INDIAN PAINT

SECTOR
REPORT
Presented by :-
Akib Shaikh
Avantika Chitnis
Rushabh Nikode
Abhishek Goge
Sachin Metree
Pompi Gogoi
Gauri More
Harjeet Thakur
Sneha Choudhary
Sameer Ansari
Janardhan gidhad
Mukunda Ingale

2
 INTRODUCTION
✓ Indian Paint Industry is over 100 years old.
✓ Domestic Paint Industry is Rs 500 Billion with decorative paint
category constituing almost 75% of market and rest 25 % is
Industrial.
✓ Within Decorative segment Asian Paints and Berger Paints are the
largest players as they draw 80% revenue from this segment itself.
✓ Kansai Nerolac is the leader in Industrial Segment contributing 45 %
of its revenue.
✓ Small unorganized players mainatain a market share of 30-35 % at
lower price points within the industry.

3
 Porter’s Model for Paint Industry

✓ Barrier to Entry: High, Brand, Distribution Network and Technology

play a crucial role.
✓ Bargaining Power of Supplier: High, major raw is crude oil
derivatives that depends on global demand and supply.
✓ Bargaining Power of Customers: High, lot of choices available
✓ Competition: High, due to many players in organized market
✓ Threat to Substitute: Low to Medium: Limestone is used in rural area
only and it is difficult to find substitute for paint

4
 Future Prospects
✓ The Indian paints industry is expected to grow steadily in the short and medium term on the
back of strong growth in the Indian economy. The market for Indian paints and coatings is
expected to expand at a CAGR of 8.6% during the forecast period of 2019 – 2024.

✓ India's young population represents a huge opportunity with a rapidly increasing middle class and
overall population.

✓ By 2030, Indian middle class is expected to have the second largest share in global
consumption at 17% which could drive demand for the paint industry. For the past few years,
demand in smaller cities and towns has been growing at a faster pace than metro and tier I
cities. Going forward, a rise in disposable income, incremental consumption expenditure, and
development of the rural markets will fuel the paint industry’s growth in these areas.

✓ Growing demand from the construction industry, coupled with rising infrastructure
activities, will also drive the demand for the paints industry.

5
✓ Decorative paints segment is expected to witness higher growth on the back of affordable housing
measures by the government. The government’s focus on infrastructure development would also help
support the industrial coatings demand.

✓ Under the Make in India initiative, the Government of India aims to increase the share of the
manufacturing sector to the gross domestic product (GDP) to 25% by 2022 from existing 16%. The
manufacturing sector also has the potential to reach US$ 1 trillion by 2025. These factors are expected
to significantly boost industrial paint consumption.

✓ Many paint companies have been entering into the waterproofing and construction chemicals space in
the past few years. The Indian waterproofing market, valued at US$ 0.7 billion is fairly
underutilized compared to China’s US$ 22bn market. Thus, there is a lot of headroom to grow in
this segment in the next 15-20 years.

✓ During the past few years, along with construction chemicals, paint companies have also entered into
adhesives market, which could enable them to tap into vast B2B and B2C channels and also leverage
their existing distribution network. Some paint manufacture rs, though marginal players till now,
plan to expand their market share in adhesives and sealants market which may intensify
competition in the years to come.

6
THE BIG FOUR PLAYERS

Asian Paints Ltd. (APNT):

APNT is India’s largest paint company commanding over 40% of the overall domestic paint
industry and ~55% in domestic decorative paint industry. The company is present in 15 countries
and has 26 manufacturing facilities across the globe. During FY20, the company generated
Rs202bn in revenue with ~84% contribution coming from its domestic decorative business.
APNT strives to be a holistic home décor company, from a conventional paint company, through
its foray into the home improvement space.

Berger Paints India Ltd. (BRGR):

BRGR is India’s second largest paint company commanding ~12% market share of the
overall paint industry and over 20% market share of the domestic decorative paints segment.
On a consolidated basis, decorative paint segment contributes a bit over ~80% to the
company’s revenue, and the balance 20% is contributed by industrial paints. The company
has 14 manufacturing plants in India (6 outside India) with total capacity of ~609,247 KL.
The company also caters to overseas markets such as Nepal, Poland and Russia through its
subsidiaries

7
Kansai Nerolac Paints Ltd. (KNPL):
KNPL, a subsidiary of Kansai Paints Co. Ltd. Japan, and has completed 100 years of
presence in India. KNPL is the leader in industrial paints in India (~45% of topline) within
which it is the leader in automotive coatings, general industrial coatings and powder
coatings. In decorative paints, KNPL is the third largest player in India (~55% of revenue).
The company has manufacturing capacity of 518mn litres across 6 plants in India and has
another unit coming up at Visakhapatnam in Andhra Pradesh. The distribution network
comprises 27,500+ dealers and 104 sales depots. The company has also acquired Marpol
Pvt. Ltd. (powder coating) and Perma C

Akzo Nobel India Ltd.:

The fourth largest player in the industry is present in decorative segment (~60%
contribution) and industrial segment (~40% contribution), including marine coatings,
protective coatings, powder coatings, specialty coatings and vehicle refinishes. The
company's portfolio includes brands such as Dulux, Interpon, Trinar, Resicoat, Wanda,
Sikkens etc. AKZO has five plants, which are located at Telangana, Karnataka, Madhya
Pradesh, Punjab and Maharashtra. Presently, the company has 52 sales depots. In the recent
years, Akzo Nobel has ventured into adjacent categories of waterproofing through ‘Dulux
Acquatech’ and woodcare through ‘Sadolin’. AKZO’s focus will continue to remain on its
premium paints portfolio along with innovation and renovation of its brand.
8
 2%
7%

15%

56%

20%

Asian Paints Berger Paints Kansai Nerolac Kakzo Nobel Other

*Top 4 players command more than 95% share in the organized decorative market

9
 MARKET SIZE & GLOBAL SHARE

Market Overview:
The Indian paints and coatings market is estimated to witness significant growth at an estimated CAGR of over 8% over the forecast
period. Construction work in the country came to a standstill due to the nationwide lockdown imposed in 2020 to combat the COVID-
19 pandemic, triggering concerns that the companies would see revenues
being hurt and may even incur losses on some projects. The country-wide
lockdown imposed by the government to check the spread of coronavirus
resulted in construction companies announcing a shutdown of operations.
This delayed the implementation of projects, leading to cost overruns
and impacts on the workforce.

10
Constituents of the Indian paint industry:
The domestic paint industry has grown at a rate of 10.4% from FY08, when the
market was valued at Rs159bn, to FY20, when the market size reached ~Rs520bn. Over the years, the decorative paint
segment (market share of ~75-80%) has grown at a CAGR of 11.4% against the industrial segment (market share of ~20-
25%), which has grown at a CAGR of 7.9%.
Within the industry, the organized sector has been commanding ~70% market
share and the balance 30% is accounted by the unorganized sector. Till the first half of 2010s, the unorganized sector had
~35% market share, but with demonetization and implementation of GST, the organized players have been able to capture
market share from the unorganized players.

Contribution of decorative paints in the overall paint

Indian paint industry has grown at 10% industry has evidently increased over past few years
CAGR over 12 years
120
600 100
500 80
400 60
300 40
200 20
100
0
0 FY08 FY12 FY16 FY20
FY08 FY12 FY16 FY20 Decorative Paint Segment Column1
11
Correlation of industry with GDP growth:

In line with the global paint industry, growth of the domestic paint industry is closely linked to GDP growth. The paint
industry’s volume growth tends to be between 1.5x and 2x GDP growth. The strong positive correlation between
growth of the industry and GDP growth is a given since demand for paints tends to follow overall economic activity,
including income levels, industrial production and construction spending. However, FY20 has been an exceptional
year where the correlation has been relatively lower on account of the Covid-19 pandemic hitting the industry towards
the end of the year. Commenting on impact of Covid-19 induced lockdown on the industry, Mr. S Mahesh Anand,
President, Indian Paint Association (IPA) stated that “FY20 sales had been moderate and have ended flat, if not
negative.”
Correlation of industry growth with real GDP growth

18
2.8
15 2.4
12 2
9 1.6
1.2
6
0.8
3
0.4
0 0
FY13 FY14 FY15 FY16 FY17 FY18 FY19

Paint industry volume growth(%) Real GDP growth(%) Correlation 12

Type of Competition
✓ Within the Indian decorative paint segment Asian Paints and Berger Paints are the two
largest players with more than 80% of their overall revenues coming from the segment.
✓ In the industrial paints segment Kansai Nerolac is the leader. (segment contributes ~45%
to its revenue).
✓ Hence competition in India’s paint industry is Oligopolistic in nature with top 4 players
commanding nearly 70% market share.

13
Top 5 paint sector companies for quantitative analysis:
✓ Asian Paints
✓ Berger Paints India
✓ Kansai Nerolac Paints
✓ Indigo Paints
✓ Akzo Nobel India
Parameters of Performance Analy

These 5 Companies are analysed on the basis of 6 Is the Business Profitable?

We have used Growth Profit Margin, Operati
parameters and ranked accordingly
Margin, and ROCE ratios to determine wheth
profitable. An increase in profit is usually ide
generating more cash (please note that profit
always equal cash under accrual accounting).

An increase in profit can be due to a rise in re

decrease in expenses, or a combination of bo
likes it when a company can make more prof
increase in its share price.

14
 1) Growth Profit Margin (%)
✓ The profit margin formula measures the company’s amount earned (earnings) concerning each rupees of the sales generated.
✓ This ratio compares the gross profit earned by the company to the total revenue, which reflects the percentage of income reta in
profit after the company pays for the cost of production.
✓ In this parameter, Asian Paints outperforms other peers by scoring the highest Gross Profit Margin of 53.59% and hence obtain s
position.
✓ Kansai Nerolac Paints get the last position and 5th rank due to the lowest
✓ Gross Profit Margin of Asian Paints is.
2) Operating Profit Margin (%)
✓ Higher the Operating Profit Margin (%) of a company, better the operational efficiency of a company and vice -versa.
✓ Asian Paints efficiently post the OPM of 19.8% and secures 1st position but due to raw material inflation, the margin has fal len.
✓ With the lowest OPM of 17.4%, Akzo Nobel India scores the last rank among its peers.

3) Return on Capital Employed (ROCE):

✓ ROCE signifies how the company is using its capital to generate a return for the company and investors. The high ROCE, the be tt
for the company.
✓ In this parameter, Asian Paints outperforms other peers by scoring the highest ROCE of 38.55% and hence obtains the 1st posit io
✓ Kansai Nerolac Paints get the last position and 5th rank due to the lowest ROCE of 18.35%.
15
 Is the Business Financially Stable?
Financial ratios are one way to analyse the stability of a business. We have used Total Debt and Interest Coverage Ratio to make
comparisons between different aspects of a company’s performance, revealing information such as whether the business has
accumulated too much debt or has bought too much stock in bulk.
4) Total Debt
✓ Total Debt is the addition of short term debt and long Term Debt
✓ Accordingly, the lesser the debt, the better it is for the company and vice-versa.
✓ Indigo Paints is nearly a debt-free company with a total Debt of 0.02 and hence rewarded with full points and given the first po s
✓ Berger Paints India has the highest total Debt among its peers at 0.19 and hence is given 5th rank.
✓ Akzo Nobel India, Kansai Nerolac Paints, and Asian Paints have the Debt of 0.05, 0.06, and 0.08 respectively.
5) Interest Coverage Ratio
✓ This ratio gives the ability of the company to pay interest from its operating profit.

✓ Asian Paints maintain a good Interest Coverage Ratio of 58, the highest among peers, and gets the first rank.
✓ Due to the lowest Interest Coverage Ratio of 26, Indigo Paints India is ranked and scored accordingly.

16
Is the business generating cash?

We have used these two parameters to be aware of the firm's cash position at all times. These cash flow ratios are often the best m
the liquidity, solvency, and long-term viability of a business firm.
6) Cash Conversion Ratio
✓ The cash conversion ratio (CCR) compares a company’s operating cash flows to its profitability and measures a company’s effic
turning its profits into cash
✓ Operating cash flows, also known as cash flow from operations, convert net income to cash income. EBITDA is earnings before
taxes, depreciation, and amortization
✓ A high CCR often indicates good working capital management, whilst a low CCR indicates poor working capital management or
suggest poor underlying business performance.
✓ In this parameter, Asian Paints outperforms other peers by scoring the highest CCR of 113% and hence obtains the 1st position
6) Cash Conversion Ratio
✓ The cash conversion ratio (CCR) compares a company’s operating cash flows to its profitability and measures a company’s effic
turning its profits into cash
✓ Operating cash flows, also known as cash flow from operations, convert net income to cash income. EBITDA is earnings before
taxes, depreciation, and amortization
✓ A high CCR often indicates good working capital management, whilst a low CCR indicates poor working capital management or
suggest poor underlying business performance.
✓ In this parameter, Asian Paints outperforms other peers by scoring the highest CCR of 113% and hence obtains the 1st position
17
The Bottom Line
✓ Asian Paints secures the first position in our performance analyses. Being a market leader, Asian Paints enjoys a great sales
and hence benefited from Operating Leverage.
✓ Indigo Paints with strong growth visibility prospects and the developing market size of the company helps the company grab
second position.
✓ Kansai Nerolac due to weak performance and poor financials mainly due to downfall in the auto sector ranks last in our ana
✓ Please note that we have done this analysis with the only purpose of screening good companies. The analysis is entirely on a
quantitative basis. No suggestions are being made to directly go and invest in the top-scoring companies of this analysis. We
that one should perform a qualitative analysis of top-scoring companies in this analysis and take investment decisions based
profile.

Years considered for this report:

18
SCOPE OF THE INDIAN PAINT INDUSTRY

✓ The Indian paints and coatings market is segmented by resin type such as acrylic, alkyd, polyurethane, epoxy ,polyester and other
resin types.
✓ By technology, the market has been segmented into water-borne, solvent-borne, powder coatings and other technologies.
✓ By end-user industry, the market has been segmented into architectural, automotive, wood, industrial, transportation and packagin

KEY MARKET TRENDS

Acrylic Resin Segment Dominating the Market
✓ Acrylic resins are the most widely used polymers in the paint and coatings industry. Most of them are water-based or solvent-base
✓ They are available as emulsions (latices), lacquers(lower volume solids), enamels (higher volume solids) and powders(100% solid
✓ They come in a wide variety of types and combinations such as methyl and butyl methacrylate.
✓ They develop properties such as transparency, high color ability and UV resistance in coating solutions.

The primary binder type in the Indian paints and coatings market is acrylic, with a total share of more than 70% of all the water borne
coatings.

19
INCREASING DEMAND FROM ARCHITECTURAL INDUSTRY

✓ Paints and coatings are not only used in the interiors of houses to add colors or decorative purposes but also
to perform a wide range of functions.
✓ Paints and coatings are applied on the exterior of the house to give them a new look and protect them from
blistering summers, freezing winters,
✓ The residential sector in the country is on an increasing trend, with government support/initiatives further
boosting the demand.
✓ Also, the country is expanding its commercial sector, thus having a positive impact on the architectural
emulsion coatings market.
Strength
✓ Indian Paint Market has very strong potential in terms of market share in the organized sector?
✓ Comprehensive nation wide coverage of the market - urban, semi-urban and rural areas.
✓ Different segment required by different customer and industry has its own growth area and market.
✓ Widest product range in terms of products, shades, pack sizes - different decorative, some in 150 shades, 20
different pack sizes; are available.
✓ Country wide distribution network and transportation facility is available within the industry

20
21