Indian paint industry: bright growth prospects

The Indian paints industry has seen remarkable changes during the last decade. In this period, almost every major multinational has established or entrenched their presence, incumbents have built on their market position and the industry has become far more sophisticated in terms of the products it manufactures, the way it sells to customers and in the range of technologies it uses.

Fragmented industry

Unlike in the developed world, the paint industry here is fragmented, with about 1000 companies, of varying sizes and abilities, in the fray. At the top of the heap are about ten large players, each with annual sales exceeding $20-mn, and cumulatively accounting for about 65% of the total market (valued at about $3.75-bn). The rest of the market is divided between 130-odd medium-sized operators (with sales of $2-20-mn each) and 850 or so small players, with annual sales below $2-mn. Price pressures are, not surprisingly, intense in the bottom of the market, and companies have been vulnerable to shocks emanating from wild swings in prices of key inputs such as titanium dioxide and other pigments and solvents. This pressure on prices is also manifest in the fact that while the SMEs account for less than 35% of the market in terms of value, they have about 50% share of the 2.3-mn litres of paints sold each year.

Modernization and expansion of the supply chain

The decoratives business leverages a wide retail network to push sales, which are spread throughout the year, but with some seasonal bias. The strong growth in the real estate sector, driven by availability of ready home finance, and the government’s emphasis on boosting residential infrastructure are important drivers.

Uniquely to India, paint choice is seldom in the hands of the consumer (except, possibly, for choice of colour) and often rests with dealers, contractors, architects and interior decorators. Companies have recognised the vital role played by contractors and try winning loyalties through incentives and loyalty programs.

Shifting painting habits

With economic growth has come about a significant shift in painting habits. From a task to be taken up on occasions (e.g. weddings & festivals), painting is increasingly seen as an ‘anytime’ activity with even the monsoons not as much a deterrent as before (thanks to quick drying paints). The quality of products used has also seen a significant shift: low-cost lime wash (with colour) and distempers are giving way to emulsion and wood finishes, with better properties and margins for producers. In urban centres, dictates of fashion (colour, texture and even smell) have opened up niche markets, which are gradually being expanded.

Opportunities for chemical suppliers

While the growth opportunities that lie in the paints industry bode well for suppliers of chemicals such as resins, pigments, solvents etc., the intense competition in the marketplace almost across all these segments is compressing margins. Most products lack differentiation, and sell on price, as commodity chemicals. Unlike in developed countries, where the business of resins for paints, for instance, is seen as a non-core activity by paint companies and often outsourced to other producers, most Indian paint companies continue to produce these inputs. This has kept operating rates for most other resin producers low, making them extremely vulnerable to fluctuations in prices of key raw inputs (monomers, solvents & energy, to cite a few).

All in all, the prospects for the paint industry are bright, but that for suppliers of chemical inputs is somewhat dimmed, largely due the severe competition in the marketplace. The challenge for suppliers will be to innovate under these trying times with the objective of carving out a rewarding market position!