While the Indian paints market is witnessing a steady growth, some entry barriers for entrepreneurs could act as dampeners
As Mahesh Apte leaves home every morning for his paints manufacturing unit in Miraj in Sangli district of Maharashtra, a couple of issues keep his mind occupied.
How can he offer his products at competitive prices while increasing his customer base? Apte owns Rainbow Paints, a company started by his father 40 years ago. Times have changed a lot since then. With major Indian and global paints manufacturers holding a lion’s share of the market, it is quite a challenge for businessmen like Apte to hold forte and capture more customers.
In a price-sensitive paints industry, low on margins and high on raw material costs, a new player may find it difficult to grow a market for his products. But still Apte feels “there is enough profit to be made, provided one continues to expand his customer base.” Paint is a volumes business—the more you sell, the more profit you make. In this story, DARE looks at both the growth prospects for a newcomer and the barriers to entry that could act as dampeners.
Growth Drivers
India’s robust economic growth has had a direct impact on the infrastructure sector that has grown at around 10% in the last five years. While roads, sea-ports and airstrips are garnering major investments through public-private partnerships, the housing and commercial real estate sector has witnessed a 35% growth year-on-year and is pegged at $15 billion. The sector is also seeing record inflows with global players having pumped in an estimated $10 billion over the last few years. This has given a big impetus to several downstream businesses such as cement, steel, construction equipment and paints.
“A robust economic expansion (in India) will occur in concurrence with a booming construction sector, thereby benefiting the paint industry,” according to the World Architectural Paints 2011 report by the Freedonia Group, a US-based market research firm. Its says that the current per capita architectural (decorative) paint consumption in India is among the lowest in the world and has significant growth potential. From 2004-2006, exterior paints have been the fastest growing architectural paint market segment in India, registering around 20% annual growth.
Business Segments
There are mainly two segments of the paints industry—decorative (architectural) and industrial paints. Decorative paints comprise exterior and interior wall paints, wood finishes, enamel and other products such as primers. According to Equitymaster, a stock market research firm, “decorative paints account for over 75% of the overall paint market in India.” Asian Paints is the market leader in this segment.
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Industrial paints find major usage in the automotive, aviation and consumer durables sectors. “Three main segments of the industrial sector include automotive coatings, powder coatings and protective coatings. Industrial paints’ market size stands at around Rs 950 crore,” says Equitymaster. Kansai Nerolac holds a major share of this market. The per capita consumption of paints in India is quite low as compared to that in developed countries. With construction activity picking up fast, the demand for paints is only set to grow.
Unlike much of the rest of the world, non-residential buildings account for a majority of paint demand in India (57% in 2006), says the Freedonia Group. This phenomenon is usually a sign of rapid economic and infrastructure development in a nation, which holds true in the case of India, it adds.
| DARE/barriers to entry for new players |
| 1. Big players (organized segment) control about 70% of the paints market. |
| 2. The sector requires high input costs and it is raw material intensive. |
| 3. Sharp rise in crude and petrochemical prices. |
| 4. Profit margins are low. Thus volumes play a major role. |
| 5. Building brands is a major challenge. |
| 6. Modern and updated production technology needed. |
Low capacity utilization underlines this industry, with most manufacturing units operating at around 40-50% capacity. However, some market leaders also utilize around 60-70%. “The sector is also raw material intensive and input costs are high. Sometimes 60% of the cost is that of raw materials. This reduces profit margins,” says Apte. Around 300 inputs (mostly chemicals) are used in paint manufacturing. These are of various types, such as binders, pigments, solvents and additives. Paint is a highly price-sensitive commodity. Therefore, any change in the cost of raw material could impact the manufacturing cost of the final product. With crude and petrochemical prices touching new highs, the cost of production would invariably be affected.
Market Prospects
The demand for paints in India stands at 1.22 million tons, according to Information Research (IRL) that provides a range of market research and analysis services to the global paints and coatings industries. This could grow to two million tons by the start of the next decade. Indicus Analytics, a research firm, estimates that by 2015, there will be a demand for over 24.3 million new dwellings in urban India alone. This would translate into further growth of the industry. Rural market also holds big promise for paint companies. Taking a cue from FMCG companies, paint manufacturers could work on products targeted specifically for the rural markets.
| DARE/quick facts |
| 1. India’s booming real estate sector, growing at 35% year-on-year, is driving the demand for both decorative and industrial paints. |
| 2. Paints’ demand stands at 1.22 million tons, and is projected to grow to 2 million tons by the start of the next decade, says research firm IRL. |
| 3. In volume terms, the paints sector posted a 16% year-on-year growth in FY07 |
| 4. Rural markets offer new opportunities for growth. |
| 5. Demand for decorative (architectural) paint is projected to increase 8.7% per year by 2011, which constitutes 70% of the paint market. |
“Demand for architectural (decorative) paint in India is projected to increase 8.7% per year through 2011 to one million metric tons, among the strongest performances expected of any country in the world,” says the Freedonia Group. Export opportunities also beckon entrepreneurs as globally the demand for paints is also expected to rise, although slower than that in India. According to estimates by the Freedonia Group, global demand for architectural paints is estimated to rise 3.9% per year through 2011 to 21.5 million metric tons and will be valued at $47 billion. Majority of the demand will come from developing countries in the Asia Pacific region including China.
Big players dominate India’s paints market—Kansai Nerolac, Asian Paints and Berger Paints. In the industrial paints segment, Kansai Nerolac holds a 47% share while Berger has a 13% hold. The decorative paints segment is led by Asian Paints with around 45% market share, with Berger (16%) and Nerolac (12%). Several international paint companies are also entering India. Norway’s Jotun Group is increasing its operations with a new production facility at Pune while Nippon Paint is reported to be mulling investments of around Rs 3.5 billion to build a new plant in Gurgaon.
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written by BUZZINGSTREET, December 30, 2010
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written by Sharetipsinfo, October 20, 2010
Seems like it’s a nice blog. So let us also add something useful in it. Trading in volatile market can be very fruitful also if we follow technical levels closely. It’s a common saying that stock market can change fortune in either way. But now the question is how to earn money from the Indian stock market.
Traders are advised to strictly follow technical analyses and investors can follow fundamental analysis. Many analysts say it’s not wise to follow technical and fundamental analysis together. But we say what the problem is if one does so? As more knowledge will add up things will not have any negative impact.
Regards
. Sharetipsinfo Team
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