1. The Indian Paint industry, estimated to be a Rs.21,000 Cr. industry, has been growing at a rate of
above 15% for the past few years. The organized players of the industry cater to about 65% of
the overall demand, whereas the unorganized players take care of the remaining 35%, in value
terms. The unorganised players mainly dominate the distemper segment.
The industry consists of two segments, namely
Decorative segment – caters to the housing sector and
Industrial segment - consists of powder coatings, floor coatings and other protective
coatings catering to the automobile, marine and other industries.
In the domestic market, Decorative segment accounts for 70% of the total demand for paints
whereas the industrial segment accounts for the remaining 30%. Globally, the demand for paints
is almost equally distributed, where both the segments account for close to 50% of demand.
So, how does the industry work? Here is the analysis….
The working of the Paint industry has been explained pictorially below:

2. Raw Materials: On an average, raw materials constitute ~56% of the total expenditure in paint
companies. Titanium dioxide is one of the major raw materials and price fluctuations in its cost
have direct and substantial impact on the cost of production. Crude oil derivatives are the other
major raw materials and have similar impact. Apart from these a large number of other raw
materials are used for adding/giving specific properties to the wide product range offered by the
industry.
End-User: The decorative paints segment products find use in households and construction
whereas the industrial segment products find use in automotive industry, consumer durables
industry and other OEM’s.
What does the Past Say?
Growth of the paint industry has been consistent with the growth of Indian GDP. Paint industry
has been growing at a rate of 1.5 to 2 times of Indian GDP growth. The Decorative segment
shows a seasonal trend with sales peaking during the festive seasons in the months of September
to November, whereas the demand is low in the monsoons.
The top 5 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

3. towards better products offered by the leading brands. Established Foreign companies have
entered the Indian market by acquiring existing Indian companies. Kansai Paints, Japan entered
the Indian Market by acquiring Nerolac, Akzo Nobel, the world’s largest Paint company, entered
the Indian market by acquiring ICI Paints (now Akzo Nobel India.)
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 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.

5. What are the growth drivers of the industry? Here’s the
analysis…
1. Increasing level of income and education – The increasing proportion of young population
along with increasing disposable incomes is leading to a change in consumer habits. The Indian
economy is shifting from a savings economy to a spending economy. With more income at their
disposal, people are now ready to pay for better products and paint is no exception.
Educated consumers are more brand conscious and seek value in what they consume. Thus, paint
companies offering value-added features like non-toxicity, weather protection, texture, eco-
friendly production, etc. will attract more demand. These value-added products enable the
manufacturers to earn a better premium as compared to the regular paints, thus offering higher
margins.
2. Increasing Urbanization: Urbanization is leading to a shift from temporary houses to
permanent houses. Urban houses are well-designed in its interior as well as exterior aspect. This
calls for more houses being painted using medium and premium paints. For urban houses,
interior design is becoming a fashion statement and a lot of paint is used to decorate the interiors.
This will lead to an increase in the per capita consumption of paint which will increase the
overall demand of paint. Urbanization also brings more nuclear families. More nuclear families
mean more number of houses even for the existing population thus further driving the demand.
3. Increasing share of organized sector: Decrease in taxes on key raw materials will improve
the position of the organized players. The Organized sector is expanding its distribution network
and adopting the installation of tinting machines at retail outlets. These tinting machines offer a
wide variety of colour shade options to choose from. The unorganized players are not in a
position to offer such facility as it is comparatively capital intensive. Shift in use, from distemper
segment towards premier segment is also shifting market share from the unorganized sector to
the organized sector.
4. Development of the Realty, Automobile and Infrastructure sector: The growth of the paint
industry is largely dependent on the development of the realty and housing sector, as decorative
segment generates about 70% of the total paint demand from this sector. The Automobile
segment generates more than two-third of the demand for Industrial paints, and hence is the
growth driver for Industrial Paints. The Infrastructure segment creates direct demand for paints
as well as creates indirect demand through supporting the growth of the realty, automobile,
FMCG and other industries where paint is used.
The growth potential in the above 3 sectors is immense, the paint industry being dependent on
these 3 sectors is expected to grow along with them.
5. Availability of financing options: Easier housing finance and auto finance is expected to
favour more people to buy houses and travel in personal vehicles. This will drive the growth of
housing and automobile sector, of which the Paint industry will get its share.

6. 6. Increasing Penetration in the Rural Markets: Paint usage in rural areas is generally in the
distemper segment, hence dominated by the unorganized players. Demand in rural areas is
dependent on agriculture, which is dependent on the monsoons. With the development of
irrigation facility, the dependence of agricultural output on monsoons will be on a decreasing
trend. Also, with the modernization of agriculture and accompanying development of rural India,
consumer preferences are expected to improve. Paint companies are expanding their distribution
network in rural parts of India, which is a relatively untapped market for the organized players.
These factors supported by the increasing penetration of the paint companies will help drive the
demand for paints.
So, is there anything to be concerned about?
• Cost of raw materials: The Cost of Raw materials is an important factor as the industry is
raw material intensive. Fluctuation in the prices of Titanium dioxide and Petroleum directly
affect the production cost. This is more of a concern for the Industrial segment as compared to
the Decorative Segment, as it is comparatively easier to pass on the costs in case of decorative
paints. Also, a large portion of raw materials are imported, leaving the cost factor vulnerable to
exchange rate fluctuation.
• MNC’s entering the Indian Paint Market: The entry of Established foreign players in the
Indian market may increase the competition among the players of the industry. This may lead to
price competition which may impact the profit margin of the companies. As a result, the increase
in volume growth may not equally reflect in the profit growth for the companies.
What is the future Outlook for the Paint industry in India?
The Indian paint Industry has a wide potential for growth which is demonstrated by the fact that
the per capita consumption of paint in India is merely around 1 kg as compared to about 20 kg in
the developed countries or a global average of about 15 kg. So, the absolute consumption of
paint in India is definitely expected to rise.
The market share of the organized sector is on an increasing trend. Also, the contribution of
industrial segment will increase with the continuing economic development of the country. With
India moving towards becoming a developed economy, the decorative to industrial paint ratio of
70:50 is expected to move towards the global average of 50:50. Thus the Indian paint industry
is in its growth phase and is expected to grow at a rate faster than that of GDP. The future
prospects of the industry are strong.
Looking at the above points, we can say that the long term future prospects of the Indian
Paint Industry appear to be Green (Very Good.)
Companies which have high revenues, efficient operations and distribution network, comfortable
debt levels and robust capacity expansion plans will be best suited to capitalize on the growth
prospects.
It is very important that while investing in a company, an investor selects an industry, where the

7. long-term future prospects are bright. We have seen that in the long run the Indian Paint industry
is expected to have good growth.
Also, it is equally important that the company has an excellent financial track record (i.e. Green
10 Year X-Ray) and its long-term future prospects are Green (Very Good).
*The 10 YEAR X-RAY facilitates analysis of the financial performance of the company
considering the five most important parameters. A 10 Year period will normally encompass an
entire business cycle. Analysing the performance over this time frame is essential to understand
how a company has fared during the good as well as bad times. The five most important
parameters that one needs to look at are Net Sales Growth Rate, EPS Growth Rate, Book Value
per Share (BVPS) Growth Rate, Return on Invested Capital (ROIC) and Debt to Net Profit Ratio.
Given below is the MoneyWorks4me assessment for a few Paint companies:
The table above gives you a list of the top 5 companies from the Paint Industry. Due to the very
nature of the paint industry, it is best advised to invest in companies which have created a strong
brand equity for themselves and have a strong competitive advantage. While such companies
usually trade at a premium and are rarely cheap, you should look to invest in them when they are
available at a good discount. To find out the right price to invest in these companies, become a
member of MoneyWorks4me.com.
http://stockshastra.moneyworks4me.com/paints-indian-paint-industry-analysis-and-research-report-
2011/

8. The Indian Paint Industry which is pegged at around 210 billion rupees has undergone a
phenomenal evolution in the recent past both in terms of structure & portfolio. It has been
growing at over a CAGR of 15 percent owing to the increase in demand for utilitarian or artistic
works and introduction of some new liberalization policies.
Overview-
The Indian paint industry was initiated in 1902 when Shalimar Paints set up its factory in
Kolkata. The industry consisted of small producers and two foreign companies then. The
aftermath of World War 2, saw the uprising of small manufacturing units by the local
entrepreneurs. Though the imports ceased but the foreign dominance still continued. Being
restrained by Foreign Exchange Regulations Act and Monopolies & Restrictive Trade Practices
Act, most of the players were not allowed to increase production capacities until the nineties.
With liberalization, as the excise duties got drastically reduced from 40% to 16% ,these shackles
were removed and the industry recorded a healthy growth of 12-13% annually.
The paint industry can be broadly classified into the Organized & the Unorganized sector. The
unorganized sector controls around 35% of the paint market accounting for the balance. Most of
the organized companies in India’s paint market have a nationwide presence with multi-location
manufacturing facilities. Top players in this sector include Asian Paints (30% market share),
Kansai Nerolac (20% market share), Berger Paints (19% market share) and ICI (12% market
share). The companies in the unorganized sector are mostly regional and deal in low value
products and have been consistently losing market share to the organized sector.
Market Segmentation-
The industry can be further segmented into — Industrial and Decorative.
The decorative paints account for approximately 75% of the total sales with Asian Paints being
the market leader. This segment caters to the housing sector. It is price sensitive and is a higher
margin business as compared to industrial segment as it is used in protecting valuable assets.
Urbanization has surged the demand for decorative paints. Easy availability of housing loan, rise
in the level of income and shift in the perception of paints as having a protective value rather
than mere decorative one, have been a few factors that have impacted the housing and thereby
the paint industry positively. There is also seasonality involved in the demand for decorative
paints with demand at its peak around festive time.
Industrial paints cater to the Automobile Original Equipment Manufacturers (OEMs) for
protection against corrosion and rust on steel structures, vehicles, white goods and appliances.

9. With production and sales of passenger cars expected to grow, demand for automotive paints
will continue to remain healthy. Kansai Nerolac is the market leader in this segment. The
industrial paints segment is far more technology intensive than the decorative segment. Globally,
the industrial paints segment accounts for a major share but over the next few years, the ratio of
industrial paints to decorative paints is expected to be 50:50, more in line with the global trend.
This industry is raw material intensive. As most of the raw materials are petroleum based, the
industry benefits from softening of crude prices.
Trends and Forecasts-
The market for paints in India is expected to grow at 1.5 to 2 times GDP growth rate in the next
five years. With GDP growth expected to be over 7% , the top three players are likely to clock
above industry growth rate. Demand in the case of industrial segment is also expected to
increase.
The per capita consumption which is at 1.5kg, way below the consumption of the developed
countries (20kgs), is expected to improve with the growing income levels, both in urban as well
as rural India on the back of various government initiatives like NREGS, farm loan waivers, pay
commission led salary hikes etc.
Despite the positive figures, the Indian paint makers might see growth slowing in the coming
months as a drop in the demand for homes, offices and cars is seen hurting the industry. A better
focus on supply chain or distribution mechanism backed by aggressive promotion might turn the
wheels of fortune and trigger unprecedented growth in the paint industry.