The Paint Industry Is Expected To Augment Its Capacity By 20% Of The Current Level In 3-4 Years.

Arunava Paul, Associate Director, CareEdge Ratings

With urbanisation and modernisation on fast-track, what opportunities do you look forward for decorative paints?

 Demand from repainting, accounts for around 80% of the total decorative paint demand. This is expected to pick up due to factors like an increase in urbanisation and aspirations among people, increase in rental homes and growth in income levels of consumers. The repainting cycle has reduced as consumers have started to paint their houses once or twice every 6-7 years against the earlier interval of 15-20 years. Thus, the overall usage is expected to increase.

What are the key challenges faced by the decorative paint industry?

The key challenges faced by the decorative paint industry are as follows:

Distribution challenges: India is a country with diverse demographics and geographic regions. Efficient distribution of paint products can be challenging, especially in rural areas. Companies must have a robust distribution network to reach customers effectively. Asian Paints has a pan-India dealer network of more than 75,000 dealers, Berger Paints/Kansai Nerolac around 30,000-35,000, Akzo Nobel/Indigo around 15,000-18,000.

The new entrants will require at least 3-4 years to match up to the distribution level of the existing players.

High cost of advertising/marketing: Companies need to invest in branding and marketing strategies continuously to retain and attract customers. Asian Paints and other large players spend almost 5% of their sales on advertisement (on substantial sales). Whereas Nippon, JSW Paints and Indigo Paints spend around 15-20% of sales.

Price sensitivity of Indian consumers: Indian consumers are generally price-sensitive, and this sensitivity extends to the decorative paint sector. Companies must strike a balance between offering quality products and competitive pricing.

Volatility in raw material cost: The prices of raw materials account for 50-60% of total sales. The key raw materials used in paint manufacturing are titanium dioxide, phthalic anhydride, solvents, pigments, resins, and other crude oil derivatives. Titanium dioxide, which contributes around 55-60% of the total cost is the key raw material. The remaining are crude derivatives which move in tandem with crude prices with a certain lag. Thus, the volatility in raw material prices affect the profitability margins in short run as it is not possible to immediately hike the price of finished product due to price sensitive nature of the market.

How do you look at the market in the coming years for decorative paints?

Long-term competitive intensity is poised to escalate in the Indian paint industry with the entry of new players such as Grasim Industries, Pidilite, and JSW Paints. These business groups having deep pockets are anticipated to disrupt the market over the long haul.

Over the next three to four years, the industry is expected to augment its capacity by 20% of the current level. This expansion will intensify competition, exerting pressure on the margins of top players.