INDUSTRY SNAPSHOT

Date Of Report: 10th September, 2007

PAINTS INDUSTRY
The Indian paint industry is witnessing good growth on account of the burgeoning economy and the resultant boom in infrastructure space. The paints industry is estimated to grow at a CAGR of 1315% over the next three years and this is mainly on account of the rising income level, expected growth in construction activities and growth in manufacturing activities. Asian Paints Limited, being the market leader with close to 26% market share in Indian paint market would be prime beneficiary in this. The per capita consumption of paints in India is still low as compared to that in Europe and the US. This depicts the potential ISIEmergingMarketsPDF au-uts-library from 138.25.78.25 on 2011-09-10 07:55:13 EDT. DownloadPDF. for this sector to grow. India's share in the world paint market is below 1%. The application of paints can be broadly divided into three categories namely decoratives, industrial and automotive. The decorative segment is broadly divided into interior paints (emulsions, enamels, wood finishes) and exterior paints. Decorative paints accounts for over 75% of the overall paint market in India. Demand in the festive season (September-December) is significant, as compared to other periods. This segment is price sensitive and is a higher margin business as compared to industrial segment. Also the level of technology in the manufacturing of decorative paints is not very significant. The demand for paints is seasonal in nature. While the Industrial paints business is driven by growth in automobile & white goods segment, decorative growth is affected by growth in housing, agriculture and disposable income of people, in turn the overall economic performance of the country. The consumers involvement

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in the paint purchase has been low on account of lack of knowledge about the products The industrial and automotive paint manufacturing, however, is technology intensive wherein domestic players have tied up with global majors like Nippon Paints, DuPont, PPG and Kansai for technology. Asian Paints the market leader has also bought a stake in ICI recently. Industrial paints find applications sectors such as automobiles, consumer durables, infrastructure projects and in the manufacturing sector. Demand for decorative segment is seasonal in nature i.e. demand increases in festive seasons. Festive season demand inturn is dependent on monsoons and economic performance. Good monsoons result in higher agricultural output and have a positive effect on the GDP growth. So, when GDP growth is higher, the paint sector will benefit and vice versa. Demand for paints comes from both new houses and repainting. The growth in revenues is also dependent on the growth in the housing sector. Thus a growth in ISIEmergingMarketsPDF au-uts-library from 138.25.78.25 on 2011-09-10 07:55:13 EDT. DownloadPDF. the demand for new houses would spurt the demand for decorative paints. Increased demand for automobiles tends to have a positive impact on automotive paint manufacturers. The last year witnessed a phenomenal growth in the auto space helping the Paints industry. Demand for automobiles in turn is dependent on income growth prospects and interest rates. The ability to pass on any rise in input is weaker i.e. bargaining power of customers is higher. As far as industrial paint segment is concerned, increased spending in infrastructure plays a vital role in boosting paint demand. The Indian paint sector has the co-existence of the organised and unorganised players. The unorganized players were not paying taxes, they were able to sell products at a cheaper rate without any significant investments in technology. With the fall in excise duty, unorganised players are losing competitiveness. The reduction in customs duty, which results in cheaper raw material cost for organised players. Asian Paints is the market leader in the

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decorative paints segment whereas Kansai Nerolac is the market leader in the Industrial paints segment. Most of the raw materials used in making paints are petroleum based. Thus the paint companies benefit when the prices of the crude products go down. A hike in the price of petroleum directly impacts the bottom lines of companies. One of the major raw materials, forming one-third of the total raw materials costs are Pigments which are finely ground solids and determine the colour, consistency and other properties of the final output. Solvents are volatile organic compounds (VOC) used to dissolve, suspend or change the physical properties of other materials. They are generally used to bring down the viscosity of paints to the desired level, which also reduces the cost of paint formation. They constitute 70%-75% of the paint liquid and ultimate escapes into the atmosphere when the fluid dries.
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Binders are generally oils, resins and plasticizers that give paints its protective property. Most resin manufacturers make alkyds, polyesters, emulsion polymers, epoxy resins, amino resins, powder coating resins etc. Additives are added in small proportion to the paint to improve its performance characteristics in various ways. Skinning inhibitors, fungicides, wetting agents, driers are included in this category. Margins in paint industry have been under pressure as the major raw materials are derivatives of crude, where we all know the prices have moved up. High cost and erratic availability of raw materials mark the Indian paint industry. Even with the softening of crude prices, the prices of crude derivatives have not moved down proportionately thus indicating an upward price movement in future. While it is easier to comparatively pass on the burden of increase in raw material prices in decorative products, in industrial paints it is difficult to pass on. Moreover, it is also a long drawn

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process. In decorative water-based products like Interior & exterior emulsions, Wood finishes offer higher margins. Raw material cost typically account for around 50% of sales of a paint company. An increase in crude prices in the international markets, paint companies feel the pressure. Most domestic manufacturers import titanium dioxide. The paints sector is a highly raw material intensive sector, involved in the manufacturing process. Since most of the raw materials are petroleum based the industry benefits from softening crude prices. The huge investments required in setting up a vast marketing and dealership network, to advertise and develop a brand over a period of time can only be afforded by companies in the organized sector. It is for this reason that smaller companies and small scale sector units are slowly losing market share to the organized sector.

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MAJOR PLAYER

ASIAN PAINTS LIMITED

Asian Paints (APL) manufactures a wide range of paints for Decorative and Industrial use. Companys product range includes wall paints, metal paints, wood finishes, primers and others. The company has presence in both decorative and industrial coating segment of the paint business. The industrial coating segment comprises automotive coating, powder coating and protective coating. It is India's largest paint company and the third largest paint company in Asia with a turnover of Rs 3670 crores. APL operates in 21 countries and has 30 paint manufacturing facilities in the world. In India company has manufacturing facilities at Bhandup, Ankleshwar, Patancheru, Kasna, Sriperumbudur, Sarigam, Baddi etc. It caters to markets across 65 countries is a market leader in 11 countries. The countries that Asian Paints has presence are as follows South Asia: Bangladesh, Nepal, and Sri Lanka. South East Asia: China, Malaysia, Myanmar, Singapore and

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Thailand Caribbean Islands: Barbados, Jamaica, Trinidad and Tobago Middle East: Bahrain, Egypt, Oman and United Arab Emirates South Pacific: Australia, Fiji, Solomon Islands, Samoa Islands, Tonga and Vanuatu. The company sells its products under several brand names such as Royal for the premium segment, Apcolite for the middle segment and Gattu, Tractor, Utsav, 3Mango, etc. in the lower segment. APL has also diversified into manufacturing specialty products such as Pentaerythritol and Phthalic Anhydride. These are used in paints, plasticizers, inks and dyes. The company has 3 subsidiaries namely Berger International, Apco Coatings and SCIB Chemicals to handle the companys international business. APL has a 50:50 JV with Pittsburgh Paints and Glass Industries (PPG) of USA, the world leader in automotive coatings. In February 2007, Asian PPG Industries acquired the advanced refinish business of ICI India, expanding its presence in India. The company has further extended this service to ASIAN PAINTS HOME SOLUTIONS, which offers painting services in ISIEmergingMarketsPDF au-uts-library from 138.25.78.25 on 2011-09-10 07:55:13 EDT. DownloadPDF. addition to the paint. This service is available in 10 cities viz Hyderabad, Bangalore, Kolkata, Delhi, Chennai, Ahmedabad, Mumbai, Pune, Coimbatore & Cochin. Royale Play is another innovative concept introduced by the company.

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