The Indian paint industry is witness to the changing hues of the consumer behaviour. There's a gradual shift in the preferences of people from traditional whitewash to high quality paints like emulsions and enamel paints; this in turn is providing the basic stability for growth of Indian paint industry. The Indian paint industry currently valued at around Rs 50,000 crore is poised to grow at a healthy rate and is expected to reach around Rs 70, 000 crore by 2021-22.
While a vibrant competitive market is being created, players - largely organised - are coming up with different strategies to tap into this growing demand for a larger pie of the cake. Trade analysts cite rise in disposable income of the average middle class coupled with increasing investment on education; urbanisation; development of the rural market; and launches of many innovative products, like friendly, odour free, and dust & water resistant paints, as major drivers that are propelling the growth of the paint market in India. Further GST which initially posed challenges to the industry was slashed from 28% to 18% thereby giving the much needed breather.
The Indian paint industry is broadly classified into two main segments mainly - decorative and industrial. Decorative paints include exterior wall paints, interior wall paints, wood finishes, enamel and ancillary products such as primers, putties, etc, while industrial paints include automotive coatings, powder coatings and protective coatings. The decorative segment accounts for the majority of the paint industry’s value which is around 75% and the industrial segment accounts for the rest 25%. The industrial paints segment mainly comprises organised players whereas the decorative paints segment involves unorganised players too as the decorative paints segment is not significantly dependent on technology compared to the industrial paints that involves higher technical know-how. According to research firm CARE, till FY'17, organised players had a market share of about 65%, however, post GST application, the organised players are recapturing market from unorganised players with share of organised players increasing to about 80% now.
Why will the Paint Industry Continue to Grow?
It is expected that government initiatives towards infrastructural development, schemes like Housing for All, reduction in GST from 28% to 18% on the paint industry is likely to boost the demand for paints. Besides, repainting, which constitutes about 70% of the total paint demand, is expected to provide support, as the repainting cycle has shortened from about 6-8 years earlier to about 3-3.5 years now.
The penetration of paints in India is only 45%; this implies that there is plenty of headroom for growth, especially in tier II, III and IV towns. Over the last three to four years, organised players such as Asian Paints, have been continuously launching new products in these markets. As a result, rural and small towns are today growing at a faster clip than metros for the paint makers. Also around 85% of the paint demand in India is for repainting purposes, hence the malaise in real estate has not affected the decorative paint segment.
The stable demand in the rural and small markets is another contributing factor for revenue increase. While the industrial paints segment was adversely affected by the slowdown in the automobile industry, the volume growth from the decorative paints segment was able to offset the pain to a large extent. Further with the GST slash the pricing of paints has come down and the gap between the unorganised players, who make up 30% of the market, has become smaller.
While the future of the Indian paint industry looks promising, it is highly dependent on the stability of crude oil prices and rupee-dollar movement
The Ingredients of Success
The key factors that will contribute to success of the paint industry are quality of the product, supply chain management efficiency, managing of inventory & stock keeping units (retailers), cost management & competitiveness, brand image and effective advertisement. For instance, Asian Paints’ strong brand appeal and formidable distribution network—the company has around 50,000 dealers, well ahead of competitor Berger Paints, which has 25,000—keep it ahead of the pack. Also the paint major has been growing its presence, with operations in 16 countries, 27 manufacturing facilities and servicing customers in over 65 countries.
Strong pricing power, good volume growth in the economy products segment and a well-entrenched distribution network will be key to the organised players in the industry. On the sales front, aggressive sales push efforts at the dealer level, along with higher sales from the lower-end products such as putty, distemper and economy paints, will; certainly boost the volumes in the decorative paints segment.
There's a growing tendency towards manufacturing of water based paints which are less sensitive to movement in crude oil prices. The preference for these paints over solvent paints is also rising among customers because of ease to clean walls and increasing demand of these paints from building & construction and automotive sector owing to their good corrosion protection and high gloss properties. Paint companies must focus to consistently increase the share of water-based paints in their portfolio which is expected to aid margin growth in the long term.