PAINT INDUSTRY: AN INDIAN PERSPECTIVE

TOPICS PAGE

1. HISTORICAL PERSPECTIVE 1

2. CURRENT SCENARIO 2

3. INDUSTRIAL ANALYSIS 4

4. MARKET SHARE 8

5. COMPANY ANALYSIS 10

6. COMPARATIVE PERFORMANCE OF THE 19

THREE MAJORS

7. MARKET POTENTIAL 20

8. CONSTRAINTS AND THREATS 21

9. FUTURE OUTLOOK 22
LIST OF FIGURES PAGE

FIGURE 2.1: PER CAPITA CONSUMPTION OF PAINTS 3

FIGURE 3.1: SECTORAL SIZE OF PAINT INDUSTRY 4

FIGURE 3.2: SEGMENT WISE DISTRIBUTION OF SALE 5

FIGURE 3.2: PAINT COMPOSITION IN THE DECORATIVE

SEGMENT 6

FIGURE 3.2: PAINT COMPOSITION IN THE INDUSTRIAL 7

SEGMENT

FIGURE 4.1: OVERALL MARKET SHARE 8

FIGURE 4.2: DECORATIVE SEGMENT MARKET SHARE 9

FIGURE 4.3: INDUSTRIAL SEGMENT MARKET SHARE 9

FIGURE 5.1: NET SALES OF ASIAN PAINTS 11

FIGURE 5.2: PBT AND PAT OF ASIAN PAINTS 11

FIGURE 5.3: RETURN ON NET WORTH OF ASIAN PAINTS 12

FIGURE 5.4: SALES/GROSS FIXED ASSETS OF ASIAN PAINTTS 12

FIGURE 5.5: NET SALES OF KANSAI NEROLAC 14

FIGURE 5.6: PBT AND PAT OF KANSAI NEROLAC 14

FIGURE 5.7: RETURN ON NET WORTH OF KANSAI NEROLAC 15

FIGURE 5.8: NET SALES OF BERGER PAINTS 16

FIGURE 5.9: PBT AND PAT OF BERGER PAINTS 17

FIGURE 5.10: RETURN ON NET WORTH OF BERGER PAINTS 17

FIGURE 6.1: CAGR COMPARISON OF ASIAN PAINTS, 19

KANSAI NEROLAC AND BERGER PAINTS
FIGURE 6.2: PAT COMPARISON OF ASIAN PAINTS, 19
KANSAI NEROLAC AND BERGER PAINTS

FIGURE 6.3: TURNOVER COMPARISON OF ASIAN PAINTS, 20

KANSAI NEROLAC AND BERGER PAINTS
1. HISTORICAL PERSPECTIVE
The earliest paint factory in India dates back to 1902, when Shalimar Paints, Colour &
Varnish Company, A Pinchin Johnson unit, was established at Calcutta. Growing
industrialization, expansion of the railways and introduction of electric power a couple of
years earlier had all kept business confidence soaring high. However, this did not provide
a ready and expanding market for the nascent paint industry then. Imports from Britain
continued to swarm the market and raw materials were not easy to come by. The industry
still consisting of one lone unit went through a rather prolonged period of infancy, till the
World War II brought in dramatic opportunities. With the stoppage of imports owing to
war conditions, the domestic market at last became almost the exclusive reserve of the
domestic industry. European manufacturers, hitherto exporting to India, readily saw the
advantages of setting up manufacturing facilities here. The period between the wars thus
saw the greatest ever influx of foreign paint companies into India- Goodlass Wall (1918),
Elphant Oil Mills (1917) in Bombay, and British Paints, Jenson & Nicholson and
Macfarlances in Calcutta. Macfarlanes was brought over by the Poddars and became a
completely Indian company, while the other three: Shalimar Paints (Pinchin Johnson),
British Paints and Jenson Nicholson continued as British operated units.

While talking about the post independent development of the Paint industry in India,
mention must be made of Asian Paints, a completely Indian unit which started on a very
small scale, grew so big and so beyond recognition over the years that it is today not only
the largest unit in India but way ahead of the second largest, Kansai (Goodlass) Nerolac
Paints Ltd., formerly a unit of Goodlass Wall (UK).

Besides Asian Paints, numerous factories, wholly Indian in ownership and with rare
exceptions in technology as well were set up in Calcutta, Kanpur and Bombay. The
British units, though a few in number, were technically strong and financially sound and,
with the active support and patronage of the Government, controlled a vastly higher share
of the market. The post independence period witnessed a steady growth in the paint
industry. From a mere Rs.200 million turnover in 1950, the paint industry crossed the
Rs.14000 million mark in 1990-91.

But even in this period, paints were considered a luxury item. Only people with high
incomes were expected to decorate their houses with the use of paints. Paints, as a
protective element, were totally unheard of. The industrial segment, which was
traditionally a low user of paints, vis-à-vis its counterparts in the decorative segment, too
contributed to this notion. In line with this misconceived notion, the government
drastically increased duties on paints in the early nineties with an aim to bolster
exchequer revenues. The result was obvious. This inevitably brought about a downturn in
the fortunes of the industry. The products, which are highly price elastic, saw a negative
growth rate of 20 % in 1991-92. The next year was also not good, registering a growth of
only 2%, bringing it back to the 1990-91 level, thus corroborating the fact that the
industry needed lower excise levels to grow. The industrial slowdown during that period

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also did not help matters. In line with the liberalized policies and the realization that
paints are not necessarily a luxury item, duties were progressively reduced from 1993-94.

This squared growth as most companies passed on duty reductions. Further, the entry of
world majors in the automobile and white goods market in India since 1993 helped the
market to expand. Demand for auto paints shot up suddenly. Form a modest 8% growth
rate in 1993-94, paint demand touched 12% in 1995-96.

Rapid industrialization and improvements in the infrastructure such as transport, energy

and communication during the last decade gave a further fillip to the growth of the paint
industry. Aided by Government’s liberal policy of technology import, the automotive and
consumer durable segments expanded phenomenally, with a flurry of foreign
collaboration. Increased demand for decorative, protective and functional coatings was a
natural fall out, which brought, in its stride, a host of indigenous developments as well as
the injection of new technology.

2. CURRENT SCENARIO
For many years the Indian paint industry was content with manufacturing and supplying
low technology products such as cement paints, oil bound distempers, general purpose
enamels and low-build-low-solids protective and industrial coatings. But the picture has
changed now. The industry makes large gamut of products, including some real high
technology products, targeted towards architectural and industrial end use segments.
Increased customer awareness and consumer demand has been as much the reason for the
change as the technological progress made by the paint industry and the raw material
suppliers. Stringent quality specification, introduced by foreign collaborators and
consultants, newer concepts in design and construction, increased usage of newer
materials such as plastics and non-ferrous metals, limited but definite improvements in
the methods of application and above all, openness on the part of manufacturers and
customers towards new technology were responsible for quality upgradation in paints.
Even the small scale sector - particularly companies set up by technocrats is now
focusing attention on high value specialty products. "Value for money" and "Progress
through technology" have become buzzwords in the industry.

The country’s per capita consumption of paints at 800-900 grams is negligible compared
to the 15-25 kg in the developed countries. While developed nations like USA, Japan etc.
have per capita consumption in excess of 25 kg, even developing nations like Taiwan and
Philippines have higher per capita consumption than India. Such a low level is mainly
due to poor awareness about preservation of assets in India.

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 FIGURE 2.1

The Indian paint industry is marked by the high cost and erratic availability of various
raw materials. Moreover certain synthetic raw materials such as some resins, high
performance pigments and additives are either proprietary or specific to certain
formulations and their exact equivalents are not available indigenously.

The in-house R&D Centres of various paint manufacturers and institutional R&D
laboratories in India have done considerable work in the paint field, especially in areas
such as development of new products and processes, absorption of foreign technologies
and improvements in the existing manufacturing processes. The R&D expenditure in the
Indian corporate sector, is, however, quite low, as compared to the major foreign paint
manufacturers.

Small scale units continue to play a vital role in the paint industry by manufacturing a
large range of products and mainly catering to localized customers. The high purchase
price of raw materials (due to low volumes) adversely affects the cost of the finished
products. The technology transfer from the larges sector to the small sector may improve,
in view of the recent policy announcement allowing equity participation (up to 24%) by
the organized sector units in the small sector units.

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3. INDUSTRIAL ANALYSIS:
The Indian Paint industry has a size of about US $2 billion. Surprisingly, the industry has
no public sector manufacturing unit and complete ownership is vested in the hands of the
private sector. This may be indicative of the fact that in the past, the government
perceived paints to be a luxury product as mentioned before and taxed the industry
heavily, thereby relegating this industry to a non-core status.

The classification of the paints industry can be made either product-wise or sector-wise.
In the sector-wise segmentation, this industry can be classified into the organized and
unorganized sectors. The sectoral share is shown in the following pie chart:

FIGURE 3.1

Sectoral Size of Paint Industry (in $billion)

Organized
0.6, 30% sector
Unorganized
sector

1.4, 70%

The Organized sector is dominated by six large players and in the unorganized sector
there are about 2500 units manufacturing various categories of paints. The total volume
of the market is about 717,000 MT and the industry is growing at 14% approximately. It
can be seen from the graph that though the organized sector controls 70% of the market,
the unorganized sector with 30% of the market share is still a force to reckon with.

The organized sector can itself be divided into two distinct segments (Product wise):
Industrial segment which is growing at 15% approximately and the Decorative segment
which is growing at 8% approximately. As shown in the graph on the next page, most of
the sales are accounted for primarily by the decorative segment

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 FIGURE 3.2

Distribution of Sale

30%
Industrial
segmannt
Decorative
70% segment

In contrast to global trends, wherein industrial paints with a share of nearly 60 per cent
take prime importance, the domestic industry is dominated by decorative paints with an
imposing share of nearly 70 per cent of the paints market. A major portion of demand for
decorative paints is from fresh coats on existing wall finishes. Thus, the fortune of this
segment is closely linked to the construction activity in the country.

DECORATIVE SEGMENT

The Decorative paints cater to the housing sector. 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 sub-urban
and rural markets. The distribution network is the key for the success of this segment.
Brand image and the range of products is the other basis for competition. These features
also act as entry barriers in the decorative segment.

As sophisticated technology is not a prime requisite for manufacturing decorative paints,

the industry is flooded with a number of small players catering to the lower-end of the
market by supplying low value unbranded products in small quantities. In this segment
both the organized and the unorganized sectors have a share of nearly 50 per cent each.

Within the Decorative segment the composition of the paints can be seen in the graph on
the next page

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 FIGURE 3.3

2%
12%
Enamels
Distemper
17% Emulsions
50%
Exterior Coatings
Wood Finishes

19%

This graph shows that nearly three fourths all decorative paints sold in India are either
Enamels or Distemper. Among paint majors, Asian Paints produces all types of paints
excepting cement paints. Berger Paints, ICI and Jenson & Nicholson (J&N) manufacture
synthetic enamels and emulsions while Goodlass Nerolac (currently known as Kansai
Nerolac) makes synthetic enamels. In the organized sector, Snowcem (India) specializes
in cement paints. One of the notable features of this industry is that each major player has
a specialty product in its portfolio of decorative paints.

Currently, Enamels are showing a steady growth but there is a gradual shift from Enamels
and Distempers to Emulsions. So Emulsions is also a high growth area. There is a high
growth in low priced low quality Distempers also as consumers are upgrading from
limewash. Moreover, Exterior Emulsion is the fastest growing segment in the Indian
paint market.

INDUSTRIAL SEGMEENT

In terms of volume, though the industrial paints segment has made significant gains, it
still trails behind decorative paints. As against the Decorative segment, the share of the
unorganized sector in industrial paints is limited to roughly 35 per cent. This is because
technology is the overriding factor in this segment and industrial paints require constant
upgradation and servicing. In contrast to the decorative paint business, tapping the
industrial paint segment is not by brand-building or establishing a distribution network
but through getting the right foreign partner (for technology) and captive customers.
While decorative paint manufacturers need to offer variety and have a wide reach to stay
ahead of competition, industrial paint producers need to be competitive in terms of
technology and service.

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Industrial paints comprise automotive paints, high performance coating, marine paints,
powder coatings and coil coatings. Goodlass Nerolac is the market leader in this segment.
The user industries are automobiles, engineering and consumer durables. The industrial
coating segment in India has grown by 15% over the year and companies like Asian
Paints have registered a growth of 48% for the same period.

Automotive paints constitute a large share of industrial paints market which requires high
quality standards, supplier reliability and ability to offer complete coating systems. They
are used for giving high quality finish to automobiles. High performance coatings are
applied in plants for fertilizers, petrochemicals and offshore oil and atomic energy
installations where anticorrosion is very important. Powder coatings (water-based) are
free of solvent and are used in consumer goods like washing machines, refrigerators etc.
Marine paints are used for painting ships and vessels to make them water resistant and
corrosion free.

Within the industrial segment, the composition of the major paints is shown in the
following graph

FIGURE 3.4

Automotive Paints
5% 5%

10% High Performnace

Coating
Pow der Coating
50%
Coil Coating

30% Marine Paints

Half of the Industrial paints produced in the country are Automotive paints and close to
one third is the high Performance Coating. Automotive sector is a high growth sector
with a number of new entrants like Mercedes Benz, Mitsubishi, Daewoo, Hyundai,
Honda, and Fiat. However, recently there is some slackness in Auto demand. Two
wheeler markets are booming due to demand from large India middle class. In the
Powder Coatings sector, there is high growth due to increase in sales of white goods and
auto ancillaries. Similarly, in the High Performance Coating sector, there is a steady
growth due to higher investments in Refinery Segment and power sector, especially
Thermal and Nuclear.

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4. MARKET SHARE

The overall organized sector market share is shown in the following graph. Asian Paints
leads with a market share of 37 per cent; Goodlass Nerolac has 16 per cent while Berger
Paints has 14 per cent share.

FIGURE 4.1

Others, 12%

Shalimar, 4%
Asian Paints,
Jenson and
37%
Nicholson, 5.7%

ICI, 11%

Berger paints,
Goodlass
13.8%
Nerolac, 15.9%

The leader in the high volume medium and mass segments of decorative paints, Asian
Paints has been consolidating its market leadership over the last six years and now has
the biggest slice of 37 per cent of the market for decorative paints in the organized sector
as shown in the Figure No. 4.2 on the next page. Trailing behind are Goodlass Nerolac
and Berger Paints with market shares of 13 per cent and 11 per cent respectively. Other
major players from the organized sector include Jenson & Nicholson with a low 6 per
cent and ICI with 8 per cent. With the exception of Asian Paints, the market shares of
most of the major players have been stagnating over the last few years. This was
primarily due to extensive focus on urban markets and neglecting the high-potential semi
urban and rural markets.

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 FIGURE 4.2

DECORATIVE SEGMENT

Others, 19% Asian Paints,

Shalimar, 6% 37%

Jenson and
Nicholson,
6.0%
Goodlass
ICI, 8%
Nerolac, 13.0%
Berger paints,
11.0%

On the other hand, one of the earliest entrants to take a lead, Goodlass Nerolac dominates
the market for industrial paints with an impressive share of 43 per cent of the market as
shown in the following graph. Though other players trail behind Goodlass Nerolac by a
wide margin, competition in industrial paints is increasing. While Asian Paints and
Berger have a market share of 14 per cent each, ICI’s share is lower at 8 per cent

FIGURE 4.3

INDUSTRIAL SEGMENT

Asian Paints,
Shalimar, 8%
Others, 5% 14%
Jenson and
Nicholson, 8%

ICI, 8%

Berger paints, Goodlass

14% Nerolac, 43%

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5. COMPANY ANALYSIS

I. ASIAN PAINTS

Asian Paints is India's largest paint company and the third largest paint company in Asia
today, with a turnover of Rs 30.2 billion (around USD 680 million). The company has an
enviable reputation in the corporate world for professionalism, fast track growth, and
building shareholder equity. Asian Paints operates in 21 countries and has 29 paint
manufacturing facilities in the world servicing consumers in over 65 countries.

Asian Paints is a great marketing success in a branded consumer product business. The
company succeeded where others failed in three areas:

First, it understood the requirements of the Indian paints market better than the MNCs
which did not bother to respond to local consumer needs. It was the first to introduce
small pack sizes, a variety of shades and a wide range of paint types (enamels,
distempers, emulsions) to suit different pockets.

Thus, in the sixties, the company came out with plaster distemper, Tractor, to suit the
needs of the mass market for a product that was much cheaper than costly emulsions but
much better than the widely used whitewash and crude powder distempers. This opened
up a huge market and today distemper accounts for 25% of the decoratives market in
volumes and 15% in value. And as recently as in 1992, the company introduced a
synthetic distemper, branded Utsav, aimed at the same rural and low income urban
markets.

Secondly, in the highly competitive market emulsions segment, the company introduced
as many as 151 shades in its Apcolite range when the competition was offering a
maximum of 40 odd shades. The strategy paid off and Asian Paints today commands a
40% share in this segment. It set up an extensive national distribution network to tap
demand in smaller towns. Today it has direct dealers in 3,200 towns and 10,000 stockists.
Investments were also made in computer technology to ensure up-to-date information
interface between the marketing and production sides of the business.

And finally, the company has displayed considerable savvy in its advertising campaigns,
dealer relations, point of sale publicity and product demonstrations to consolidate and
expand markets. In fact, the company has played a pioneering role in expanding the
Indian paints market by identifying high demand potential areas and then tapping them to
maximum effect.

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FINANCIAL PERFORMANCE

FIGURE 5.1

NET SALES

25,000

20,000 23,192
Rs. in million

19,546
15,000 16,961
15,350
13,714
10,000

5,000

0
‘01-’02 ‘02-’03 ‘03-’04 ‘04-’05 ‘05-’06
FINANCIAL YEAR

5 years Net Sales CAGR: 13.5%

FIGURE 5.2

PROFIT

4,000
3,500 3,385
3,000 2,750
Rs. in million

2,379
2,500 2,249 PBT
1,814
2,000
1,868 PAT
1,500 1,735
1,420 1,478
1,000 1,143
500
0
‘01-’02 ‘02-’03 ‘03-’04 ‘04-’05 ‘05-’06
FINANCIAL YEAR

5 years PBT CAGR: 16.8%

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 FIGURE 5.3

RETURN ON NET WORTH

33
32
31 32
30 31.4 31.3
29
%

28 29.3
27 27.8
26
25
‘01-’02 ‘02-’03 ‘03-’04 ‘04-’05 ‘05-’06
FINANCIAL YEAR

This ratio is defined as profit after tax divided by the shareholders fund. It measures the
profitability of the funds invested in the firm. It is regarded as a very important measure
because it reflects the productivity of the risk capital employed in the firm.

FIGURE 5.4

SALES/GROSS FIXED ASSETS

3.5
3.0 3.2
2.5
2.6 2.7
2.0 2.3 2.4
1.5
1.0
0.5
0.0
‘01-’02 ‘02-’03 ‘03-’04 ‘04-’05 ‘05-’06
FINANCIAL YEAR

This ratio measures sales per rupee of Investment in fixed assets. It measures the
efficiency with which the Fixed Assets are employed- a high ratio indicates a high degree
of efficiency in asset utilization and a low ratio indicates inefficient use of assets. It can
be seen form the graph that this ratio is increasing for Asian Paints indicating good asset
management.

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II. KANSAI NEROLAC (GOODLASS NEROLAC)

It was established in 1920 as Gahagan Paints and Varnish Co. Ltd. at Bombay. In 1930,
three British companies merged to formulate Lead Industries Group Ltd. In 1933, Lead
Industries Group Ltd. acquired entire share capital of Gahagan Paints in 1933 and thus,
Goodlass Wall (India) Ltd. was born.

Subsequently, by 1946, Goodlass Wall (India) Ltd. was known as Goodlass Wall Pvt. Ltd.
In 1957, Goodlass Wall Pvt. Ltd. grew popular as Goodlass Nerolac Paints (Pvt.) Ltd.
Also, it went public in the same year and established itself as Goodlass Nerolac Paints
Ltd. It is among the oldest paint companies of the country and the undisputed market
leader in industrial paints, with a 43% share of this segment. It is a dominant player in the
auto paints market which accounts for around one-third of the industrial paints segment.
Goodlass Nerolac paints’ strength comes from the higher end of the auto paints market -
passenger cars and light commercial vehicles (LCVs) account for 60% of the company’s
auto paint sales. The rest comes from heavy trucks and two wheelers.

In auto paints, the market share of Goodlass is now estimated to be around 50% with a
90% share in passenger cars, 60% in LCVs, 40% in two wheelers and heavy trucks. Right
now, the company is the only significant producer of CED (cathodic electro-deposition)
primer, with technical know-how from its Japanese promoters, Kansai Paints. Goodlass is
the only company offering a complete automotive paint system comprising pre-treatment
chemicals, primers, anti-rust coatings, intermediate and top coatings as well as auto
refinishes. GNPL supplies 90% of the requirements of Maruti Udyog Ltd., which
produces 300 cars a day.

The company has a tie-up with Nihon Toshuku Tokyo of Japan for sophisticated coatings
for automotive and industrial sectors. Having lost Daewoo’s Cielo contract to Asian
Paints, GNPL is pursuing business opportunities with car majors planning to enter the
country. It recently tied-up with Dupont, USA for supplying automotive paints to
DuPont’s clients in India.

Goodlass Nerolac Paints Ltd. Changed its name to Kansai Nerolac Paints Ltd. in 2006.
The present human asset consists of over 2000 professionals and a sales turnover of 1226
crores. It is the second largest coating company in India with a market share of over 20%
and also the leader in powder coatings.

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FINANCIAL PERFORMANCE

FIGURE 5.5

NET SALES

16,000
14,000
14,840
12,000
Rs. in millons

10,000 12,260
10,690
8,000 9,250
6,000 7,910
7,080
4,000
2,000
0
‘01-’02 ‘02-’03 ‘03-’04 ‘04-’05 ‘05-’06 ‘06-’07
FINANCIAL YEAR

FIGURE 5.6

PROFIT

2,500
2,000 2,000
Rs. in million

1,500 1,370 1,560

PBT
1,000 890 1,390 1,020 PAT
370 560 920
500 560
400
0 270
‘01-’02 ‘02-’03 ‘03-’04 ‘04-’05 ‘05-’06 ‘06-’07
FINANCIAL YEAR

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FIGURE 5.7

RETURN ON NET WORTH

40

30 34.1
28.4
20
%

21.9
17.4
10 13.1

0
‘01-’02 ‘02-’03 ‘03-’04 ‘04-’05 ‘05-’06
FINANCIAL YEAR

III. BERGER PAINTS

Berger Paints is the culmination of over seven-decade process of evolution and growth
that began in 1923. Its growth has been closely linked with the business and industrial
development of modern India.

The performance of this company is anchored today in a wide variety of Decorative and
Industrial paints which continue to gain an increasing share of the highly competitive
Indian paint market. Being an ISO 9001 company its quality products have attained
instant and worldwide recognition, and continues to meet quality requirements that are
demanded today even in the domestic market. The Country's third largest paint
manufacturer, with its Headquarters in Calcutta, Berger controls a distribution network
comprising of 66 stock points and approximately 10,000 dealers, spread across the
country.

BPIL has technical tie-ups with Herberts, a subsidiary of the German pharmaceutical
major Hoechst for automotive paints, Tendor NV of Holland for powder coatings and
Valspar Corporation, USA for heavy duty coatings. The company is particularly active in
the powder coating segment and is a supplier to most OEMs in the white good segment.
With its thrust shifting to industrial coatings, the company is expanding its powder
coating capacity from 840 metric tons to 1,840 metric tons at its existing plant.

Recently, it introduced Color Bank, a computerized mixer tinting machine in technical

collaboration with Ital Tinto of Italy. Special software, Tintovision installed in the Color
Bank gives the customers a choice of more than 5,000 shades and can even produce the

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colors offered by the company’s competitors. Another achievement of Berger is the
setting up of Berger Prolinks. Prolinks is Berger Paints' response to a market environment
that is increasingly driven by technology and calibrated by expertise. Prolinks is aimed at
placing the initiative in the hands of builders, architects and designers to enable them to
directly source innovative products and services. The team is entrusted with maintaining
a seamless interface between paint specifiers and Berger Paints. The objective is to
provide specifiers with a complete basis for recommending products and processes -
databases, technical services, color consultancy, site inspection, etc. Prolinks experts
ensure specific solutions to specific problems, whether it is a particular shade that needs
development, special climatic factors to be provided for, or application factors that have
to be maintained. From know-how to legwork, the Prolinks team delivers total support.

FINANCIAL PERFORMANCE

FIGURE 5.8

NET SALES

12,000
10,000 11,174
Rs. in millons

8,000 9,475

6,000 7,702
6,016 6,684
4,000
2,000
0
‘01-’02 ‘02-’03 ‘03-’04 ‘04-’05 ‘05-’06
FINANCIAL YEAR

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FIGURE 5.9

PROFIT

1,000 916
800
Rs. in million

662
614
600 702 PBT
452
400 346 521
440 PAT
313 334
200
0
‘01-’02 ‘02-’03 ‘03-’04 ‘04-’05 ‘05-’06
FINANCIAL YEAR

FIGURE 5.10

RETURN ON NET WORTH

35
30
25 30.8
20 25.6
20.8 23.2
%

15 20.2
10
5
0
‘01-’02 ‘02-’03 ‘03-’04 ‘04-’05 ‘05-’06
FINANCIAL YEAR

IV. ICI INDIA

ICI India was the subsidiary of the $15bn British multinational company ICI Plc. Brunner
Mond & Co., one of the four Companies that combined to form ICI in UK in 1926,
opened a trading office to sell alkalis and dyes in Calcutta. In 1923, Brunner Mond & Co.
(India) was incorporated and the company's name was subsequently changed to Imperial
Chemical Industries (India) Ltd., in 1929.

ICI (India) is ranked fourth in the paint business, after Asian Paints, Goodlass Nerolac

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Paints and Berger Paints. Unlike the other paint companies, ICI (India) was a diversified
unit and paint constituted 43% of its net sales. It identified paints as a thrust area and was
aggressively moving to improve its position. The company invested $11 million in a new
decorative paints plant near Bombay and constructed a $16.7 million plant for industrial
paints near Chandigarh in North India.

In order to increase its presence in the paints market, ICI’s growth plan is to beef up its
distribution network, widen the purview of specialty products, access newer technologies
through joint ventures and of course, targetting the urban and semi-urban markets by
introducing more products in the lower and middle segment of the paints market. In order
to be amongst the top two players in the industry, the company is firming up plans to
aggressively market its products in the country.

The Gliddens brand is being positioned in the middle segment to supplement Maxilite in
the mass-segment and Dulux in the premium segment. In response to Jenson &
Nicholson’s Instacolor, ICI launched Color Solutions which can be used for both
exteriors and interiors. This comprises a menu driven, user friendly touch color screen on
a computer that helps consumers visualize as many as 6,000 shades on house structures
resembling their homes.

V. JENSON AND NICHOLSON

Jenson & Nicholson, a leading paint company in the country today was established in the
year 1922. It has a country wide presence with 33 branches and stock points across the
country and manufacturing plants at Naihati (near Kolkata), Sikandrabad (near Delhi) and
Panvel (near Mumbai). In 1955, it launched India’s first Plastic Emulsion paint, under the
brand name of Robbialac.

It ventured into the Powder coatings market in 1986, thus becoming the first company in
the organized sector to offer this extremely environment friendly coating technology.
Subsequently, it introduced Instacolor, in technical collaboration with M/s Tikkurilla OY
of Finland. It is the first company in the country to introduce computerized dispensing
system.

Jenson and Nicholson launched the Standox brand of products in 1996 which offers over
45,000 colours to the Indian car owner. In the very next year, the company in order to
cater to highly specialized Marine paints sector, entered into a 50:50 joint venture project
with M/s Chugoku Marine paints of Japan. Chugoku is the second largest supplier of
marine paints in the world with 30% market share. The new company also handles heavy
duty coatings.

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6. COMPARATIVE PERFORMANCE OF THE THREE MAJORS

FIGURE 6.1

Compounded Annual Growth Rates

30

25

20
% Growth

15

10

0
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03
ASIAN 24.38 26.28 18.75 15.87 14.87 15.31 14.79 14.82 14.67
NEROLAC 24.97 20.63 19.14 15.62 14.8 14.79 13.8 12.38 12.26
BERGER 23.75 25.64 21.21 18.81 19.49 19.32 18.15 16.7 16.06

FIGURE 6.2

Profit After Tax

2000
1800
1600
1400
Rs. million

1200
1000
800
600
400
200
0
1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

ASIAN NEROLAC BERGER

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FIGURE 6.3

Turnover- Value Sales

30000

25000

20000
Rs. million

15000

10000

5000

0
1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

ASIAN NEROLAC BERGER

7. MARKET POTENTIAL

Boom in Indian housing sector: Increasing urbanization, cheaper housing loans and a
shift from semi-permanent to permanent housing structures have been driving growth in
Decorative paints segment which constitutes major part of the industry

Strong industrial growth: There is an average growth of 10% in the automobile sector
which provides 50% of the revenue in the industrial paints segment

Heavy infrastructure spending: New projects in roads, ports and industrial segments
increases revenues from protective coatings for civil applications and road-marking
paints to all parts of the building paints sector, whether interior, exterior, waterproofing
or floor coatings.

Increase in manufacturing activities: Over 40% of the industrial sector takes the form of
OEM finishes, which is expected to grow steadily as a result of increasing demand for
consumer goods in India as well as India’s position now as a leading manufacturing hub
for the supply of goods to the South East Asian and other world markets.

Less Seasonality: About 65% of the demand for Decorative paints stems from repainting.
Rising aspirations, shift in the perception of paints as having a protective value rather
than a mere decorative have diminished the impact of seasonality.

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Rise in Income: Lifestyle based spending by the Indian middle class is helping decorative
segment of this industry. Contemporary wood finish formulations are replacing the more
traditional lacs and exterior emulsions taken over from cement paints.

8. CONSTRAINTS AND THREATS

One of the problems of the paint industry is the high working capital requirement..
Working capital intensity is reflected by the fact that this forms 14 to 16 per cent of sales
each year. Usually, it is the small players who are badly hit for funds because - one, they
are not in a position to demand credit from suppliers and two, because of cutthroat
competition; they have to supply products on credit. Paints are produced in batches and
companies need to maintain a wide range of shades throughout the year even though sales
are concentrated in the second half of the year due to seasonality of demand. This
naturally translates into holding large inventory levels. Also, given the wide distribution
network for most large companies, finished stocks at the dealer level are also substantial.

Over the last few years, the growth of the organized sector has been at the expenses of the
unorganized sector. This is because a large number of the players rely heavily on
outsourcing from the unorganized sector, especially paints in the lower end segment as
they find it more economical. Outsourcing is likely to show declining trends as new
capacities are coming up in the organized sector. Within a few years, manufacturing of
paints would not be profitable for most small players and a shakeout appears to be on the
cards. Progressive reduction in duties is reducing the price advantage of unorganized
players; naturally, this situation is beneficial to large players as they would be in a better
position to utilize their capacities more efficiently. Once these major players foray into
segments dominated by unorganized players in a big way, inroads would be made into
their market shares. With large players targeting the unbranded low value, mass volume
segment, the unorganized players would have to make way for large companies.
Therefore, growth in decorative paints is likely to come at the expenses of the
unorganized sector.

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9. FUTURE OUTLOOK

As the market becomes more sophisticated and purchasing power rises, customers are
more inclined towards superior quality, branded products and greater choice. Along with
some consolidation expected in the organized sector, the top few players in the industry
will gain a stronger hold on this market in the future.

At the same time, though demand for sophisticated and niche finishes is growing, most
people do not want to pay too much more for these. The trends towards more choice in
shade and effects, and better quality shifts the balance in favour of the larger players, who
have the finances to invest in R&D and are also able to exploit economies of scale to
deliver affordable options.

The Indian paint industry has come a long way in terms of branding, distribution and
product quality. Paint companies are moving away from being a commodity business and
shifting their focus towards becoming a part of an FMCG setup where the need to
concentrate and build brands is very high. Today, the industry has taken a different shape
where it has become a painting solution consultant and consumers decide the appropriate
color or paint to match their desires. Continuous product awareness and increasing
disposable income have resulted in growing demand for quality paints and varnish and
thus the industry is witnessing a shift from the traditional whitewash.

Another major change in the consumption pattern within the decorative segment is the
preference for water-based paints. In India, the most widely-used paints, till recently,
were the solvent-based paints, even when water-based paints are more eco-friendly and
easy to use. The main reason is the government policies themselves. The government
regarded water-based paints as a luxury item and consequently, taxes on inputs as well
the finished products were kept high, thus making them unaffordable to the middle class.
While the western world was moving away from solvent-based paints for environmental
reasons, India was, in a way, promoting the use of these paints. But with duties
rationalized, and costs and prices coming down, water-based paints have become the
most preferred ones for decorative purposes.

Marketing strategies of players are undergoing a sea change with the theme shifting to
‘surface protective nature’ of the product. Goodlass Nerolac started off by marketing all
brands under the umbrella of ‘Nerolac’. Trying to break free from the clutter of shade and
color related advertisements, Goodlass Nerolac is positioning its brand “Allscapes” on
attributes like technology and multi-surface applicability. Over the years, Asian Paints
successfully developed region-specific communication by associating its brands with
local festival. For semi-urban and rural markets, companies are introducing new products
and repositioning existing brands as cheaper alternatives to generate higher volumes in
the lower and middle end of the market

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An extensive dealer network is a crucial success factor in decorative paint segment as it
ensures easy accessibility for customers. Asian Paints superiority is underlined by its
distribution muscle advantage. It has a network of nearly 12,000 dealers and has 45
warehouses across the country for its four manufacturing facilities. The next largest
player in the industry, Goodlass Nerolac has a distribution network of nearly 8000
dealers. With India being a geographically huge land mass, players would have to sink in
large amount of funds for broadening of their distribution network. Realizing the
potential of the vast rural markets, players are firming up plans to establish proper dealer
network in these areas.

Moreover, there has been a hike in allocation for rural and urban housing infrastructure
development in the budget this year. This increased spending will increase the demand
for the paint industry.

Also, there has been a reduction custom duty on chemicals from 12.5% to 7.5%.This will
ease some pressure on the profitability by paring the pressure on the cost of inputs.

It is expected that the paint sector will grow at 2 times the long-term GDP growth in the
future. With GDP growth expected to around 8% to 9% per annum, the top three players
are likely to clock above industry growth rates. With a great demand potential and the
right tax and price structure now in place, the scope for domestic market expansion is
thus enormous and it seems that there is a bright future ahead for the Indian Paint
Industry.

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