A quantities of high-value product. Generally, paint
A brief intro of Manufacturing industryManufacturing industry refers to any business in which rawmaterials are transformed into finished or semi-finished goods on a large scaleusing machines, tools and labour. The term may refer to a range of humanactivity, from high tech to handicraft, but is most commonly applied toindustrial production of goods. Manufacturing sectors include production ofchemicals, food, textiles, machines and equipment.
Of these various industriesencompassed by the manufacturing industry, this report focuses on Paint and Coating industry. The reportwill also shed some light on the chemical production industry. One of the most heavily regulated industries in the world isthe paints and coating industry. Needless to say, producers have beencontinuously adopting newer technologies, using low-solvent and solventlesstechnologies since the past 40 years and will continue to do so. The number of paintproducers is large, but most are regional producers, with only 10 or so largemultinationals.
The expansion of operations of most of these multinationals hasbeen in fast-growing areas like China. India too is not an exclusion. The most noteworthytrend has been consolidation, especially among the largest producers. After adecade of steady growth, production in Asia accounts for 50–55% of the total.
Production and consumption are nearly identical in each country, as trade islimited to relatively small quantities of high-value product. Generally, paintgrow in tandem with the economy, so growth will continue to focus on thedeveloping world.The paint industry inthe United States, Western Europe, and Japan is mature and generally correlateswith the health of the economy, especially housing, construction, andtransportation. In emerging countries, paint are growing at a much faster rate.
TheIndian Paint Industry began over a 100 years ago with the setting up ofShalimar Paints in Calcutta (now Kolkata) in 1902.After World War II manymanufacturing facilities were started by local entrepreneurs. Currently thePaint industry in India is estimated to be around Rs 40,000Cr.
Thesector which is the central focus ofthis report is paint industry. Thereport will also shed light on Berger paints, one of the marketleaders in the mentioned industry. AboutBerger paintsThe foundationof Berger paints was laid in UK in 1760 by Lewis Berger. It started it’soperations in India in 1923.1. Domestic operationsStartingoff with a modest beginning, Berger is now the second largest paint company inIndia after Asian Paints in terms of marketshare. The company in order to keep up its pace with technological advancementin the paint industry, has incorporated latest technologies to cater to thedemands of the consumers. Some of the brands from the company that are stars inthe market are Berger Easy Clean, Silk, Rangoli, WeatherCoat etc.
The companyhas a strong distribution network of 16,500 dealers and has ~12,000 tintingmachines. In 2013, Berger acquired the decorative business of Sherwin WilliamsIndia. Berger recently commissioned its Hindupur plant (total capacity of300,000Kl) in Andhra Pradesh and will increase its capacity in a phased manner. 2. InternationaloperationsBerger has presence in Russia where it has a productionfacility with a manufacturing unit in Krasnodar. The company entered Nepal in2000 when it acquired Jenson & Nicholson. It has also acquired Bolix SA ofPoland and also tied up with Becker of Sweden. Segmentation ofpaint industry Before delving much into themarket trends of this industry, it is essential to know how the paint industryis segmented.
The diagram below gives a picture of the segmentation in thisindustry.Decorative paints account for thebulk of the market in terms of volumeand value. The unorganized segmentplays a huge role in the decorative paintssegment due to low technicalknow-how and a highly scattered market. Theindustrial paints segment isdominated by the organized sector due to its hightechnology orientation. It is also the more profitablesegment. Most of the organized companies havea nationwide presence with multilocationmanufacturing facilities. Thecompanies in the unorganized sector aremostly regional, spread in andaround their manufacturing facilities and deal inlow value products. Growth of paint industry Paint industry is oneof fast growing industries of the world.
In the Asia Pacific region, thelargest producer is Australia. The Indian paint industry is growing at a doubledigit rate for several years now, unlike in the western countries and Japanwhere the growth has stagnated. And it is expected to continue growing ataround 15% as historically it has grown at an average of 1.8 times the GDPrate.
A pie chart showingthe paints and coating market in the Asia Pacific region is presented below. Presently, the growth of the Indianpaint industry is being witnessed from new demand pockets, especially inTier-II and Tier-III cities, thus, signalling the growing acceptance of qualityproducts among the masses. The growing popularity of quality paints andincreasing income levels of people residing in Tier-II and Tier-III cities havepushed the growth in premium paint market of Indian decorative paint industry.
The growth in the market is going to be driven by emergence of the middle classin India, increase in the propensity to spend and growing young populationtending to stay in nuclear families. The demand for industrial paint is goingto be driven by the pick-up in the automobile industry and growth in infrastructurein a country like India. Infrastructure is at the lowest level in the countrytoday, hence the industry experience sustained growth in paints business. Market ShareThe Indian paints industry reported acompounded annual growth rate (CAGR) of 16.2 percent during 2013-2014 to2015-16.
The industry comprises of the decorative and industrial segment. Thesplit of the decorative paint market to industrial market is around 75-25percent. The Indian paint industry is currentlyRs.17,000 crore and is expected to grow between 12-15% per annum over the next5 years. The market of paint sector is very fragmented. Market size of decorative paint in thecountry was Rs.
30,385 crore and industrial paint was Rs 9,915 crore in FY2014-15. The paint market is expected to reach Rs 70,875 crore by 2019-20 fromaround Rs 40,300 crore in 2014-15, according to Indian Paint Association (IPA),the paint industry’s apex body.Paint industry in India can be dividedinto 2 segments-1. The Organised sector which accounts for 65% of the paint market.
Thetop organised players include Asian Paints (30% market share), Kansai Nerolac(20% market share), Berger Paints (19% market share) and ICI (12% marketshare).2. The unorganised sector which controls around 35% of the paint market. Thereare about 2000 units in this unorganised sector that have small and mediumsized paint manufacturing plants.Themarket shares of the major market players of the paint industry is providedbelow. Market trend When the wave of technological advancement hit the world, it broughtabout innumerous changes in every industry. The paint industry, hence wasn’tany exception to it.
Trends of the market in this sector is heavily dominatedby consumer demand. Demand for paints comes from two broad categories:· Decoratives: Majorsegments in decoratives include exterior wall paints, interior wall paints,wood finishes and enamel and ancillary products such as primers, putties etc.Decorative paints account for over 75% of the overall paint market in India.Asian Paints is the market leader in this segment. Demand for decorative paints arises fromhousehold painting, architectural and other display purposes. Demand in thefestive season (September-December) is significant, as compared to otherperiods.
This segment is price sensitive and is a higher margin business ascompared to industrial segment.· Industrial: Three mainsegments of the industrial sector include automotive paint, powder paint andprotective paint. Kansai Nerolac is the market leader in this segment. Userindustries for industrial paints include automobiles engineering and consumerdurables. The industrial paints segment is far more technology intensive thanthe decorative segment.Summing all up, it can be noticed that the demands faced by the paintindustry are1.
Better finish.2. Lesser drying time- there is nothing more annoying than watching paintdry.3. Durability4. Waterproof 5.
Dustproof6. Less harmful chemicals7. Environment friendly paintsThe paint industry, inorder to keep up with these demands has undergone major changes during the last40 years and there has been the adoption of new coating technologies. These newcoating technologies include-· Waterborne (thermosetting emulsion, colloidal dispersion,water-soluble) paints,· High-solids paints,· Two-component systems,· Powder paint,· Radiation-curable paints. The need for thesevaried range of products arose due to several factors like- environmentalregulations, longevity, better finish, durability.The paintindustry is one of the larger consumers of solvents, which are mostly derivedfrom petrochemical feedstocks and refinery operations.
The paint industry alsouses a considerable quantity of nonpetrochemical feedstocks, such as pigmentsand additives, which are not very dependent on crude oil and gas prices. Thenonpetrochemical portion of the feedstocks is approximately one-third, on avolume basis.One newarea of interest is nanotechnology, with tens of thousands of patents issuedalready just for the paint industry. Very small ceramic or metallic particlescan be added to paint formulations to modify specific properties (e.g.
,scratch, mar, wear, corrosion, and UV resistance) in highly specializedapplications. The average size of nanoparticles is 10–70 nanometers, consistingof less than 6.5 million atoms. At these sizes, the ratio of surface area tomass becomes significant, giving the particles unique properties. For example,at 2 nanometers, the conductivity of metal particles changes and at 20nanometers, the transparency of ceramic particles changes. At 20 nanometers,particles of gold turn red and their plasticity disappears.
Some otherfuturistic applications of technology in this industry are-· Use of nanotubes for electrically conductive coatings and to increasethe speed of reaction of thermosetting resins;· Organosilane dendrimer coatings;· Buckyball coatings for machine parts;· Metals for conductive coatings in inks.The technology however, is limited mainly to highlyspecialized applications because of the high cost per unit volume needed toreduce the size of particles and the need to add surface modifiers to keep theparticles from agglomerating. Recent research efforts have been focusedprimarily on functionalizing the particle surface of the nanoparticles to makethem more compatible with the coating resin systems, so that easy dispersion,low viscosity, and covalent bonding between the particles and resins areachieved.
Market structureThe Indian paint industry can be divided as-1. The organized sector comprising of largeand medium size units.2.
The unorganized or small-scale sector. 1. The organized sector has a market share of 60%, valued at 23.4 bn. This is in contrast to the 55% share that the sector commanded a few years back.
There are around 25 units in this segment. 2. The unorganized sector comprises of around 2,000 units with a combined market share of around 40%. High excise duties, low technology and low capital costs for production led to the incidence of a high number of units in the small scale sector.
However, since 1992 the government has been consistently lowering duties from 40.5% in 1992 to around 16% currently. This has led to lowering of price differential between the organized and unorganized sector. Moreover the paints sector was also allowed to claim MODVAT credit on petro-based products, thus lowering the excise incidence further. Characteristics of competition The primary external competition of the paint industry in the decorative sector is wallpapers. However, the threat isn’t strong enough to tumble the paint industry. The internal competition of the paint industry (competitors of Berger in specific) can be analysed by having a glance at the Porter’s 5 forces in this sector.
The major competition of Berger in the decorative sector are Asian Paints, Kansai Paints, Akzo Nobel and Shalimar paints. These top 5 paint companies make up more than 80% sales of the organized market. The market share of the organized sector is continuously improving as consumer preference is shifting towards better products offered by the leading brands. Established Foreign companies have entered the Indian market by acquiring existing Indian companies. Kansai Paints of Japan is one such entrant that entered the Indian Market by acquiring Nerolac. Another paint company, Akzo Nobel, the world’s largest Paint company, entered the Indian market by acquiring ICI Paints (now Akzo Nobel India). ASIAN PAINTS Asian Paints is the market leader in the Indian Paint Industry and gets the major portion of its revenue from the Decorative segment. Over the years, it has outperformed its peers in every aspect by wide margins.
This is mainly due to its strong moat (competitive advantage) which lies in its strong Brand Equity and an extensive Distribution Network. The company’s Net sales, Net Profit and Book Value have grown with a 5 year CAGR of 22%, 27% and 28% respectively. Also the company’s debt is very low and its ROIC has been 40% on an average over the last six years.
KANSAI NEROLAC Kansai Nerolac holds the second position in the Indian Paint market, and is the market leader in the Industrial Paint Segment, owing to its leadership position in the Automobile Paint segment. It is the subsidiary of Kansai Paints Ltd., the leading Japanese paint company. Berger paints has the third position and derives its major revenue from the Decorative segment. Akzo Nobel (former ICI Paints) is the subsidiary of the world’s largest Paint Company and is at the fourth position. Shalimar Paints is at the fifth position.
Currently all key players in the Indian paint market are in expansion mode. Asian Paints has enhanced its capacity at its facility in Himachal Pradesh (for powder coatings) and Maharashtra (industrial coatings) and Berger’s facility in Jammu started contributing to its top line performance, albeit on the lower side. Kansai Nerolac is putting up a green field plant at Hosur in Tamil Nadu and is carrying out expansion at its Lote Parshuram and Bawal plants. PRODUCT RANGE Most companies have an identical range of products for the decorative paint market. In the industrial segment, the range is more customized and guided by the technology support provided by the collaborators. In the case of decorative products, the technology has been mostly indigenously perfected over the years and the products can be divided on the basis of interior and exterior applications or in categories such as water-based and solvent-based. Moreover, most companies have been advertising their products in the interior/exterior emulsions category, which has expanded the market and triggered a shift from distempers and cement paint. While solvent-based enamels are still popular in India, there is a clear shift from solvent- to water based glossy enamels in overseas markets, India will take some time to switch over to water-based coatings.
For the decorative range, it is difficult for international companies to set up shop on a stand-alone basis because of existing barriers such as the strong network of established players, brand image, range of products (Indian context) and required distribution logistics. Given below is a comparative list of various products of the major players of the Indian paint industry.