
Practical study plays a vital role in the field of education. It has been introduced for the
student to get practical knowledge along with theoretical knowledge only bookish knowledge
is not right way of learning anything especially for the management students. How
management principals are implemented in business can only be known through practical
study, students can be very well aware about industrial environment like problems,
opportunity, different situation etc. this helps the student to have better understanding and
also give them a chance to show their skills and ability.
The principal concern of this report is to reveal my learning of practical business scenario. In
writing this report I have drawn vast amount of the information from various senior people
and simultaneously supplemented by various other people, annual reports, letters, journals
etc.
Here, I am presenting a project on the different concept that I saw, fill and experience, while
the work on the project report. I have tried my level best to do the proper justification with
my work in this project.

Patel Ashish.A 13044311054
Patel Kiran. G. 13044311085
Ansari Azhrhussain A. 13044311002
Chaudhary Dhaval. N. 13044311013
Modh Nirali. A. 1304431103
iii
ACKNOWLEDGEMENT
It was really difficult for me to complete the management research project without getting co-
operation of certain people. In other words there are so many external people who directly or
indirectly help me in my management research project.
First of all, I am very grateful to our collage H.O.D. Prof. MAHENRA SHARMA for his able
leadership and our project Report who providing their valuable time and guideline to me
regarding the management Research project report.
I am also thankful to Dr.HarshaJariwala and Dr. Abhishek Parikhwho gives guideline our
group to do management research report in their college and helped me by giving all the
required information for a period . I am also thankful to my friends who help me and guide
me.

Patel Ashish.B. 13044311054
Patel Kiran.G. 13044311085
Ansari Azhrhussain.A. 13044311002
Chandhary Dhaval.N. 13044311013
Modh Nirali.A. 13044311038
iv
INDEX
CONTENTS PAGE NO.

Certificate By the Guide
Candidates Statement
Preface
Acknowledgement
Executive summary
1. Chepter-1
Introd uc t io n to I nd ia n Pa int I nd ust r y 5
Raw materials 9
Structure 9
Sector comments 10
Sector trends 10
Sector specifics 11
Market profile 11
Price sensitivity factors 13
Technology collaboration 13
What is a paint system? 14
What types of products are paints? 15
Key I np ut s For Pa int I nd us tr y 16
2. Chepter-2
Major players in Indian paint industry 20
Profiles of Indian paint industry 37
Market segments of Indian paint industry 49
I
Government policies and Indian paint industry 59
3. Chepter-3
Porters five forces analysis for the Indian Paint industry 62
SWOT Analysis for Indian Paint industry 66
Phase of life cycle 68
4. Chepter-4
Business plan 71
conclusions 94
Inferences 96
Bibliography 99
II
EXECU TIVE SUMM ARY
The Paint Industry has a good growth from last five years. There are many factors
responsible for this growth.
The main factor is rise in the purchasing power of the Indian consumers as well as
buoyant industrial growth has made this industry a high potential one.
A large portion of market was hither to cater for by the unorganized sector. But a
growing awareness of paint as a protective coating for preventing corrosion rather
than being just decorative has made the consumer demand consistency of quality.
This has contributed towards the growth of this industry.
Three end users industries that need large quantities of paints and coating have had a
major impact on the paint industry. Passenger cars have grown by over 40% during
the same period. Increased demand of white goods such as refrigerators and washing
machines of the order of 15% to 20% and 22% growth in the construction industry
has also contributed to the expansion in this industry.
The demand has been coupled with certain concessions by the government like the
reductions of the excise duty to 15% and reductions in import duty and customs duty
from 65 to 50%.
The Indian paint industry worth Rs 65 billion has consolidated over the past four
years with the organized sector taking away share from the unorganized segment. The
paint market is expected to grow at 8-10% per annum over the next few years. The
growth could be higher if the industrial activity picks up as the industrial paint
segment is gaining more importance. Asian Paints offer the best exposure being the
market leader and an innovative marketing company.
Paints can broadly be classified as decorative and industrial on the basis of the end
use. The Indian market is dominated by the decorative segment, which comprises
almost 70% of consumption as compared to developed countries where the industrial
segment is more dominated. The ratio in India is also likely to shift more towards
industrial segment, especially with growth in the automobile and white goods
industry.
1
The unorganized sector has historically been dominated due to the high excise
structure. Over the last five years, the excise rates have come to down drastically from
40 to 18% resulting in the erosion of the unorganized sector share.
The paints industry is characterized by low fixed assets intensity (as essentially it is a
mixing process) but high working capital intensity (as the number of sets is large and
there is seasonality in demand). The main investments are in brand building and
distribution infrastructure.
New trends are emerging in technology and marketing. Introduction of tinting

machines at the dealer/retailer level will bring down working capital costs. Also new
technology is being used for increasing the utility and life span of the paints. Indian
paint industry will have to keep pace with global technological changes to maintain
their competitiveness already.
Asian Paints is the marker leader with a 33.97% of market share followed by
Goodlass Nerolac 16.68%, Berger 13.89%, ICI India 9.61%, Johnson and Nicholson
5.7%, Shalimar 4%, and others 16.15%.
The outlook for the industry is positive especially given the good prospect for
automotive and white goods industry moreover, housing is expected to grow rapidly
on the back of risings incomes and government incentives. The supply situation
remains the cause for concern and will keep prices under check. The key to success
will be innovative marketing.
The utility of paints has evolved from a decorative use to a surface production use.
Also, known as surface coatings, paints can be classified on the basis of end use,
solvent system and solid content.
a) END USE CLASSIFICATION: under this heading, paints can be classified as

decorative/architectural paints and industrial. As the names suggests, decorative
paints are mainly use for household and construction purposes, while industrial paints
are used as coatings for industrial products. The main types of decorative paint are
enamel, acrylic, emulsions, distempers and exteriors and primary types of industrial
paints are marine paints, anti-corrosion metal coatings, etc.
2
b) SOLVENT BASE CLASIFICATION: this includes paints, which uses petrol
product or water as the main solvent. Water base paints are gaining popularity due to
their environment friendliness.
c) SOLID CONTENTS: can be classified as solid or liquid (powder) paints.
Powder coatings find applications mainly in the white goods industry.
The decorative segment dominates the market in India with 70% share with the rest
accounted for by industrial paints. This is as compared to the developed countries
where the share is the reverse with the industrial segment being the major one. With
increase industrialization, the ratio in India is also likely to change in the favor of
industrial and goods segment are likely to equal partners by the end of next five years.
Table: Market size for diffe rent segments
Segment of Decorative Paints Market Size (Rs in million)
Enamels 8600
Wall finishes 4730
Primers 2150
Wood finishes 430
Total 15910
Segment of Industrial Paints Market Size (Rs in million)
Auto 4386
CRP 1075
Powder 860
Coil 94.6
Others 731
Total 7147
3
CHAPTER : 1
INRODUCTION
4
Introduction to Indian Paint Indus try
Paint industry is characterized by low capacity utilization as most of the companies

get the work done on job work basis this is because of the longer processing time
required in the paint industry when paint is manufactured in smaller batches the
production falls. Most of the plant operates at 50% capacity with the exception of
Berger paints, which manages a capacity utilization of around 70%. The main reason
for this is that it has strong presence in the premium enamel and emulsion segment
and does not switch between decorative and industrial paint like the other
manufactures.
There is tremendous potential for the paints manufacturers in India because as against
an average per capita consumption of paints in India is very less (.550 Kgs).
Economic liberalization is attracting international giants like BASF Germany,
Curtlauds, UK and Jotun, Norway has announced plans to set up a powder coating
plant, while International Paints, UK intends to set up a marine paints plants. Since
decorative paints are a consumer product, sales are price elastic and any change in the
Government policy on the excise duty has a direct bearing on the sales. Over the last 4
years, the Government has reduced the excise duty from a peak of 40% to current
16%.
The entire benefit of the duty reduction has been passed to the consumer, which has
not only enabled this segment to come out of the recession but also enabled the
organized sector to increase its market share at the expense of organized sector. The
share of organized sector has increased from 20% to 25% as a result of reduction in
excise duty.
Distribution channel plays an important role in the industry. Awareness and

perception of specific brand is more important than the corporate brand equity. Asian
Paints, the market leader has around 15,000 dealers in its network, which are spread,
across the country. Goodlass Nerolac comes second with around 11,500 dealers.
Paint is a formulated product whose performance can be varied through formulation

latitude, materials composition, and processing, etc. Paints play a critical role in
5
preventing corrosion and enhancing values in various segments such as architectural,
household appliances, automobiles, industrial equipments, ships, aircraft, consumer
durables, etc.
The Indian Paint sector has an output of about 0.55 million TPA with a value of Rs.
6.5 billion. Domestic tariff cuts, rapid industrialization have help this sector post a
compounded annual growth of 10.2% over the last 5 years. The market for paints is
fragmented and split among around 25 companies in the formal or the organized
sector, with the balance being shared among 3,000 units in the small scale or the
unorganized sector. Given the fragmented nature of the market accurate figures for
production and consumption are not available and most analysts rely upon broad
estimates from the industry and some Government agencies.
The Industrial segment is dominated by the organized sector due to being highly
technologically oriented. The industrial paints segment has grown at a cumulative
growth of more than 20% over the last 4 years owing to tremendous growth achieved
by the Indian automobile sector. However the current scenario is not very
encouraging as the Indian HCV, LCV and the premium car market is facing demand
recession.
The industrial paint sector is technology intensive. The Indian cost of production is
24% more expensive than the international cost. In fact, Indian majors like Asian
Paints and GNL have embarked on hectic R&D to face the competition and also
reduce their cost of production.
The Rs 950 crore industrial paint markets are split into five segment automotive
coatings, high performance coatings, marine paints, powder coatings and coil
coatings.
Industrial segment is also the more profitable segment of the industry as compared to
decorative paints due to value addition in the form of specialized functions that these
paints perform.
Automotive coatings for 2 wheelers and 4 wheelers constitute nearly 50% of the
market where Goodlass is the leader. High performance coatings are used in plants for
fertilizers, petrochemicals and offshore oil installation where anti corrosive protection
is very essential and this market is shared amongst Asian Paints, Goodlass and Berger
6
paints. This segment accounts for nearly 16% of the industrial paint market. Powder
coatings for white goods have a 10% market share of the industrial paint market.
Marine paint accounts for 8% and other special purpose paints account for nearly
16%.
Before the entry of Maruti, the industrial paint market was sluggish as Hindustan
Motors and Premier Automobiles were preoccupied with cost of the paint and not the
quality. Maruti set stringent customer service standards by laying emphasis on glossy
finish and rust free body. Goodlass was first to seize this opportunity and entered into
collaboration with Kansai paints, which was the largest supplier of paints to Suzuki in
Japan. Thus in one stroke it was able to control the entire Maruti's business. Thus by
ridding piggyback on Maruti, in a few years time Goodalss become the market leader.
This promoted other auto manufacturers viz. Bajaj Auto, Mahindra & Mahindra,
Kinectic Honda and Telco to switch to Goodlass because of superior technology and
glossy finish it gave to the automobile.
Sensing the growth potential of this industry Asian Paints entered into collaboration
with PPG of America and was able to gain contacts from Daewoo & General Motors
for their premium range of cars.
The automotive refinishes segment has emerged as a potential segment in the

Industrial paint sector. This 5 million- liter segment is expected to grow at a rate of
25% per annum if the Indian automobile segments continue to grow at a rate of 15%.
ICI is the market leader in this segment with a 50% market share. It has set up an auto
color painting and demonstration center in collaboration with Maruti Udyog in
Mumbai and Channai. Asian PPG Pvt. Ltd. is also planning to focus on this segment.
Jenson and Nicholson have tied up with Herberts Gmbh of Germany to manufacture
automotive refinishes.
7
Domestic Consumption of Paint in India
Domestic Consumption of Paint (in Rs. Crore)

Year Rs. Crore
2005-06 2316.4
2006-07 2491.1
2007-08 2761.5
2008-09 3284.5
2009-10 3741.2
2010-11 4012.7
Source: The Hindu Business Line,.
Domestic Consumption of Paint in India
Source: The Hindu Business Line,
8
RAW MATERIALS
Some of the major raw materials used for paints are:
1. Pigments (high cost).
2. Rutile.
3. Extenders.
4. Solvents and Vegetable oils.
STRUCTURE
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 330,000 TPA. About 3000 units in the unorganized sector
having a total capacity of 250,000 TPA share the balance 40%.
The products of the paint industry can be classified as:
i. Decorative/Architectural finishes.
ii. Industrial finishes.
Decorative paints form 70% of the market and include limestone coatings, acrylic
and oil-bound distempers, enamels, cement paints (Super Snowchem), super
acrylic and plastic emulsions (Apcolite). They are used in household painting,
architectural and other display purposes. 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,
marine pains, high performance coatings, coil coatings and powder coatings. This
segment is relatively price inelastic, but is susceptible to end user business cycles.
The Industrial paint business is technologically intensive; most Indian companies

have tied up or are tying up with international majors to have access to the latest
9
technology, as it is not available locally. A tie- up with global paint manufacturers
also enables the domestic company to supply to local customers of its partners
(e.g. Goodlass Nerolac is a major supplier to Maruti Suzuki because of Kansai, its
Japanese collaborator and Suzuki relations).
The Paint Industry is a raw material intensive, with over 300 inputs (50% are
petro-based derivatives) going into the manufacturing process. Key raw materials
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.
The Paint industry is capital intensive; it has large entry barriers in the form of
distribution networks, and product branding. Working capital management is
important due to large varieties of raw materials and finished goods.
SECTOR COMMENTS
Paint is a mixture of four elements - solvents, binders, pigments and additives.

Solvents give the paint a liquid flow while the binder binds it to the surface. Pigments
impart color and opacity to the paint and the additives give it special resistance
properties.
SECTOR TRENDS
The recession in the construction and automobile sector had thrown in shades of gray
across the Industry spectrum, but the revival in these sectors is cause for cheer for the
paint industry as well. The balance sheets of the industry majors are now painted with
bright colors.
10
SECTOR SPECIFICS
On product lines, paints can be differentiated into Decorative/ Architectural paints and
Industrial paints. While the former caters to the housing sector, the automotive
segment is a major consumer of the latter. Decorative paints can further be classified
into premium, medium and distemper segments. Premium decorative paints are
acrylic emulsions used mostly in the metros. The medium range consists of enamels,
popular in smaller cities and towns. Distempers are economy products demanded in
the suburban and rural markets. Nearly 20% of all decorative paints sold in India are
distempers and it is here that the unorganized sector has dominance. Industrial paints
include powder coatings, high performance coating and automotive and marine paints.
But two-thirds of the industrial paints produced in the country are automotive paints.
MARKET PROFILE
The major players in the organized Paint sector are Asian Paints India Ltd. (APIL),
Goodlass Nerolac Paints Ltd. (GNPL), Berger Paints, Jenson & Nicholson Ltd. (J&N)
and ICI India Ltd.
Asian Paints is the industry leader with an overall market share of 33.97% in the
organized paint sector. It has the largest distribution network among the players and
its aggressive marketing has earned it strong brand equity. GNPL has the second slot
in the industry with market share of 17%. The Berger Group and ICI have a market
share of 13.89% and 9.61% respectively in the organized sector.
The market can be further split into decorative paints and industrial paints. The
demand for decorative paints is highly price-sensitive and also cyclical. Monsoon is a
slack season while the peak business period is Diwali festival time, when most people
repaint their houses. The industrial paints segment, on the other hand, is a high
volume- low margin business. In the decorative segment, it is the distribution network
that counts while in the industrial segment the deciding factor are technological
superiority and tie- up with automobile manufacturers for assured business.
APIL dominates the decorative paint segment with a 38% market share. The company
has more than 15,000 retail outlets and its brands Tractor, Apcolite, Utsav, Apex and
11
Ace are entrenched in the market. GNPL, the number-two in the decorative paint
segment, with a 14% market share too, has now increased its distribution network to
11,500 outlets to compete with APIL effectively. Berger and ICI have 9% and 8%
shares respectively in this segment followed by J&N and Shalimar with 1% and 6%
shares respectively.
The share of Industrial paints in the total paint consumption of the nation is very low
compared to global standards. It accounts for 30% of the paint market with 70% of
paints sold in India for decorative purposes. In most developed countries, the ratio of
decorative paints vis--vis industrial paints is around 50:50. But, with the decorative
segment bottoming out, companies are increasingly focusing on industrial paints. The
future for industrial paints is bright. In the next few years, its share would go up to
50%, in line with the global trend.
GNPL dominates the Industrial paints segment with 41% market share. It has a lions
share of 70% in the OEM passenger car segment, 40% share of 2-wheeler OEM
markets and 20% of commercial vehicle OEM market. It supplies 70% of the paint
requirement of Maruti, Indias largest passenger car manufacturer, besides supplying
to other customers like Telco, Toyota, Hindustan Motors, Hero Honda, TVS-Suzuki,
Mahindra & Mahindra, Ashok Leyland, Ford India, PAL Peugeot and Bajaj Auto.
GNPL also controls 20% of the consumer durables segment with clients like
Whirlpool and Godrej GE. The company is also venturing into new areas like painting
of plastic, coil coatings and cans. APIL, the leader in decorative paints, ranks a poor
second after Goodlass Nerolac in the industrial segment with a 15% market share. But
with its joint venture Asian-PPG Industries, the company is aggressively targeting the
automobile sector. It has now emerged as a 100% OEM supplier to Daewoo, Hyundai,
Ford and General Motors and is all set to ride on the automobile boom. Berger and
ICI are the other players in the sector with 10 and 9% shares respectively. Shalimar
too, has an 8% share.
12
PRICE SENSITIVITY FACTORS
Various factors that have influenced the pricing of paints are summarized below:
1. The industry is raw-material intensive. Of the 300 odd raw materials, nearly half
of them are imported petroleum products. Thus, any deficit in global oil reserves
affects the bottom line of the players.
2. The major raw materials titanium dioxide, phthalic anhydride and peutarithrithol
constitute 50% of the total cost. Besides, this, there are other raw materials such as
castor, linseed and soybean oils, turpentine. The raw materials cost sums up to a
whopping 70%. Any increase in the prices of these raw materials could adversely
affect paint prices.
3. Most of the paint majors have to import nearly 30% of their raw material
requirements thus changes in import policies can affect the industry.
4. The prices of packing materials such as HDPE, BOPP and tinplate have reduced
considerably. However, the decision of the Central Government to ban import of
tinplate waste could lead to a spurt in the prices of the tinplate in the near future.
TECHNOLOGY COLLABORATION
All the paint majors have tie-ups with global paint leaders for technical know- how.
Asian Paints has formed a Joint Venture with PPG Industries Inc. to service the
automotive OEMs.
Berger has a series of tie-ups for various purposes. It has a technical tie-up with
Herbets Gmbh of Germany in addition to its joint venture with Becker Industrifag.
With the agreement with Herbets coming to an end in 2001, Berger has now allied
with the Japanese major Nippon Paints to boost its OEM turnover since the Indian
roads are being flooded with Japanese automobiles. It also has an agreement with
Orica Australia Pvt. Ltd. to produce new generation protective coatings. The company
also has tie-ups with Valspar Corp. and Teodur BV for manufacturing heavy duty and
powder coatings.
13
Incidentally, ICI makes paints with the technical support of Herbets, which has been
recently acquired by EI Du Pont de Nemours of the US. Interestingly, Du Pont, which
is a leader in automotive coatings in the US, has a technical tie-up with Goodlass
Nerolac for the manufacture of sophisticated coatings for the automotive sector.
Goodlass also has technical collaborations with Ashland Chemicals Inc, USA, and a
leader in the petrochemical industry, Nihon Tokushu Toryo Co and Oshima Kogyo
Co Ltd, Japan.
Major foreign collaborations of Indian paint companies
WHAT IS A PAINT SYSTEM?
A paint system usually consists of a number of coats separately applied in a

predetermined order at suitable interval to allow for drying.
There is no single universal paint system available that can meet all requirements such
as Heat Resistance, Chemical Resistance, Weather Resistance, and Scratch Resistance
14
etc. However, the best paint system for specific end use can be selected out of the
very large coatings/paints available.
The quality of paint system just cannot be compromise under any circumstances. It
requires a great amount of skill to select a correct paint system within the allotted
budget. Today one can enumerate any number of reasons to highlight the need to
achieve the best possible finish for ones end product be it car or cupboard, spring or
refrigerator.
A good finish is important not only from customary standpoint of eye appeal of a
product but also primarily and most important as a means of surface protection of a
product from external abuse. All other things being equal the product that is better
finished is the one that sells more.
The application of paint is universally considered as one of the best and most
economical ways of product finishing. To achieve a good and durable paint finish; it
is necessary to adopt, most effective paint system, paint application system,
pretreatment system and to have well designed equipments to accomplish it.
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 Indian Paint
Industry.
WHAT TYPES OF PRODUCTS ARE PAINTS?
Paint is a product where the number of SKUs is well over 1,000 for the top paint
companies. Yet only a few are fast selling. This leads to the following characteristics:
Volumes of some SKUs are small and demand difficult to predict
Wide distribution networks (similar to FMCGs) lead to high safety stock

requirements.
15
Seasonal demand and High competition make obsolescence costs and stock
out costs high.
Key Inputs For Paint Indus try
The paints industry is raw material intensive. Paints involve the mixing of various raw
materials in various proportions. The raw materials are of wide variety. On an
average, raw material account for 70% of the net sales.
High cost and erratic availability of raw materials mark the Indian paint industry.
Around 300-400 raw materials are required to manufacture different kind of paints,
the high number of raw materials are finished goods highlights the working capital
intensity of the sector.
Most of the raw materials are petroleum based. Thus paint companies benefit when
the petrochemical; industry goes in to its cyclical downswing. A hike in the price of
petroleum products raise input costs negating the impact of a cut in import tariffs on
raw material.
Raw materials frequently run into short supply, resulting in high inventory costs. The
storage of one special material could result in severe manufacturing problems. It is
estimated that 18-20% of the total raw materials used the industry are imported.
Most paint companies are hit by the fact that they do not make the raw materials
themselves. For example, phthalicanhydride (PAN) is manufacture from orthoxylene
and which goes into production of paints along with titanium dioxide. Asian Paints is
the only paint company that manufactures PAN. Other companies have to depend on
imports. Since prices of PAN generally outpace international orthoxylene prices by
almost 50% paints companies end up paying a fortune when prices rise. In such a
situation Asian Paints benefits by selling PAN in open market.
Raw materials are divided in to three groups, namely, pigments (titanium dioxide,
zinc oxide etc.), solvents (mineral turpentine) and resins and additives.
16
Pigme nts are finely ground solids of different shades to give color, durability,
consistency and other properties to paint. It is also one of the major raw materials,
accounting for one-third of the raw materials costs.
Among the vital pigments used in the process of the paint manufacture is titanium
dioxide (TiO 2 ) and the industry consumes around 60% of the TiO 2 . This pigment is
available in the grades: anatase and rutile, of which anatase is exclusively unused in
the interiors while rutile is preferred in the exteriors. India has abundant raw materials
for the manufacture of TiO 2, especially imenite of which it has 12% of the world
deposits. It is ironical that the Paint Industry presently imports TiO 2 in excess of Rs 1
billion a figure that may touch Rs 2 billion by the turn of the centaury. TiO 2 ions
responsible for the demand supply gap if the strong demand growth boosts domestic
production of TiO 2 ; there will be an increase usage in various sectors. If the raw
materials are properly utilized, India has the potential to emerge as a net exporter of
TiO 2 in the next five yrs.
Titanium dioxide (TiO 2 ) is a vital pigment is available in two grades: anatase and
rutile. Of which the former is used in interiors while the latter is preferred for
exteriors.
Production of Titanium dioxide in India
Year Anatase Rutile Total
2006 11,500 9,000 20,500
2007 13,000 10,000 23,000
2008 13,250 10,200 23,450
2009 13,300 17,700 31,000
2010 13,500 25,250 38,750
Fig in Tones per Annum Source: Chemical Weekly
17
The present demand for anatase grade TiO 2 is estimated to be around 12,000 Tones
per annum and this is expected to grow at 8% per annum while that of rutile grade is
estimated to be around 50,000 Tones per annum and this is expected to grow at 10%
per annum. The paint industry presently imports TiO 2 in excess of Rs 1.30 billion and
this figure may go close to Rs 2 billion by the turns of the century.
Demand for Anatase and Rutile grade TiO 2
Year Anatase Rutile Total
2007 10,000 20,000 30,000
2008 9,200 27,560 36,760
2009 10,310 41,235 51,545
2010 15,475 61,885 77,360
Fig in Tones per Annum Source Chemical Weekly
Solvents are volatile organic compound (VOC) or use to dissolve, suspend or change
the physical properties of other materials. They are generally used to bring down the
viscosity of paints to the desire level, which also reduce the cost of paint formation.
They constitute 70-75% of the paint liquid and ultimate escapes in to the atmosphere
when the fluid rises. Solvents such as ethylene glycols and alcohol are finding wider
use as co solvents in new water-borne formulations binders are generally oils, resins
and plasticizers that give paints its protective property. Most resins manufacturers
make alkyds, polyesters, emulsions polymers, epoxy resins, amino resins, powder
coatings, etc.
Additives are added in small proportions to the paints to improve its performance
characteristics in various ways. Skinning inhibitors, fungicides, wetting agents, driers
are included in this category.
18
CHAPTER : 2
19
Major Players In Indian Paint Indus try
The 0.55 million TPA Indian Paint Industry, currently valued at US $ 1 billion is
looking at the challenges in front of them with renewed vigor. Twelve consecutive
years of satisfactory monsoon has been another encouraging factor. Although
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".
The Indian Paint Industry has recorded growths of around 8% during the previous
couple of years and around 12% during 1999. Independent sources predict that the
Indian Paint Industry would expand to almost 1 million MT by the year 2003, further
expanding to between 1.6 and 1.75 million MT by the year 2005. The current per
capita consumption of Paints in India at around 0.55 kg as compared to between 15
and 20 kgs in the developed countries leaves considerable potential in the overall
demand for Paints. To understand where this expansion could come from, it is
worthwhile to briefly look at the current scenario.
20
ASIAN PAINTS
Asian Paints India Ltd. (APIL) has the distinction of being the market leader in the
paints industry and commands a market share of 33.97%. It commands 38% in the
decorative paints segment and 15% share in the industrial paints segment. The
company's dominance is on account of its presence in almost all types of paints
segments such as primers, wood finishes and metal paints besides wall paints while
other players cater to niche markets, APIL sources its raw material requirements of
pthalic anhydride and pentaerythritol from its own in-house plants, which provides it
an edge over its competitors by reducing its raw material costs. The company has a
strong presence abroad with joint ventures in Fiji, Tongo, Solomon Islands, Nepal,
Mauritius and Australia. What keeps it ahead of its contemporaries is product
innovation; for instance it was the first in the industry to tap the exterior paints
segment.
For the quarter ended 30 June 2010, the company's net sales and operating income
increased by 9.9% from Rs 3,448.18 million to Rs 3,788.56 million. Other income for
the quarter grew by 54.6% from Rs 28.44 million to Rs 43.96 million.
Profit before depreciation, interest and tax (PBDIT) declined by 4.4% from Rs 603.84
million to Rs 577.04 million. The net profit of the company has remained nearly flat
from Rs 288.30 million to Rs 287.91 million for the quarter ended 30 June 2003.
"Despite the sluggish demand environment, Asian Paints registered a good volume
growth as all product categories posted growth," says Asian Paints vice-chairman and
managing director Ashwin Dani. "The company posted lower profits during the
quarter primarily due to a lower contribution from the chemical business. Looking
ahead, the company is optimistic about its performance in the remaining financial
year, as the economy is showing signs of improvement and a good monsoon is
expected."
Due to the good growth achieved by the company in most product categories Asian
Paints' net sales increased by 9.9%. The exterior segment continues to perform well
and new products for the company have registered impressive growth rates.
Profitability for the quarter was affected due to the high base of the corresponding
21
quarter of the previous financial year, lower contributions from the chemicals
business and increased material costs in the paints business.
For the corresponding quarter of the financial year ended 30 June 2009, the
company's net sales grew by 16%. PBDIT increased by 32% and PBDIT margins
expanded by around 2.1% for the quarter, which is significant.
Further, for the quarter ended 30 June 2010, PBT increased by 47% and the net profit
by 36%. Also, on a comparative basis for the past five financial years, the first quarter
of the previous financial year had a larger contribution to the full year's performance
of the company. For the current year, we are optimistic of an improved performance
as the economy is showing signs of improvement.
As indicated in the annual report for the last financial year, the company has adopted
a cautious outlook towards the chemical business for the current financial year. It also
stated that falling import duties will put pressure on margins and thus anticipated a
fall in profitability from those exceptional levels for the chemicals business. But the
company is still expecting an improved performance for the chemical business in the
remaining part of the financial year.
As anticipated, the paints business has witnessed increased material cost for the
quarter. To partly offset the increase in raw material prices, which was around 9% for
the quarter, a price increase of 3% was announced in the middle of May 2009. Thus,
for the past three quarters , raw material prices increased by around 6% in each
quarter. The company now expects raw material prices to soften in the remaining
financial year.
For the recently acquired units Berger International Ltd, Singapore, and SCIB
Chemical, Egypt Asian Paints has concluded examination of the cost structures of
these two companies and their subsidiaries. Due to implementation of some initiatives
by Asian Paints, certain economies have been achieved. The company is also in the
process of helping the acquired units understand the business culture of Asian Paints.
Depending on each other's strengths, group policies and strategies are being laid down
for improved performance.
Asian Paints is India's largest paint company with a turnover of Rs 18.84 billion
(around $390 million) in 2002-03. After the acquisition of Berger International Ltd,
22
Singapore, Asian Paints ranks among the top 10 decorative coatings companies in the
world. It has joint ventures in 22 overseas countries. It has 28 paint manufacturing
cities spread across the world with a combined paint-manufacturing capacity of
around 330 million liters annually. Asian Paints is the market leader in 10 countries
including India.
Asian Paints, Indias largest paint company, has begun its operations in Bangladesh.
The entry into Bangladesh marks Asian Paints 11th joint venture in international
markets and its largest green- field venture in overseas markets.
Asian Paints (Bangladesh) Ltd is a joint venture between Asian Paints (India) Ltd,
Indias largest paint company, and Confidence Cement Ltd, one of the largest cement
producers in Bangladesh. Asian Paints will hold 51% stake in the company, while
Confidence Cement will hold 49%. A fully integrated paint- manufacturing unit has
been set up and is situated in the Ghazipur district, north of Dhaka, which will service
the entire Bangladesh paint market.
Asian Paints will introduce the Apcolite range of products, which is its premium
quality range in international markets, and the Decora range, which is its international
brand for economy products. Under the Apcolite and Decora brands, many product
segments will be covered in the initial phase.
Asian Paints will enter into segments like interior wall finishes, the exterior segment,
enamels and the wood finish segment through the above- mentioned brand names. The
company will immediately introduce the concept of multiple shade choice to the
Bangladeshi consumer in most of its emulsion paints. The launch of multiple shades
in its Apcolite range of emulsions will provide to the Bangladesh consumer, for the
first time, a wide choice of colors that was not previously offered by any paint
company.
The total Bangladesh paint market is estimated to be over 30,000 MT, valued at
around INR 2200 million (US $45 million). The market is growing by around 5-7%.
The GDP growth for the country has been consistently around 5% and the per-capita
paint consumption is around 250 gms. The market, thus, provides high potential for
growth as well as an opportunity for paint manufacturers to upgrade and expand the
market.
23
Asian Paints is proposing to set up, subject to obtaining necessary approvals and
licenses, a unit for the manufacture of 100,000 tones per annum (TPA) of paints in
Pondicherry.
The proposed plant, subject to approvals, will be Asian Paints largest plant in the
world and would be the most state-of-the-art plant set up by the company. The
Pondicherry plant will be scaled to its full capacity over a period of time and the
investment in the mentioned project will also be made in a phased manner.
Asian Paints vice-chairman and managing director Ashwin Dani says: The proposed
plant became imperative due to the good growth rates witnessed by the company in
the last couple of years. The last manufacturing facility set up by the company was in
1989, and the company has done an excellent job in last couple of years to further
sweat the assets as well as increase productivity and capacity at existing plants. Also,
all water-based products, especially emulsions, have witnessed very good growth
rates, which have further strained capacity at the existing facilities for these products.
Asian Paints present combined capacity of the existing four plants in India is 230,900
tones per annum. For the financial year ended 31 March 2002, Asian Paints sold
around 201,000 tones of paints, registering a volume growth of around 9.6% over the
previous financial year.
The last green-field manufacturing facility set up by Asian Paints in India was in 1989
at Kasna, Uttar Pradesh. In the recent past, Asian Paints had received clearances to
expand the capacity of its Ankleshwar and Patancheru plants by 30,000 tones per
annum in each of these plants, thus enhancing the companys capacity in each of these
plants to 80,000 tones per annum.
Asian Paints has four paint- manufacturing units in India. These units are situated in
Bhandup (Maharashtra), Ankleshwar (Gujarat), Patancheru (Andhra Pradesh) and
Kasna. The company has two facilities as part of its backward integration process. It
has a factory at Ankleshwar that manufactures phthalic anhydride and in Cuddalore,
Tamil Nadu, which manufactures pentaerythritol.
All the companys paint plants have been certified for ISO 9001 and have also
received the ISO 14001 certificate for Environment Management Standard. The
24
phthalic anhydride plant has been certified for ISO 9002 and ISO 14001 whereas the
pentaerythritol plant has been certified for ISO 14001.
Key financial ratios for Asian Paints
Asian Paints (India) Ltd. Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
Rs. Crore 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Gross sales 1046.8 1158.38 1383.55 1526.01 1662.33 1886.06
Net sales 885.24 984.2 1194.03 1322.38 1450.71 1639.63
VOP 897.76 986.53 1214.37 1333.15 1412.56 1671.23
Other income 8.13 11.87 7.68 7.07 11.32 10.65
Cost of production 594.82 666.57 780.29 855.47 970.65 1144.58
Selling & marketing expenses 117.71 132.19 177.49 176.26 192.49 216.58
Distribution expenses 28.16 32.95 40.96 50.62 0 0
PBDIT (NNRT) 129.16 137.14 190.15 208.55 236.15 279.58
PBDT (NNRT) 109.58 114.81 169.86 186.43 221.56 271.23
PBT (NNRT) 92.59 92.12 142.02 154.85 179.78 226.1
PAT (NNRT ) 59.59 68.12 96.27 105.35 113.69 141.6
Exports 7.24 9 14.05 12.36 8.83 7.17
Imports 133.34 105.55 119.24 118.68 120.78 140.9
Gross fixed assets 303.92 410.6 468.17 544.85 583.96 605.6
Current assets 372.72 344.91 388.18 443.95 337.5 406.9
Net worth 260.39 304.51 351.5 407.1 405.42 473.78
Equity capital 40.12 40.12 40.12 64.19 64.19 64.19
Long term borrowings 113.05 148.63 108.39 137.74 101.73 78.96
Capital employed 373.44 453.14 459.89 544.84 507.15 552.74
Current liabilities & provisions 274.08 232.67 305.26 333.23 255.55 334.9
T otal assets / liabilities 609.13 655.33 718.45 823.06 829.33 943.14
Growth (%)
25
Gross sales 11.98 11.57 19.7 10.48 9.09 13.15
GFA 31.85 35.1 14.02 16.38 7.18 3.71
Total assets 22.71 7.58 9.63 14.56 0.76 13.72
Margins ratios (%)
PBDIT (NNRT) / sales 12.34 11.84 13.74 13.67 14.21 14.82
PBDT (NNRT) / sales 10.47 9.91 12.28 12.22 13.33 14.38
PAT (NNRT ) / sales 5.69 5.88 6.96 6.9 6.84 7.51
PBDIT (NNRT) / net sales 14.59 13.93 15.93 15.77 16.28 17.05
PBDT (NNRT) / net sales 12.38 11.67 14.23 14.1 15.27 16.54
PAT (NNRT ) / net sales 6.73 6.92 8.06 7.97 7.84 8.64
Re turns ratios (%)
PAT (NNRT ) / net worth 24.5 24.12 29.35 27.77 27.98 32.21
PAT (NNRT ) / total assets 10.78 10.77 14.02 13.67 13.76 15.98
PBIT (NNRT ) / capital employed 30.04 25.26 35.29 32.48 38.33 42.42
PAT (NNRT ) / capital employed 15.96 15.03 20.93 19.34 22.42 25.62
(Source: Prowess)
26
BERGER PAINTS
A leading player in the industry, Berger Paints boasts of a market share of 13.89%.
The company also has the distinction of being the third largest player in the industry.
It is predominantly engaged in the decorative paints segment, which is responsible for
two-thirds of its sales, remaining earnings come from the industrial paints segment.
Berger has two plants located at Howrah and Pondicherry for producing synthetic
resins and paints respectively; besides these it also owns a wholly owned subsidiary
Beepee coatings, a manufacturing unit in Gujarat. The company enjoys the benefits of
technical tie-ups with Valspar Coatings, USA and Herberts, Germany for heavy-duty
coatings and automotive coatings respectively. Berger Paints is a company with
fairly sound fundamentals and a steady financial track record.
Key financial ratios for Berger Paints
Be rger Paints India Ltd. Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
Gross sales 348.87 426.44 505.35 562.66 602.06 668.8
Net sales 297.85 363.78 435.41 488.48 522.63 580.27
VOP 305.89 385.91 436.54 491.67 522.3 577.2
Other income 3.22 6.93 5.45 5.86 7.98 8.18
Distribution expenses 15.1 17.59 21.71 23.3 0 0
PBDIT (NNRT) 34.73 39.16 43.11 50.33 55.43 64.11
27
PBDT (NNRT) 27.71 29.35 34.66 41.41 46.85 58.33
PBT (NNRT) 24.38 24.44 28.24 32.98 35.46 45.21
PAT (NNRT ) 17.38 21.41 24.91 28.55 32.23 32.25
Exports 0.28 0.21 0.11 0.18 0.8 2.79
Imports 28.66 29 27.97 31.24 25.32 27.02
Current assets 133.52 201.54 208.93 232.68 209.77 220.16
Net worth 79.34 115.23 126.5 140.36 149.71 164.98
Equity capital 11.71 26.57 26.57 26.57 26.57 26.57
Growth (%)
Gross sales 11.91 22.23 18.5 11.34 7 11.09
GFA 62.27 37.83 13.78 24.2 13.07 7.06
Total assets 19.97 49.25 5.17 15 -1.35 -0.65
Margins ratios (%)
PBDIT (NNRT) / sales 9.95 9.18 8.53 8.95 9.21 9.59
PBDT (NNRT) / sales 7.94 6.88 6.86 7.36 7.78 8.72
PAT (NNRT ) / sales 4.98 5.02 4.93 5.07 5.35 4.82
Re turns ratios (%)
28
(Source: Prowess)
29
GOODLASS NEROLAC
Goodlass Nerolac Paints Ltd. [GNPL] with its two wholly owned subsidiaries
Saurashtra Paints Ltd., Ahmedabad and GNP Madras Ltd., ranks second in the
industry with 16.68% market share. It is recognized as the leader in the industrial
paints segment with a market share of 41%. The company has a tie up with Kansai
Paint Company of Japan, a world leader in paints, which holds 65% stake in GNPL.
Having derived maximum income in industrial paints from Maruti Udyog Ltd. (MUL)
until recently, the company has now widened its client base to include many other
automobile manufacturers like Mitsubishi Lancer, Hyundai Motors and Telco.
Significantly, the company continued to fare well despite the slowdown in the
automobile segment and with the industrial paints segment likely to witness good
growth in the medium term, GNPL appears to be in a fairly advantageous position and
should be able to reap rich benefits in the future.
Goodlass Nerolac Paints Ltd, a leading paint manufacturer in India, has planned its
corporate strategy for the season. The new strategy reveals a distinct thrust on its
corporate brand Nerolac Paints, reinforcing the companys leadership position and
also reiterating Nerolacs commitment as providers of complete paint solutions to
their customers.
Says Goodlass Nerolac managing director H M Bharuka: After a hiatus of nearly two
years, we are reinforcing our corporate image by giving a new look to our corporate
campaign, the earlier one already having won the hearts of the customers. The
strategy is aimed at reiterating the commitments of the company and forging an
unforgettable bond with the companys customers, while increasing awareness and
generating demand.
Goodlass Nerolac Paints had stopped its corporate advertising and embarked on a
strategy of building individual brands in the past few years. This was initiated with
the launch of the companys premium exterior paint brand Nerolac Excel and
continued with Nerolac Allscapes - 24-karat interior emulsion and the economy
exterior paint Nerolac Suraksha, all of which have been success stories in their
respective categories.
30
The new corporate campaign rolls out in the first week of September 2002, to tap the
forthcoming festive seasons. Two well-known television stars, Smriti Malhotra Irani
and Sakshi Tanwar, have been roped in the new campaign. The new television
commercial (TVC) has been woven around the vastly popular jingle of Nerolac: Jab
ghar ki raunak badhani ho. The jingle retains its earlier essence, with a fresh touch
of Gujarati folk tunes to the first two lines. Popular playback singers KK and
Mahalakshmi have given a magical resonance to the new TVC.
For the past two years, Goodlass Nerolac has been the trendsetter, offering bright new
unconventional color schemes to their customers, far removed from the earlier trends
of neutral and pastel shades. The TVC also showcases these bright festive colors,
keeping in mind contemporary market trends.
Nerolac is the only paint company this season to launch a grand scale promotional
campaign, which will include contests on a daily basis and conclude on the Diwali
day with grand prize of a Honda City. The promotional campaign has been phased out
for a period 60 days, starting from 6 September to 4 November 2002, covering
forthcoming major Indian festivals.
Consumers can enter the grand scale Har Din Diwali contest by buying any of the
Nerolac products. Once the consumer qualifies for the contest, he will be applicable to
win multiple prizes throughout the 60 days promotion. During the Har Din Diwali
campaign, Nerolac will be giving out exciting prizes amounting to Rs 50,000 on a
daily basis. Prizes will include Samsungs products like television sets, washing
machines, VCRs, refrigerators and Samsung Microwaves. Additionally, all the
participants will also be entitled to a discount of 5% on all Samsung products.
Goodlass Nerolac Paints has been at the forefront of paint manufacturing for more
than 80 years, pioneering a wide spectrum of quality paints. It is the second- largest
paint company in India and the undisputed leader in the industrial segment, having a
turnover of Rs 760 crore.
The company has five strategically located manufacturing units all over India and a
strong dealer network of over 11,000 dealers across India. The company manufactures
a diversified range of products ranging from architectural coatings for homes, offices,
hospitals and hotels to sophisticated industrial coatings for most of the industries.
31
Key financial ratios for Goodlass Nerolac Paints
Goodlass Nerolac Paints Ltd. Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
Gross sales 489.02 545.79 629.23 685.54 707.76 790.71
Net sales 417.44 467.25 545.35 594.86 620.44 693.43
VOP 415.61 480.62 547.64 612.69 610.81 702.06
Other income 8.26 7.43 6.5 7.82 7.51 4.64
Distribution expenses 15.96 17.33 19.79 23.93 23.5 27.59
PBDIT (NNRT) 54.81 57.14 65.04 62.67 68.18 81.13
PBDT (NNRT) 45.97 45.07 53.56 53.42 62.09 77.35
PBT (NNRT) 42.65 35.65 41.42 33.34 37.41 54.66
PAT (NNRT ) 29.9 27.55 29.45 22.27 24.65 36.26
Exports 5.25 0.91 0.18 0.08 0.16 0.24
Imports 55.21 53.16 66.56 67.92 60.32 84.6
Current assets 166.63 208.21 232.14 250.49 238.64 261.1
Net worth 146.67 161.16 180.11 191.72 202.56 228.55
Equity capital 15.3 15.3 15.3 15.3 15.3 15.3
Current liabilities & provisions 94.7 112.92 130 142.19 146.21 171.98
Growth (%)
Gross sales 6.34 11.61 15.29 8.95 3.24 11.72
Cost of production 5.39 19.37 15.39 13.55 -0.64 10.44
GFA 3.02 120.93 10 32.36 12.21 19.69
32
Total assets 14.19 11.12 1.89 19.03 3.43 13.16
Margins ratios (%)
PBDIT (NNRT) / sales 11.21 10.47 10.34 9.14 9.63 10.26
PBDT (NNRT) / sales 9.4 8.26 8.51 7.79 8.77 9.78
PAT (NNRT ) / sales 6.11 5.05 4.68 3.25 3.48 4.59
Returns ratios (%)
(Source: Prowess)
33
ICI INDIA LIMITED
ICI India Ltd. (ICIIL) is a part of the Imperial Chemicals Industries (ICI), UK that is a
world leader in paints. The company has diversified interests and is not purely a
paints company. Backed by a market share of 9.61%, ICIIL is recognized as the
fourth largest paints manufacturing company. The company, which was a leader in the
premium emulsion paint market, has now lost out to Asian Paints in the same
category. The decision of the parent to invest more funds in the company could prove
extremely beneficial.
It trades at a price earnings multiple of around 14 times its latest annualized earnings
per share. Its recent earnings performance has not been impressive. ICI (India) has
also been restructuring operations to focus on its core business. However, it may take
time for the company to improve its financials. Hence, fresh exposures need be
considered only with a significant improvement in the financials.
ICI (India) is the fourth largest players in the domestic paints industry. Apart from
paints the other core businesses for the company include specialty chemicals and
starch. It also has interests in segments such as rubber chemicals and pharmaceuticals.
It has a market share of around 11.54% in the paints industry.
ICI's prospects for the near term will depend on the outcome of its re-structuring
moves. The company is re-aligning its businesses with the global profile of ICI Plc by
concentrating on specialty chemicals and paints.
It has spun off its industrial paints division into a joint venture with Berger Paints. ICI
(India) was at a major disadvantage in this segment, as it did not have access to the
latest technology. Given Berger's expertise and higher growth rates in this segment,
the company's performance should improve.
Meanwhile, ICI (India) has decided to sell its polyurethane unit to Huntsman
Corporation, US, for Rs 82 crore. The cash flow from the sale came in at an
opportune moment, considering that ICI (India)'s financials are not so healthy.
34
Key financial ratios for ICI India Ltd.
I C I India Ltd. Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
Gross sales 761.96 902.62 950.98 907.43 805.46 798.4
Net sales 663.27 794.21 846.7 814.14 718.97 714.13
VOP 671.86 804.49 844.43 807.98 727.55 720.37
Other income 19.67 16.86 13.28 18.97 18.98 11.61
Distribution expenses 14.87 23.43 24.35 21.56 19.86 21.05
PBDIT (NNRT) 102.09 91.86 79.81 65.89 76.68 77.27
PBDT (NNRT) 81.7 63.61 62.65 58.41 69.99 72.46
PBT (NNRT) 63.41 39.45 39.36 35.3 47.03 49.09
PAT (NNRT ) 43.41 24.95 39.36 17.5 20.33 23.6
Exports 18.5 24.57 41.16 72.28 77.33 54.63
Imports 69.22 107.44 152.2 170.73 113.9 132.43
Current assets 396.66 409.92 363.77 413.55 254.09 397.15
Net worth 248.49 284.92 314.34 358.68 395.55 458.65
Equity capital 40.87 40.87 40.87 40.87 40.87 40.87
Long term borrowings 76.05 95.55 43.06 35.67 23.54 0
Growth (%)
Gross sales 7.76 18.46 5.36 -4.58 -11.24 -0.88
Cost of production 2.57 22.94 4.99 -4.18 -15 -2.89
GFA 4.73 15.33 -11.18 0.27 -3.96 3.46
35
Total assets 20.45 4.41 -7.84 3.63 9.55 12.29
Margins ratios (%)
PBDIT (NNRT) / sales 13.4 10.18 8.39 7.26 9.52 9.68
PBDT (NNRT) / sales 10.72 7.05 6.59 6.44 8.69 9.08
PAT (NNRT ) / sales 5.7 2.76 4.14 1.93 2.52 2.96
Re turns ratios (%)
(Source: Prowess)
36
Profile of Indian Paint Indus try
The classification of paint industry can be made either product wise or sector wise. In
the sector wise segmentation, this industry can be classified into:
1. The organized sector comprising of large and medium size units.
2. The unorganized or the small-scale sector.
1.ORGANIZED SECTOR
The total market size of the Indian Paint Industry is US $1000 million. In that
organized sector has a 55% market share. Organized sector dominates by six large
players. The organized sector can be divided into two distinct segments.
1.Architectural Segment growing at 8% (US$ 500 million)
2. Industrial segment growing at 15% (US$ 230 million)
Overall growth of the organized sector is 10 to 12%. Compounded sales volume

growth of the organized Sector was 12% in the last six years. Top six manufacturers
have expanded capacity by 50% to service peak demands. Yet, after opening up of the
Indian market, some multinational paint companies are making efforts to get a
foothold in the Indian market.
Asian Paints is the market leader in an organized sector with the market share of 37%,
and Godless Nerolac has 15.9% market share, Berger paint has 13.8% market share,
ICI has 11% market share, Jenson and Nicholson has 5.7% market share, Shalimar
paint has 4% market share and others have 12% market share.
37
Organized sector Market Shares
Organized Sector Market Shares Value
Asian Paints 37%
Goodlass Nerolac 15.9%
Berger Paints 13.8%
ICI 11%
Jenson & Nicholson 5.7%
Shalimar 4%
Others 12%
Source: Paint India
Organized sector Market Shares
Organized sector has divided into two segments:
38
Market segments of Organized sector
Market Segment Shares in %
Architectural 70%
Industrial 30%
Source: Paint India
Market segments of Organized sector
39
1.1 ARCHITECTURAL SECTOR COMPOSITION
Composition of Architectural sector
Enamels 50%
Distemper 19%
Emulsions 17%
Exterior Coatings 12%
Wood Finishes 2%
Source: Paint India
Composition of Architectural sector
Architectural Sector Features
Enamels : Steady growth
Emulsions : Shift from distemper and enamels to emulsions. High growth

area
Distempers : High growth in low priced low quality distempers as

consumers are upgrading from lime wash
40
Exteriors : Exterior emulsion fastest growing segment in the Indian Paint
market.
1.2 INDUSTRIAL SECTOR COMPOSITION
Composition of Industrial sector
Automotive Paints 50%
High Performance Coating 30%
Powder Coating 10%
Coil Coating 5%
Marine Paints 5%
Source: Paint India
Composition of Industrial sector
Automotive Sector
High growth sector with a number of new entrants like Mercedes Benz, Mitsubishi,
Daewoo, Hyundai, Honda, Fiat, General Motors, Ford. However, recently there is
some slackness in Auto demands. Two-wheeler market is booming due to demand
from large Indian middle class.
41
High Performance Coatings
Steady growth due to increase investments in refinery segment and power sectors,
particularly Thermal and Nuclear.
Powder Coatings
Increase growth due to increased sales of white goods and auto ancillaries. 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 automobile ancillary industry is another
prospective area for Powder Coatings, which in turn is dependent on the performance
of the automotive industry.
2.UNORGANIZED SECTOR OR SMALL SCALE SECTOR
Indian small-scale sector covers very few part of the segment and there the numbers
of companies are very high. So they can have association for the development of the
small-scale industries.
Indian Small-Scale Paint Association, commonly known as ISSPA, traces its origin to
the year 1956, when a group of small- scale paint manufacturers banded together to
unitedly promote the small- scale paint industry.
Today, ISSPA Membership encompasses the majority of small- scale paint

manufacturers, spread all over India.
ISSPA truly represents the small-scale paint manufacturing industry in India. ISSPA's
Membership consists of Ordinary Members (paint and allied manufacturers) and
Associate Members (connected with the paint industry as suppliers of raw and
packing materials). The Membership of ISSPA is open to anyone connected with the
paint industry.
42
Main Objectives of Small Scale Association
1. To promote and protect the small-scale paint industry in India.
2. To foster unity and co-operation among small-scale paint and allied

manufacturers, for their common progress and prosperity.
3. To represent and seek redress from Government for the difficulties

experienced by its Members, by written submission to Government,
interaction and representation on relevant Government bodies.
4. To disseminate among its Members updates in technology and management

practices.
5. To update Members about changes in Government regulations affecting their

industry.
6. Identify problems that may arise, affecting the small-scale paint industry and
take preemptive measures.
7. Maintain a library offering members ready access to several national and

international publications, but most importantly the standards for paints lay
down by the Bureau of Indian Standards.
ISSPA is incorporated as a Company under Section 25 of the Companies Act,

1956.The Association is controlled by a Central Committee, consisting of a President,
Vice President, and the Chairmen of all ISSPA regions, who collectively lay down
policies for the Association and are responsible for its propagating the objectives of
ISSPA. The term of office bearers is two years. ISSPA is divided into several
Regions. Each Region has a Chairman, Vice Chairman and Members, forming a
Committee. Here too, the term of office bearers is two years.
No discussion on Indian industries is complete unless reference is made to the small-

scale sector. Like many industries, the Indian Paint Industry is well represented by the
small-scale sector. They not only represent a large number of manufacturers but also
contribute around 40% of the industry turnover; down from about 50% a few years
43
back. Subsidies for the small-scale sector being progressively withdrawn large
disparities that existed between the large and the small-scale sectors have diminished.
Traditionally, the small-scale paint manufacturers lived mostly on low technology
products and manufacturing processes, satisfying the demand at the lower end of the
buying spectrum. They most often sold on price alone and provided negligible efforts
to marketing or investments in technology and product development. Many of the
small-scale manufacturers processed low priced products for the major manufacturers.
However, with the majors increasing capacity and currently operating at 60 to 70%
capacity utilization, processing needs through the small- scale sector has also
diminished.
The new policies on small-scale industry have not changed the situation very much.
How much would these changes in the small-scale industry policy help the Indian
small-scale paint manufacturers are a moot point. A question being asked by many is
whether they should continue to battle the aggressive Indian paint majors or sell out
and exit from the industry.
However, not all the small-scale paint units can be said to be facing survival
problems. Many of them did change course at some time in the past and invested in
technology and product development. They focused their business into products for
which expertise existed with them and where they felt comfortable. In due course they
created a business niche for themselves, despite competition from other small-scale
units as well as major paint units. Some of them even moved out from the restrictions
of small- scale units and began competing with other paint manufacturers on level
grounds. India does have small and medium paint manufacturers that have obtained
ISO 9002 certification.
There are several opportunities for the others through which they can also progress
despite withdrawal of Government subsidies and protection. In a competitive situation
that exists in the Indian Paint Industry today and the expectations of even more
competition in the future, small- scale paint businesses will have to stand on their own
and forget that they will continue to receive protection and subsidies from the
Government. To do so they will have to invest in technology, product development
and marketing. They will have to find their own niche and focus on their business like
never before. Mergers within the small-scale sector or with the industry majors are
44
possible. Co-operation among different small-scale manufacturers through joint
manufacturing, product development and marketing is another area that they could
look at. They could also create niche products and act as manufacturing base for their
products with the majors or other larger units marketing these products. Possibilities
are many, but it is certain that the small- scale paint manufacturers in the country are
facing a time clock that is just short of sounding the time limit. Not to be left out in
the race, there need some amount of urgency for their actions.
GROWTH AREAS FOR THE INDIAN PAINT

INDUSTRY
Automatic Tinting System
Indian Rural Market
Auto OEM Finish
Auto Refinish
Exterior Coatings
New Developments
New Foreign Equity
Kansai Paints acquired controlling interest in Goodlass Nerolac - the second largest
Indian paint company. There are talks about other companies also being taken over by
foreign companies. Some foreign companies have actually opened shops in India.
45
46
Tinting Machines
Concept accepted by the Indian Market.
More than 3000 machines installed in the last five years.
Has changed face of Indian paint retailing.
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. This development should be a huge boost to the paint
industry.
This report provides in-depth information & analysis on the US$ 925.0 million (2000-
01) worth Indian paint industry. The Indian paints industry offers lucrative scope for
stable revenue streams to manufacturers of both decorative & industrial paints. The
report stays focused on all such crucial parameters that make India a favorable
proposition. Factors that have been given emphasis include the low per capita
consumption of paints (0.550 Kgs), 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 paints with the entry of MNCs in auto, consumer
durables etc, which has been gaining steadily over decorative paints in the last one
decade.
The report covers both the segments of decorative & industrial varieties of paints
along with elaboration on product sub-segments within these two product segments.
The typical characteristics of the Indian paints industry have been discussed in depth
covering the typical features of the Indian industry viz., raw material intensiveness,
working capital intensiveness, seasonality of demand, price elasticity of demand and
low entry barriers.
The current global scenario with reference to the paint industry has been covered in
the report with special focus on auto-coats market, which is a key growth area in the
International market.
47
The current scenario prevailing in the Indian paint industry has been pictured in detail.
The share of the organized & unorganized sector has been dealt with in detail,
discussing the impact of recent issues & trends (like excise duty rationalizations,
quality consciousness in user segments) on the industry dynamics. The demand-
supply scenario existing in the industry has been covered, detailing paint production
trends in India, consumption across user segments, the trends in the exports & imports
front and factors influencing pricing. Raw material is a major cost-driver in the paint
industry, and thus the report provides comprehensive coverage on duty structure
applicable for raw materials, The organized sector has been given an in-depth focus
detailing major players, their forte, market shares of majors across product mixes &
price categories.
48
Market Segments of Indian Paint Indus try
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 22 to 25, while the unorganized sector is said to
consist of nearly 2,500 to 3,000 small-scale units (SSI). We could reshuffle this
division and add a new segment, which although currently small but nevertheless has
the potential to become a significant contributor. This new segment consists of the
international paint manufacturers that have established or are proposing to establish
independent presence in the Indian market.
1. ARCHITECTURAL & DECORATIVE PAINT SEGMENT
Unlike in the developed countries where Industrial paints contribute a major share in
their total Paint market, it is the Architectural or Decorative Paint that contributes
between 65 and 70% of the total Indian Paint market. The 1.04 billion population will
require housing and the Governments policy towards housing development would
continue 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.
Within the Decorative paint segment, it is the paints for interiors that have been
predominant. The exteriors of buildings, industrial structures, road bridges and other
structures were, till recently a neglected lot. At the maximum, these structures got a
coat of low technology Cement-based paint, purely for decorative purposes. A clear
change is now visible. We observe an increasing activity towards Emulsion based
exterior coatings. A five-year performance guarantee is now a common feature.
49
Decorative paint sectors share
Company's share in Decorative Paint sector

Others
Asian Paints
Shalimar 19%
38%
Paints
5%
Jenson &
Nicholson
6%
ICI India Ltd.

Goodlass
8%
Nerolac
Berger
13%
Paints
11%
Source: www.delhipaints.com/paint_industry_1st.htm
2.INDUSTRIAL & AUTOMOTIVE PAINT SEGMENT
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 is the Transport segment
consisting of Railways passenger & goods carriers, Commercial Vehicles,
Passenger Cars and Two-Wheelers and the several Off- The-Road Vehicles used in
construction. Indian Railways have been one of 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 have already witnessed
tremendous growth over the last few years and have emerged as the segment where
the Indian Paint Industry has been witness to technology changes comparable to the
best in the world.
50
Industrial paint sectors share
Company's share in Industrial Paint sector

Shalimar
Others
Paints
6% Goodlass
8%
Nerolac
Jenson & 42%
Nicholson
8%
ICI India Ltd.

8%
Berger
Paints Asian Paints
14% 14%
Source: www.delhipaints.com/paint_industry_1st.htm
Increased paint transfer efficiency, high solids, better finish, improved curing, lower
energy usage are some of the challenges facing manufacturers of industrial finishes.
The transport sector is another that can do with better performing paints as well as
improved application procedures. The Indian automotive coatings can be said to have
achieved high levels of efficiency and product performance comparable to
international 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- the-rod vehicles,
Railways, defense vehicles all could do with technology innovative products and it
are here that the Indian Paint industry has one of its biggest challenges.
51
3.POWDER & COIL COATINGS SEGMENT
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 automobile 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

SEGMENT
Heavy-duty Chemical & Corrosion Resistant Coatings & Linings that comprise 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 as 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 portion 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 15 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. The Indian Paint Industry Gears to Show its true Colors. Decorative
paints would continue to be the driving force in the development of the Indian Paint
Industry, at least for some time to come. Since the knowledge and awareness of paints
is not sharp, other factors like distribution and logistics management become crucial.
The paint applicators or contractors use paints directly and hence tremendously
influence the buying decision. For any paint marketer, tapping these applicators and
making them conscious holds the key to success. In developed countries, on the other
hand, it is the consumer who is often the applicator, which makes him much more
52
brand conscious. Once the Indian consumer gets directly involved in the painting
process, the entire consumer pattern will shift. The retail level tinting technology
introduced in India is one area that will come in handy for companies to get the
consumer involved in the painting process. One of the major challenges to the Indian
Paint Industry is to increase the per capita consumption of paints in the country.
The continued increase in income levels, especially in rural India has prompted the
Indian paint majors to focus their next big efforts into rural India. New products
especially formulated, branded, packaged and priced for the rural market are already
in place. Distribution setup has been revitalized and the festive season is on. They are
pointers to an aggressive approach to business. Could this mean, therefore that the
next battle for market share, volumes and brands will be fought in rural India?
5.DECORATIVE PAINTS SEGMENT
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 cheaper prices, creating niche markets will act as
insurance. Product development and investing in technology should become priority
areas.
53
Comparative position of major players in the Decorative segment of Indian Paint
Industry.
Premium Inte rmediate Economy

Company Rank Rank Rank
Brand Brand Brand
Apcolyite & Utsav &

Asian Paints Royale 2 1 1
Tractor Tractor
Goodlass Nerolac & Goody

Allscape 4 2 2
Nerolac Nerocem Synthetic
Berger
Luxol 3 Rangoli 3 Butterfly 3
Paints
ICI India Dulex 1 Maxilite 3
Source: www.delhipaints.com/paint_industry_2nd.htm
Post WTO Period
Apprehension exists among some that the withdrawal of import restrictions will
encourage large-scale imports of Decorative paints into India. Such a scenario is
unlikely to take place quickly. First of all, current duty structure does 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 products. Add
to that the necessity of brand building especially for decorative paints, its cost and
time requirements, and you have a situation that does not encourage large-scale
imports of decorative paints, for the next few years at least.
On the other hand, international manufacturers could taste the Indian market by
selective introduction of niche products or by selective introduction of the DIY Do
It Yourself concept. Aerosols for instance could be one of the product groups and
54
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 coatings are
another set of products with potential.
Inte rior Decorative Paints
Paints for Interiors hold 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 paint for walls is 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. 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 Paints
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 or more life guarantees. Emulsion-based paints
for exteriors with 10- and 15-year 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-, fungus- and mold- free surfaces and have
low dirt pick up characteristics to ensure high levels of aesthetics. Anti-carbonation
coatings are specially designed to stop or slow down the ingress of atmospheric
carbon dioxide thereby protecting the reinforcements from early corrosion.
55
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 exteriors paints. A new niche could become available in between the
existing type of cement paint and emulsion paints for exteriors.
Energy saving paints for building roofs and sidewalls is another technology that could
be introduced. This type of paint not only keeps the interiors cool but also provides
protection from early degradation of concrete due to UV radiation. Energy saving
paints reflects the suns heat and keeps the interiors cool. High-performance
Waterproof membrane based on cross linking polymer technologies is another
technology that can provide buildings with enhanced life expectancy as well as
protection to foundations, civil structures, bridges, etc.
The suggestions made above are some of the technologies and products that may be
identified as potential candidates for tomorrow. It is not an exhaustive list.
Industrial Paints
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 he has been aware
of. But with the industrial and infrastructure development taking shape, things are
changing. The use of industrial paints especially for maintenance is extremely low in
the country. The development 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 lies.
A principle concern for the Indian Paint Manufacturer is a lack of recognition of the
value of coatings by executives and managers responsible for protecting corporate and
government assets. With many such agencies, coatings and corrosion control do not
have a high level, influential internal advocate. Coatings are perceived as non-
glamorous, low technology. The Indian Paint Industry therefore must increase the
awareness of the criticality of protective coatings. One approach could be to develop
precise and valid documentation of the cost consequences of inadequate painting,
56
including losses incurred due to process shut down and production loss. A short, high
quality and precise video presentation for the decision- makers and top managers
would raise their awareness to the cost and value of coatings.
Indian Railways the largest single cons umer for paints
The Indian Railways are 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 tank 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 specification
for paints drawn from the Indian Standards. Unfortunately, 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 to those used internationally but also to innovate
into using coatings with low VOC Volatile Organic Components. To the Indian
Paint Industry, it becomes a collective challenge to associate with the Indian Railways
in re-designing specifications for paints and coatings and help in modernizing national
assets
Infrastructural and Industrial Maintenance coatings
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 climatic, urban and industrial centers provide one of the biggest challenges
for the use of paints and coatings for protective purposes with a primary objective to
enhance the service life of the structure. Structures made from steel, galvanized steel
and other metals as well as structures from reinforced concrete are the targets for
high-performance protective coatings.
57
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 the user to choose the system that best suits him. 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.
58
Government Policies and Paint Indus try
1.DOMESTIC DUTIES
The irrational excise duty structure has been the bane of the paint industry. Previously
this sector had been hit hard not only by the high cost of the raw materials and their
irregular supply, but also by the high excise duty structure slapped by the government.
However since 1992, the government has been consistently reducing the excise duty
on paints from 40.5% to around 16% currently. With timely cuts in excise duty over
the past few years, product prices in the organized sector have declined and volume
sales have zoomed.
MODVAT credit is available to industrial users of paints who use paints on their
products that are excisable. However 70% of the paint consumers do not qualify for
MODVAT credit. Many major consumers like railways, defense, PWD,
municipalities, road transport corporations and other government departments and the
common consumer do not get MODVAT credit.
A major effect of the reduction in excise duty can be seen in the changes in the market
shares of the paint majors. Companies like Asian Paints and GNPL all witnessed a fall
in their market share that was taken up by the medium and the small- scale sector.
These companies taking advantage of the low price differential due to lowered excise
are aggressively targeting the vast and hitherto untapped semi- urban and rural
markets. It is estimated that the lowering of the excise duty to 16% has resulted in the
closing down of almost 400 to 500 units in the small- scale sector.
59
2.BUDGET PROPOSALS AND POLICIES
There was a 2% reduction in excise duties on paints from 18% to 16%. Import tariffs
on raw materials titanium dioxide, pigments and orthoxylene increased by about 3-
4%. Modvat on raw materials increased from 95% to 100%. Corporate tax rate
increased by 10%.
The paint industry had gone through a period of enforced seclusion in the past due to
onerous duties and rising raw material costs. Rising paint prices collided with
depressed demand in the major user industries leading to off color balance sheets.
This pallid picture has, however, changed over the last few years.
The budgets of 1993-94 and 1994-95 bestowed some benefits to this industry. Excise
duty on premium decorative paints was progressively reduced, as was dome for lower
end paints. Extension of Modvat to petroleum goods further reduced the excise
differential between the organized and unorganized sectors.
There is an inverted duty structure for the paints industry put into practice in the last
Exim Policy. The policy has brought finished paints into the OGL list and has
rationalized the duty structure. The import of finished paint has duty of 30% against
the raw materials, which are taxed at a higher rate.
On the positive side, the incentives provided to the housing and infrastructure sector
in the recent budget should increase the off-take of paints. The demand for
architecture paints is governed by growth of steel and cement industries.
60
CHAPTER : 3
STRATEGIC ANALYSIS
61
Porters Five Forces Analysis for the Indian Paint Industry
1. Rivalry among the competitive sellers:- (Intense/Unfavorable)
Large numbers of the competitors.
About 25-30 organized sector companies and about 2,500 unorganized

sector companies dominate Indian paint industry. There are about 30 units
in large scale, 2,500 units in small scale and substantial number in tiny
scale. As a result, the buyers of paints have a number of choices in every
sector and thus rivalry intensifies.
In the organized sector, all the competitors are more or less equal in size and
capabilities.
Asian Paints have 14,000 dealers and 2,800 tinting machines, Goodlass
Nerolac have 11,500 dealers and 1,500 tinting machines, where as Berger
Paints have 12,000 dealers and 2,000 tinting machines across the nation.
This scene shows that paint industry majors are more or less equal in size
and capabilities in organized sector.
Demand for the paints is very much seasonal in nature and highly price
sensitive.
The demand for decorative paints is highly price-sensitive and also

cyclical. Monsoon is a slack season while the peak business period is
Diwali festival time, when most people repaint their houses.
Customers costs to switch over the brands are very low.
The prices of paints offered by the paint majors are more or less equal and
quality of paints are also at par.
Low product differentiations.
62
All the companies in the organized sector are having collaboration with
foreign companies and thus all of them are equipped with latest
technologies in manufacturing and production of paints so their products
are more or less same in quality and features. As a result, there is low
product differentiation.
2. The potential entry of ne w competitors:- (Mode rate/Unfavorable)
Low economies of scale-related barriers in production, advertising, marketing

and distribution, financing, after-sales services, raw materials purchasing,
R&D, etc.
Moderate capital requirements at the outset.
Companies can start from small capacity units and can grow in due course
of time. There is no compulsion of capacity at the outset for the break even
of profit/investment.
Low brand preference and customer loyalty.
Customers that are conscious to the color shades are specific to the paint
company while others are not so brand conscious.
Low product differentiation.
All the companies in the paint industry have not much difference in the
quality of paints in manufacturing and production so their products are
more or less same in quality and features. As a result, there is low product
differentiation.
Moderate difficulties in gaining distributions.
Low switching cost for the customer.
63
Customers are not much loyal to any particular brand as well as the quality
of paints is also same. Customer will switch over to the brand offered by
the new entrant at a low price.
No specialized technology or know-how of firms in manufacturing of paints

that are already in the industry. Thus, not much difficulty in matching them
and new entrants can also compete.
3. Competitive pressure from substitute products:- (Least/Favorable)
No as such substitute product to paints are available. But products like varnish
and red-oxide can perform some of the functionalities like paints.
Buyers do not get the same satisfaction in terms of quality, performance,

features, ease of use, and other relevant attributes.
4. Competitive pressure steming from suppliers bargaining power:-

(Intense/Unfavorable)
Many raw materials needed for the manufacturing of paint (around 300) and
raw materials costs normally constitute 65% of the sales.
All the companies in Paint Industry are dependent on suppliers for the
supply of raw materials and readily accept the conditions put forth by the
suppliers.
Most of the raw materials are being imported.
All the companies are dependent of foreign suppliers as no raw material is

being produced in India except phthalicanhydrid, which is produced by
Asian Paints.
Most of the petro-based raw materials are used in the paint industry only.
Very less numbers of suppliers.
No backward integration found in industry except Asian Paints.
64
5. Competitive pressure steming from buyers bargaining power:-
(Moderate/Favorable)
Low switchover cost for customers.
A wide array of customers is there for paint industry ranging from individual
customers, government, and automobile industry to architectures and
consumer durable goods manufacturers.
All the buyers are well informed about products quality, cost and price and
also have sufficient knowledge about the product.
Generally customers have low discretion in whether and when they purchase
the paint. They cannot delay their purchase.
Summary of Porters Five Forces analysis for Indian Paint Industry
Five Forces Score
1. Rivalry among present Rivalry is intense and unfavorable.

competitors.
Threat of new entrants is moderate and

2. Threat of new entrants.
unfavorable.
Threat of substitute products is low and

3. Threat of substitutes.
favorable.
Bargaining power of suppliers is high

4. Bargaining power of the suppliers.
and unfavorable.
Bargaining power of buyers is moderate

5. Bargaining power of the buyers.
and moderately favorable.
65
SWOT Analysis for Indian Paint Industry
STRENGTHS
Quality of paints on par with international standards.

With access to the latest technologies through foreign tie- ups, the industry is
equipped to meet future challenges.
With high cost controls the industry has been successful in reducing variable
cost.
WEAKNESSES
Abysmally low per capita consumption of paints in India.

High incident of excise and sales tax.
Scarcity of vital raw material, titanium dioxide.
High input costs.
Paints are still considered to be a luxury item.
Industry is raw material intensive.
Industry is technology intensive especially the industrial paint segment.
OPPORTUINITIES
Large-scale industrialization in India is bound to increase demand for

industrial coatings.
Scope for widening the demand base by cutting the variable costs and making
the product more competitive.
Vast yet untapped semi- urban and rural market.
The 1.04 billion population will require housing and the Governments policy
towards housing development would continue to provide the Indian
Decorative paint segment opportunities for growth.
From the generalized applications of todays products, the Indian Paint
Industry could move to products for specialized applications and create
altogether new markets.
66
THREATS
Imports of paints can emerge as a potential threat.

High product prices might blunt the competitive edge in both domestic and
international markets.
High dependence on petroleum based raw materials makes the industry prone
to price fluctuation.
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Phase of life cycle
Another way of classifying industry industries is in a cyclical framework, that is,

by how they react to upswings and downswings in the economy. The general
classifications in this framework are growth, cyclical, defensive and cyclical-
growth.
Start-up:
This stage is also known as pioneering stage is typified by rapid growth in
demand for the output of the industry. In the earliest stage, demand not only
grows but grows at an increasing rate. As large number of companies attempt
to capture their share of the market, there arise a high business mortality rate,
many of the weaker companies attempting to survive in this new industry are
eliminated and a lesser number of companies survive the initial phases of the
pioneer stage.
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Consolidation:
The expansion or growth stage is characterized by the appearance of the
companies surviving from the pioneering stage. This few companies continue
to get stronger, both in share of the market and financially.
Maturity:
The growth of the industry, which had moderated in the expansion stage,
begins at some point to moderate even further and perhaps even begin to
stagnate. In other word sales may be increasing at a slower rate than that
experience by competitive industries or by the overall economy.
Decline:
The industry is in decline stage, its indicates the rapid decline in demand for
the output of the industry. The reason behind decline stage may be the industry
reach at the stage where more innovation require to apply in the industry so
that it helps the industry to reach at the profitable stage.
Life cycle stage of paint industry:
The industry has exhibited a growth of about 42% over the past four years and
is expected to grow at 25% for the next two to three years, making it one of
the fastest growing segments in the transportation of cargo. It is forecasted to
reach 57% by 2017.
So from the above figure we can analyze that in this particular paint industry,
the stage of introduction has been already completed. It is in its growing stage.
This shows increasing competition, demand, and requires higher investment
on the other hand it will also give good return to market player of the industry.
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CHAPTER : 4
BUSINESS PLAN
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1.Executive Summary
Barnum paint will provide top-quality interior and exterior residential and commercial
painting services. The principal officers of barnum Painters believe that most
companies in this industry suffer two major problems. These are poor scheduling of
job projects and poor retention of quality employees. Both lead to lower customer
satisfaction, lack of repeat business and a low word-of- mouth referral rate. Asain
Painters believes that by implementing this contractor business plan, it can improve
upon and exploit these weaknesses to gain local market share.
The objectives for Barnum paint over the next three years are:
To achieve sales revenues of approximately $620,000 by year three.
To achieve a customer mix of 30% commercial/60% residential building

contracts per year.
To expand operations to include all the Greater Seattle area including

Kirkland, Renton and the Kitsap Peninsula.
The company will seek to provide its painting services in the most timely manner and
with an ongoing comprehensive quality-control program to provide 100% customer
satisfaction. The company's principal officers see each contract as an agreement not
between a business and its customers, but between partners that wish to create a close
and mutually-beneficial long-term relationship. This will help to provide greater long-
term profits through referrals and repeat business.
Barnum paints will institute the following key procedures to reach its goals:
Create a position of inventory coordinator, and have at least one expediter

assigned to each project.
Have a dedicated project manager for each project who can handle quality-
control issues.
Institute a program of profit sharing among all employees.
Barnum paint is a start- up limited liability company consisting of three principal

officers with combined industry experience of 40 years. Painters will be a partnership
between. The principals will be investing significant amounts of their own capital into
the company and will also be seeking a loan of $7,000 to cover start-up costs and
future growth. Finally, the company has procured a $10,000 line of credit (not shown
on financial statements) that will be used if necessary to cover unforeseen expenses or
opportunities.
Barnum paint will be located in a rented suite in the Rucker Industrial Park on 710
Snoquamie Route, Suite 250 in Edmonds, WA. The facilities will include a reception
area, offices for the principals, storage area for inventory, and employee lounge.
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Painters offers a wide variety of services primarily focused on interior and exterior
residential and commercial painting. The firm also provides such services as drywall
plastering, acoustical ceilings, pressure washing, and others. The idea is to provide
clients with a broad range of related services that will minimize their need to employ
a variety of contractors. Painters will engage in a low-cost leadership strategy while
maintaining a suitable level of quality.
Initially the company will focus on residential and commercial customers in the
Everett, India area. However, by the end of the three-year projections, the company
expects to be serving the entire Puget Sound area. The company has rigorously
examined its financial projections and concluded that they are both conservative in
profits and generous in expenditures. This was done deliberately to provide for
unforeseeable events. The company's principals believe that cash flow projections
are realistic.
Keys to Success
The principal officers of Barnum Paint have had many years of experience in the
contracting business. They believe that most companies in this industry, which
includes painting contractors, suffer from two major problems that Barnum Painters
can improve upon and exploit.
The first problem comes from scheduling of jobs. Many painting contractors find it
difficult to maintain established schedules with their customers that lead to a decrease
in customer satisfaction and retention. This is caused by poor management, less than
reliable employees, and delays in inventory procurement and distribution. The second
problem is in retaining reliable and motivated personnel. Many painting companies
rely on temporary or transient employees that lead to high turnover rates and
decreased service quality.
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Barnum paint will institute the following key procedures:
Creation of a position of inventory coordinator and have at least one expediter

assigned to each project.
Have a dedicated project manager for each project who can handle quality
control issues.
Institute a program of profit sharing among all employees.
Mission
The mission of Barnum paint is to provide top-quality interior and exterior residential
and commercial painting services. The company will seek to provide these services in
the most timely manner and with an ongoing comprehensive quality control program
to provide 100% customer satisfaction. The company's principal officers see each
contract as an agreement not between a business and its customers, but between
partners that wish to create a close and mutually beneficial long-term relationship.
This will help to provide greater long-term profits through referrals and repeat
business.
Objectives
The objectives for Barnum paint over the next three years is to:
Achieve sales revenues of approximately $450,000 by year three.
Achieve a customer mix of 30% commercial/60% residential building

contracts per year.
Expand operations to include all the Greater Seattle area including Kirkland,
Renton and the Kitsap Peninsula.
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Start-up Summary
The following table and chart show the start- up costs for Barnum paint .
Start-up Requirements
Start-up Expenses
Legal $400
Stationery etc. $300
Brochures $500
Consultants $750
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Insurance $600
Rent $4,000
Expensed equipment $0
Expensed Equipment $0
Other $0
Total Start-up Expenses $6,550
Start-up Assets
Cash Required $40,150
Start-up Inventory $850
Other Current Assets $0
Long-term Assets $4,000
Total Assets $45,000
Total Requirements $51,550
Start-up Funding
Start- up Expenses to Fund $6,550
Start- up Assets to Fund $45,000
Total Funding Required $51,550
Assets
Non-cash Assets from Start-up $4,850
Cash Requirements from Start- up $40,150
Additional Cash Raised $0
75
Cash Balance on Starting Date $40,150
Total Assets $45,000
Liabilities and Capital
Liabilities
Current Borrowing $7,000
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $7,000
Capital
Planned Investment
William Barnum $15,000
Anthony Barnum $18,550
Michael Kruger $11,000
Additional Investment Requirement $0
Total Planned Investment $44,550
Loss at Start-up (Start-up Expenses) ($6,550)
Total Capital $38,000
Total Capital and Liabilities $45,000
Total Funding $51,550
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2.Services
Barnum paint offers comprehensive interior and exterior painting services for both the
residential and commercial markets.
Service Description
Barnum paint services include:
Full prep work.
Dry wall contouring.
Fine detailing.
Small carpentry work.

Specialty wall coatings.
Refinishings.
Acoustical ceilings.
Pressure washing/roof cleaning.

Each project is customized to the wants and needs of the client. Prices are determined
by the scope of the project, materials needed, wear and tear on equipment and
required profit margin.
Competitive Comparison
77
The contracting and painting market is very competitive. The barriers to entry and exit
in this market are very low making this an industry with a large number of rival firms
with high turnover rates. Buyers have a significant amount of power since they have a
large number of companies to choose from. Moreover, services are undifferentiated,
which means that customer loyalty is usually low. Painting companies must compete
on quality and timeliness of service, customer relations, and price.
Barnum paint industry believes that it can improve on the quality and timeliness of
services in this industry by instituting procedures that will avoid many of the mistakes
that other firms make. This includes delayed schedules and high employee turnover
which leads to lower service quality. The company will be equally competitive in
price and will maintain close ties with its clients throughout the entire project since
each project is a customized job. Through these steps, paint will be able to build up a
reputation of better quality service at competitive prices than its competitors.
3.Market Analysis Summary

Barnum paint will focus on two markets within the industry, the residential segment
(including apartment buildings) and the commercial segment (including buildings
used for professional purposes).
The commercial market requires the shortest amount of time to completion of projects
and usually the least amount of customization. Since our projects impinge upon a
business' profitability, it is absolutely crucial for our project foremen to maintain
schedule and keep the stakeholders apprised of the project's progress.
Although the above is also true for the residental owner, time is not as critical, quality
and meeting the needs/wants of the client come first in the residential segment.
The client is often willing to wait a little longer to have the project done to his/her
specifications. The project foremen must be willing to be more flexible and willing to
listen to the client.
Over the past decade a number of new trends have been observed in this industry.
This includes the tremendous growth of the economy, the high technology boom, and
the growth of substitute services such as Home Depot.
Market Segmentation
Barnum paint will focus on two markets within the industry, the residential segment
(including apartment buildings) and the commercial segment which includes
buildings used for professional purposes. The company can handle any size building
that needs its services. It is the goal of the company to eventually have approximately
one-third of all business coming from the commercial segment, since this generates
the greatest cash flow. Furthermore, this segment has the lowest percentage of
variable costs. The residential segment is considered to be the company's cash cow.
78
Even during the slow winter months, the company can expect to have a small number
of residential contracts.
Initially the company will focus on the two segments in just the Everett, Indian area.
However, by the end of the three year projections, the company expects to be serving
the entire Puget Sound area.
Market Analysis
2007 2008 2009 2010 2011
Potential
Growth CA GR
Customers
Co mmercial
4% 300,000 310,500 321,368 332,616 344,258 3.50%
Buildings
Residential
3% 1,375,000 1,409,375 1,444,609 1,480,724 1,517,742 2.50%
Buildings
Other 0% 0 0 0 0 0 0.00%
Total 2.68% 1,675,000 1,719,875 1,765,977 1,813,340 1,862,000 2.68%
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Target Market Segment Strategy
Each of the two market segments has differing needs and trends. The following
sections go into detail about how the company will fact them.
Market Trends
Over the past decade a number of new trends have been observed in this industry. The
tremendous growth of the economy has fueled the painting contractors industry as
well, as people have progressively spent more and saved less. The high technology
boom has created great opportunities in the Pacific Northwest which the industry has
also benefited from. However, the growth of firms such as Home Depot, which
encourages do- it-yourself painting and construction, has lead to a serious decline in
sales for the residential segment. The growth of this trend poses a significant threat to
the industry. Barnum Painters plans to increasingly focus on the commercial segment
as the company grows in order to promote greater revenue and income.
Service Business Analysis

Most of the industry analysis is contained in the Competitive Comparison section to
give the reader the idea of the competitive nature of the industry, its opportunities and
threats, and the company's flexibility in pricing. Barnum Painters exists in a purely
competitive market that faces virtually unlimited competition and high demand. The
ability of the company to differentiate its services or enter into a niche market is
limited. The company will engage in a low-cost leadership strategy while maintaining
a suitable level of quality.
In the painting contracting industry, there are a limited number of large firms that
compete for the largest projects, and a vast number of smaller companies that fight for
all the rest. Within the largest company section, market consolidation is always a
threat.
Competition and Buying Patterns

This industry is highly seasonal. The busiest times are during the summer months
where it is easy for a company to become so engaged that it must turn down contracts.
During the winter months businesses must focus on marketing to get any contracts at
all.
80
4.Strategy and Implementation Summary
As stated before, the company will focus on greater service through better scheduling,
project management, and greater alignment of personnel by providing profit sharing.
The company is seeking to use the most up-to-date communications and scheduling
technology between the project manager, foreman, suppliers, and operations
personnel to insure that deadlines are met. Furthermore, the company will seek to
create a reliable pool of individual painters to draw upon and eventually hire all the
painters full time with salary and other compensation.
The company also plans to carry out an agressive marketing plan starting in year
three. This includes literature, TV, radio, billboards and strategic alliances with other
large contractors that do not have their own painting services. These companies
include Marble Construction, Talbot Construction and Burns & Associates.
Marketing Strategy
The following sections detail the marketing strategy for Barnum Painters.
To develop good business strategies, perform a SWOT analysis of your business. It's
easy with our free guide and template.
Promotion Strategy
The company will be engaging in an agressive marketing program that will include
mailers, phone solicitation, TV, radio, billboards and other platforms to generate
service awareness, and value proposition. However, as stated elsewhere, the
company's immediate goal will be to generate enough profit to pay for such expenses.
The marketing plan will go into effect starting in year three. Prior to this the company
will use more modest marketing tools such as mailer, promotion of word-of- mouth
marketing, and ads such as in the Yellow Pages.
Pricing Strategy
The company will price each project based on time, material, and a flat 5-10% profit
margin, depending on the segment. In the first year or two, depending on sales, the
company will focus more on getting the contracts than on maintaining its pricing
structure. Therefore, profit margin may be a little low for the first year or two.
Sales Strategy
Sales forecast is based on the existing client base of the three principal officers of the
company and their ability to generate new sales based on their contacts. By bringing
together Mr. Kruger's commercial painting experience and Mr. Barnum's residential
experience, the company will be able to generate sales in both areas. Furthermore, the
company's growing marketing program will generate the growth the company needs
to survive.
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Sales Forecast.
82
Sales Forecast
2009 2010 2011
Sales
Commercial Buildings $179,000 $315,130 $455,404
Residential Buildings $157,500 $165,375 $173,644
Total Sales $336,500 $480,505 $629,048
Direct Cost of Sales Year 1 Year 2 Year 3
Commercial Buildings $40,480 $78,783 $100,189
Residential Buildings $47,250 $52,920 $55,566
Subtotal Direct Cost of Sales $87,730 $131,703 $155,755
Strategic Alliances
The company is currently in negotiations to form a strategic alliance with an
undisclosed large contractor company. The agreement will be that Barnum Painters
will provide all the painting needs that the contractor's clients require and vice versa.
The company will seek further alliances as situations develop. The company will seek
only those contractors that have high standards of customer service and retention.
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5.Management Summary
Management consists of three individuals who have extensive experience in the

painting contractors industry. These are William Barnum, Anthony Barnum, and
Michael Kruger. Each individual brings a unique outlook and skill set that will help
drive sales and profits.
Organizational Structure
The company will follow a hierarchical structure with Mr. William Barnum at the top
as president and Mr. Anthony Barnum and Mr. Michael Kruger as department heads.
The sales and contracting department along with inventory, expediters, and Q&A will
consist of only those individuals until such time as growth of the company will
require more people. This is anticipated to occur in year three to five.
Personnel Plan
The following table is the personnel plan for Barnum paint.
Personnel Plan
2009 2010 2011
Production Personnel
Project Forman #1 $22,800 $30,000 $30,000
Project Foreman #2 $0 $0 $30,000
Residential Painter $12,900 $13,500 $14,000
Commercial Painter $7,525 $13,500 $14,000
Commercial Painter $0 $0 $14,000
Commercial Painter $0 $0 $14,000
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Other $0 $0 $0
Subtotal $84,075 $111,000 $172,000
Sales and Marketing Personnel
Mr. Anthony Barnum, Contracting and

$30,000 $30,000 $30,000
Sales
Other $0 $0 $0
Subtotal $30,000 $30,000 $30,000
General and Administrative Personnel
Mr. William Barnum. Operations $30,000 $30,000 $30,000
Mr. Michael Kruger, Expeditor and Q&A $30,000 $30,000 $30,000
Expeditor $0 $18,000 $18,000
Expeditor $0 $0 $18,000
Subtotal $60,000 $78,000 $96,000
Other Personnel
Name or Title $0 $0 $0
Other $0 $0 $0
Subtotal $0 $0 $0
Total People 7 11 14
Total Payroll $174,075 $219,000 $298,000
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6.Financial Plan
The following sections will outline the Financial Plan of Barnum Painters.
The following table shows the General Assumptions for Barnum Painters.
General Assumptions
2009 2010 2011

Plan Month 1 2 3
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0
Key Financial Indicators

The chart below shows the Benchmarks for Barnum Painters.
Break-even Analysis
The Break-even Analysis gives the reader an idea of how many projects Barnum
Painters must bid for, prep, paint and complete each month to cover costs. Because
Barnum Painters is providing a customized service with many projects having unique
requirements, the estimates of revenue and cost are somewhat arbitrary. Furthermore,
the company experiences a high degree of seasonality in its contracts which may
result in a number of unprofitable months during the late fall, winter and early spring
periods.
Fixed costs are based on running costs estimated by the officers of the company and
include payroll for all employees. Variable costs are based on a 26% estimate of the
average sales per unit. The average revenue estimate is based on the consensus of the
86
principal officers who have had many years of experience in the industry and on the
realistic assumption of the types of contracts the company will get in the beginning
and the requirements needed to complete such projects.
Break-even Analysis
Monthly Revenue Break-even $17,755
Assumptions:
Average Percent Variable Cost 26%
Estimated Monthly Fixed Cost $13,126
Projected Profit and Loss

The following table and chart shows the projected Profit and Loss for Barnum
Painters.
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88
Pro Forma Profit and Loss
2009 2010 2011
Sales $336,500 $480,505 $629,048
Direct Cost of Sales $87,730 $131,703 $155,755
Production Payroll $84,075 $111,000 $172,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $171,805 $242,703 $327,755
Gross Margin $164,695 $237,803 $301,293
Gross Margin % 48.94% 49.49% 47.90%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $30,000 $30,000 $30,000
Advertising/Promotion $3,600 $5,000 $10,000
Travel $2,400 $3,500 $4,000
Miscellaneous $2,400 $3,000 $3,000
Total Sales and Marketing Expenses $38,400 $41,500 $47,000
Sales and Marketing % 11.41% 8.64% 7.47%
General and Administrative Expenses
General and Administrative Payroll $60,000 $78,000 $96,000
Sales and Marketing and Other
$0 $0 $0
Expenses
Depreciation $1,200 $1,200 $1,200
Leased Equipment $0 $0 $0
Utilities $1,800 $1,800 $1,800
Insurance $3,600 $3,600 $3,600
Rent $24,000 $24,000 $24,000
Payroll Taxes $26,111 $32,850 $44,700
Other General and Administrative
$0 $0 $0
Expenses
Total General and Administrative $116,711 $141,450 $171,300
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Expenses
General and Administrative % 34.68% 29.44% 27.23%
Other Expenses:
Other Payroll $0 $0 $0
Consultants $0 $0 $0
Bookkeeper and accountant $2,400 $2,500 $2,750
Total Other Expenses $2,400 $2,500 $2,750
Other % 0.71% 0.52% 0.44%
Total Operating Expenses $157,511 $185,450 $221,050
Profit Before Interest and Taxes $7,184 $52,353 $80,243
EBITDA $8,384 $53,553 $81,443
Interest Expense $574 $350 $117
Taxes Incurred $1,983 $15,601 $24,038
Net Profit $4,627 $36,402 $56,088
Net Profit/Sales 1.38% 7.58% 8.92%
Projected Cash Flow

The following table and chart is the Cash Flow for Barnum Painters.
Pro Forma Cash Flow

2009 2010 2011
Cash Received
Cash from Operations
Cash Sales $168,250 $240,253 $314,524
Cash from Receivables $163,833 $238,362 $312,574
Subtotal Cash from Operations $332,083 $478,615 $627,098
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest- free) $0 $0 $0
90
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $3,000 $0 $0
Subtotal Cash Received $335,083 $478,615 $627,098
Expenditures 2009 2010 2011
Expenditures from Operations
Cash Spending $174,075 $219,000 $298,000
Bill Payments $164,958 $217,088 $269,271
Subtotal Spent on Operations $339,033 $436,088 $567,271
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current
$2,334 $2,333 $2,333
Borrowing
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal
$0 $0 $0
Repayment
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $341,367 $438,421 $569,604
Net Cash Flow ($6,283) $40,194 $57,494
Cash Balance $33,867 $74,061 $131,555
Projected Balance Sheet

The following table presents the Balance Sheet for Barnum Painters.
Pro Forma Balance Sheet

2009 2010 2011
Assets
Current Assets
Cash $33,867 $74,061 $131,555
Accounts Receivable $4,417 $6,307 $8,256
Inventory $9,906 $21,772 $20,284
Other Current Assets $0 $0 $0
Total Current Assets $48,189 $102,140 $160,096
Long-term Assets
Long-term Assets $4,000 $4,000 $4,000
Accumulated Depreciation $1,200 $2,400 $3,600
Total Long-term Assets $2,800 $1,600 $400
Total Assets $50,989 $103,740 $160,496
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $696 $19,378 $22,378
Current Borrowing $4,666 $2,333 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $5,362 $21,711 $22,378
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Long-term Liabilities $0 $0 $0
Total Liabilities $5,362 $21,711 $22,378
Paid- in Capital $47,550 $47,550 $47,550
Retained Earnings ($6,550) ($1,923) $34,479
Earnings $4,627 $36,402 $56,088
Total Capital $45,627 $82,029 $138,117
Total Liabilities and Capital $50,989 $103,740 $160,496
Net Worth $45,627 $82,029 $138,117
Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios
based on the Standard Industrial Classification (SIC) code 1721, Painting and Paper
Hanging, are shown for comparison.
Ratio Analysis
Industry
2009 2010 2011
Profile
Sales Growth n.a. 42.79% 30.91% 5.90%
Percent of Total Assets
Accounts Receivable 8.66% 6.08% 5.14% 34.60%
Inventory 19.43% 20.99% 12.64% 5.40%
Other Current Assets 0.00% 0.00% 0.00% 29.80%
Total Current Assets 94.51% 98.46% 99.75% 69.80%
Long-term Assets 5.49% 1.54% 0.25% 30.20%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 10.52% 20.93% 13.94% 43.40%
Long-term Liabilities 0.00% 0.00% 0.00% 12.40%
Total Liabilities 10.52% 20.93% 13.94% 55.80%
Net Worth 89.48% 79.07% 86.06% 44.20%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 48.94% 49.49% 47.90% 27.20%
Selling, General & Administrative
47.59% 41.97% 39.05% 15.40%
Expenses
Advertising Expenses 1.07% 1.04% 1.59% 0.40%
Profit Before Interest and Taxes 2.13% 10.90% 12.76% 2.50%
Main Ratios
Current 8.99 4.70 7.15 1.60
Quick 7.14 3.70 6.25 1.27
Total Debt to Total Assets 10.52% 20.93% 13.94% 55.80%
Pre-tax Return on Net Worth 14.49% 63.40% 58.01% 5.60%
Pre-tax Return on Assets 12.96% 50.13% 49.92% 12.60%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 1.38% 7.58% 8.92% n.a
Return on Equity 10.14% 44.38% 40.61% n.a
Activity Ratios
Accounts Receivable Turnover 38.09 38.09 38.09 n.a
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Collection Days 59 8 8 n.a
Inventory Turnover 9.08 8.31 7.41 n.a
Accounts Payable Turnover 237.90 12.17 12.17 n.a
Payment Days 27 16 28 n.a
Total Asset Turnover 6.60 4.63 3.92 n.a
Debt Ratios
Debt to Net Worth 0.12 0.26 0.16 n.a
Current Liab. toLiab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $42,827 $80,429 $137,717 n.a
Interest Coverage 12.52 149.60 687.89 n.a
Additional Ratios
Assets to Sales 0.15 0.22 0.26 n.a
Current Debt/Total Assets 11% 21% 14% n.a
Acid Test 6.32 3.41 5.88 n.a
Sales/Net Worth 7.38 5.86 4.55 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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CONCLUSIONS
1. The Indian Paint Industry is a Rs 6.5 billion, estimated to be 5,50,000 TPA sector
comprise of large organized producers and small scale unorganized producers
and per capita consumption of paints in India is about 550 gms per annum.
2. Organized sector, comprising of about 25 large companies, commands 60% of

market share while unorganized sector, comprising of about 2500-3000 small and
tiny companies, commands 40% of market share.
3. The demand for decorative paints is highly price-sensitive and also cyclical.
Monsoon is a slack season while the peak business period is Diwali festival time,
when most people repaint their houses.
4. Paint industry is characterized by low capacity utilization as most of the

companies get the work done on job work basis this is because of the longer
processing time required in the paint industry when paint is manufactured in
smaller batches the production falls.
5. .Distribution channel plays an important role in the industry. Awareness and

perception of specific brand is more important than the corporate brand equity.
6. The industrial paint sector is technology intensive. The Indian cost of production
is 24% more expensive than the international cost.
7. Around 300-400 raw materials are required to manufacture different kind of paints
the high number of raw materials are finished goods highlights the working capital
intensity of the sector. Most of the raw materials are petroleum based.
8. Raw materials are divided in to three groups, namely, pigments (titanium dioxide,
zinc oxide etc.), solvents (mineral turpentine) and additives.
9. Major players in the Indian paint industry are Asian Paints, Berger Paints,
Goodlass Nerolac Paints, and ICI India Ltd.
10. Asian Paints India Ltd. (APIL) has the distinction of being the market leader in
the paints industry and commands a market share of 33.97%. It commands 38% in
the decorative paints segment and 15% share in the industrial paints segment.
94
11. A leading player in the industry, Berger Paints boasts of a market share of
13.89%. It commands 40% in the decorative paints segment and 14% share in the
industrial paints segment.
12. Goodlass Nerolac Paints ranks second in the industry with 16.68% market share.
It is recognized as the leader in the industrial paints segment with a market share
of 40% and 14% share in decorative paint segment.
13. Backed by a market share of 9.61%, ICI India Ltd. is recognized as the fourth
largest paints manufacturing company. It commands 8-9% in the decorative paints
segment and 12% share in the industrial paints segment.
14. The change in the excise duty has an inverse relationship with the production of
paints.
15. A major effect of the reduction in excise duty can be seen in the changes in the
market shares of the paint majors. Companies like Asian Paints and GNPL all
witnessed a fall in their market share that was taken up by the medium and the
small-scale sector.
95
Inferences
The punch line of Jenson and Nicholsons advertisement is: Whenever you
see color, think of us. While one might not see all pink looking at the overall
health of the industry, the performance of the leading players does suggest that
the industry is getting some color. It is on a growth phase, and may log 8-10%
by the year-end.
Though there is no concrete data on the overall size of the industry, the market
is reckoned to be around Rs. 6,500 crore. Asian Paints is the leader with a
market share of about 38%, followed by Goodlass Nerolac, Berger Paints and
ICI India Ltd. in that order.
Broadly, the paints market can be classified into decorative and industrial.
Worldwide, the market share of industrial and decorative paints stands at 70%
and 30% respectively. In India, it is the reverse, with decorative holding sway
over the market.
Within the decorative segment, the fastest growing category has been exterior
paints, accounting for some Rs. 500 crore and a growth rate of 20-22%. Being
high valued and fast growing, paint majors attach much importance to this
category in their product portfolio.
Another initiative that has changed the way paint is retailed in the country is
the dealer tinting system (DTS). At present there are around 5000 DTS
installed in the country. These tinting solutions now cover almost all major
paint retail shops. Considering that the total number of dealers is around
20,000 there is still a long way to traverse for these tinting systems to cover
the whole country.
The Indian market for industrial paints has grown from Rs. 570 crores in
1996-1997 to Rs. 950 crores in 2001-2002 at a CAGR of 11%. It is expected
to grow at a CAGR of 7-8% in next five years.
96
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 & goods carriers,
commercial vehicles, passenger cars and two-wheelers and the several off- the-
road vehicles used in construction.
In industrial paint segment, more than 30% of the demand comes from the
automobile sector and 15-20% form consumer durables. With the entry of
multinationals in the segment, the emphasis on quality along with variety has
increased.
With future projection indicating tremendous growth potential in industrial

paint segment, the question that arises is what will finally separate the men
from the boys? The simplest answer is technology, innovation and service.
They will drive growth providing the cutting edge to the players in this
business. The emerging compulsions have resulted in major tie-ups and
collaborations of Indian companies with international majors and technology
leaders. This gives them an access to the latest technology that may not
otherwise be available in the domestic market.
The current per capita consumption of paints in India is a bare 0.55 kg is a

way below the global average of 15 kg.
As paint majors shift gears and enter into the expansion and consolidation
modes, the industry contours are undergoing a change. International
expansion, apart from acting as a cushion in the event of a slump in the
domestic market, helps paint majors tap opportunities in higher growth
markets. Leading from the front is the market leader Asian Paints, it has set its
sights on the global market by acquiring two companies recently-Singapore
based Berger International and SCIB Chemicals SAE, Egypts fifth largest
paint company.
A major effect of the reduction in excise duty to 16% can be seen in the
changes in the market shares of the paint majors. Companies like Asian Paints
and GNPL all witnessed a fall in their market share that was taken up by the
97
medium and the small-scale sector. These companies taking advantage of the
low price differential due to lowered excise are aggressively targeting the vast
and untapped semi- urban and rural markets. It is estimated that the lowering of
the excise duty to 16% has resulted in the closing down of almost 400 to 500
units in the small-scale sector.
98
Bibliography
1. Oliver C. Walker, Jr.; Harper W. Boyd, Jr.; John Mullins; Jean-Claude Jarreche;
Marketing Strategy, 4th edition (Tata McGraw-Hill, 2003), pages 108-110.
2. Arthur A. Thompson, Jr.; A. J. Strickland III; Strategic Management, 13th

edition (Tata McGraw-Hill, 2003), pages 79-93 and 121.
3. The Hindu, Survey of Indian Industry, 2003, pages 314-315.
4. SAKET Industrial Digest, September 2002, pages 16-17.
5. Paint India, February 2002.
6. www.isspa.org/intro.php3
7. www.isspa.org/obj.php3
8. www.business-standard.com
9. www.expressindia.com
10. www.financialexpress.com
99

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IN DEPTH STUDY ON PAINT INDUSTRY

MANAGEMENT RESEARCH PROJECT- I

Master of Business Administration

Name of Students Roll No

Unde r the Guidance of

Prof. (Dr.) Mahendra Sharma

Prof. & Head

V. M. Patel Institute of Management

V. M. Patel Institute of Management

Prof. (Dr.) Mahendra Sharma,

Name of Students Roll No

Name of Students Roll No

Name of Students Roll No

CONTENTS PAGE NO.

New trends are emerging in technology and marketing. Introduction of tinting

a) END USE CLASSIFICATION: under this heading, paints can be classified as

c) SOLID CONTENTS: can be classified as solid or liquid (powder) paints.

Powder coatings find applications mainly in the white goods industry.

Table: Market size for diffe rent segments

Segment of Decorative Paints Market Size (Rs in million)

Wall finishes 4730

Wood finishes 430

Segment of Industrial Paints Market Size (Rs in million)

Paint industry is characterized by low capacity utilization as most of the companies

Distribution channel plays an important role in the industry. Awareness and

Paint is a formulated product whose performance can be varied through formulation

The automotive refinishes segment has emerged as a potential segment in the

Domestic Consumption of Paint (in Rs. Crore)

Source: The Hindu Business Line,.

Domestic Consumption of Paint in India

Source: The Hindu Business Line,

Some of the major raw materials used for paints are:

1. Pigments (high cost).

4. Solvents and Vegetable oils.

The products of the paint industry can be classified as:

ii. Industrial finishes.

The Industrial paint business is technologically intensive; most Indian companies

Paint is a mixture of four elements - solvents, binders, pigments and additives.

Major foreign collaborations of Indian paint companies

WHAT IS A PAINT SYSTEM?

A paint system usually consists of a number of coats separately applied in a

WHAT TYPES OF PRODUCTS ARE PAINTS?

Volumes of some SKUs are small and demand difficult to predict

Wide distribution networks (similar to FMCGs) lead to high safety stock

Key Inputs For Paint Indus try

Production of Titanium dioxide in India

Year Anatase Rutile Total

2006 11,500 9,000 20,500

2007 13,000 10,000 23,000

2008 13,250 10,200 23,450

2009 13,300 17,700 31,000

2010 13,500 25,250 38,750

Fig in Tones per Annum Source: Chemical Weekly

Demand for Anatase and Rutile grade TiO 2

Year Anatase Rutile Total

2007 10,000 20,000 30,000

2008 9,200 27,560 36,760

2009 10,310 41,235 51,545

2010 15,475 61,885 77,360

Fig in Tones per Annum Source Chemical Weekly

Key financial ratios for Asian Paints

Rs. Crore 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

Gross sales 1046.8 1158.38 1383.55 1526.01 1662.33 1886.06

Net sales 885.24 984.2 1194.03 1322.38 1450.71 1639.63