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A quantities of high-value product. Generally, paint

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A brief intro of Manufacturing industry

Manufacturing industry refers to any business in which raw
materials are transformed into finished or semi-finished goods on a large scale
using machines, tools and labour. The term may refer to a range of human
activity, from high tech to handicraft, but is most commonly applied to
industrial production of goods. Manufacturing sectors include production of
chemicals, food, textiles, machines and equipment. Of these various industries
encompassed by the manufacturing industry, this report focuses on Paint and Coating industry. The report
will also shed some light on the chemical production industry.

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One of the most heavily regulated industries in the world is
the paints and coating industry. Needless to say, producers have been
continuously adopting newer technologies, using low-solvent and solventless
technologies since the past 40 years and will continue to do so. The number of paint
producers is large, but most are regional producers, with only 10 or so large
multinationals. The expansion of operations of most of these multinationals has
been in fast-growing areas like China. India too is not an exclusion. The most noteworthy
trend has been consolidation, especially among the largest producers. After a
decade of steady growth, production in Asia accounts for 50–55% of the total.
Production and consumption are nearly identical in each country, as trade is
limited to relatively small quantities of high-value product. Generally, paint
grow in tandem with the economy, so growth will continue to focus on the
developing world.

The paint industry in
the United States, Western Europe, and Japan is mature and generally correlates
with the health of the economy, especially housing, construction, and
transportation. In emerging countries, paint are growing at a much faster rate.

 

 

The
Indian Paint Industry began over a 100 years ago with the setting up of
Shalimar Paints in Calcutta (now Kolkata) in 1902.After World War II many
manufacturing facilities were started by local entrepreneurs. Currently the
Paint industry in India is estimated to be around Rs 40,000Cr.

The
sector which is the central focus of
this report is paint industry. The
report will also shed light on Berger paints, one of the market
leaders in the mentioned industry.

 

About
Berger paints

The foundation
of Berger paints was laid in UK in 1760 by Lewis Berger. It started it’s
operations in India in 1923.

1.   
Domestic operations

Starting
off with a modest beginning, Berger is now the second largest paint company in
India after Asian Paints in terms of market
share. The company in order to keep up its pace with technological advancement
in the paint industry, has incorporated latest technologies to cater to the
demands of the consumers. Some of the brands from the company that are stars in
the market are Berger Easy Clean, Silk, Rangoli, WeatherCoat etc. The company
has a strong distribution network of 16,500 dealers and has ~12,000 tinting
machines. In 2013, Berger acquired the decorative business of Sherwin Williams
India. Berger recently commissioned its Hindupur plant (total capacity of
300,000Kl) in Andhra Pradesh and will increase its capacity in a phased manner.

 

2.   
International
operations

Berger has presence in Russia where it has a production
facility with a manufacturing unit in Krasnodar. The company entered Nepal in
2000 when it acquired Jenson & Nicholson. It has also acquired Bolix SA of
Poland and also tied up with Becker of Sweden.

 

 

Segmentation of
paint industry

 

Before delving much into the
market trends of this industry, it is essential to know how the paint industry
is segmented. The diagram below gives a picture of the segmentation in this
industry.

Decorative paints account for the
bulk of the market in terms of volume

and value. The unorganized segment
plays a huge role in the decorative paints

segment due to low technical
know-how and a highly scattered market. The

industrial paints segment is
dominated by the organized sector due to its high

technology orientation. It is also the more profitable
segment.

Most of the organized companies have
a nationwide presence with multilocation

manufacturing facilities. The
companies in the unorganized sector are

mostly regional, spread in and
around their manufacturing facilities and deal in

low value products.

 

 

 

 

Growth of paint industry

 

Paint industry is one
of fast growing industries of the world. In the Asia Pacific region, the
largest producer is Australia. The Indian paint industry is growing at a double
digit rate for several years now, unlike in the western countries and Japan
where the growth has stagnated. And it is expected to continue growing at
around 15% as historically it has grown at an average of 1.8 times the GDP
rate.

A pie chart showing
the paints and coating market in the Asia Pacific region is presented below.

 

 

Presently, the growth of the Indian
paint industry is being witnessed from new demand pockets, especially in
Tier-II and Tier-III cities, thus, signalling the growing acceptance of quality
products among the masses. The growing popularity of quality paints and
increasing income levels of people residing in Tier-II and Tier-III cities have
pushed the growth in premium paint market of Indian decorative paint industry.
The growth in the market is going to be driven by emergence of the middle class
in India, increase in the propensity to spend and growing young population
tending to stay in nuclear families. The demand for industrial paint is going
to be driven by the pick-up in the automobile industry and growth in infrastructure
in a country like India. Infrastructure is at the lowest level in the country
today, hence the industry experience sustained growth in paints business.

 

Market Share

The Indian paints industry reported a
compounded annual growth rate (CAGR) of 16.2 percent during 2013-2014 to
2015-16. The industry comprises of the decorative and industrial segment. The
split of the decorative paint market to industrial market is around 75-25
percent. The Indian paint industry is currently
Rs.17,000 crore and is expected to grow between 12-15% per annum over the next
5 years. The market of paint sector is very fragmented.

Market size of decorative paint in the
country was Rs. 30,385 crore and industrial paint was Rs 9,915 crore in FY
2014-15. The paint market is expected to reach Rs 70,875 crore by 2019-20 from
around Rs 40,300 crore in 2014-15, according to Indian Paint Association (IPA),
the paint industry’s apex body.

Paint industry in India can be divided
into 2 segments-

1.    The Organised sector which accounts for 65% of the paint market. The
top organised players include Asian Paints (30% market share), Kansai Nerolac
(20% market share), Berger Paints (19% market share) and ICI (12% market
share).

2.    The unorganised sector which controls around 35% of the paint market. There
are about 2000 units in this unorganised sector that have small and medium
sized paint manufacturing plants.

The
market shares of the major market players of the paint industry is provided
below.

 

 

 

 

Market trend

 

When the wave of technological advancement hit the world, it brought
about innumerous changes in every industry. The paint industry, hence wasn’t
any exception to it. Trends of the market in this sector is heavily dominated
by consumer demand. Demand for paints comes from two broad categories:

·        
Decoratives: Major
segments in decoratives include exterior wall paints, interior wall paints,
wood finishes and enamel and ancillary products such as primers, putties etc.
Decorative paints account for over 75% of the overall paint market in India.
Asian Paints is the market leader in this segment. Demand for decorative paints arises from
household painting, architectural and other display purposes. Demand in the
festive season (September-December) is significant, as compared to other
periods. This segment is price sensitive and is a higher margin business as
compared to industrial segment.

·        
Industrial: Three main
segments of the industrial sector include automotive paint, powder paint and
protective paint. Kansai Nerolac is the market leader in this segment. User
industries for industrial paints include automobiles engineering and consumer
durables. The industrial paints segment is far more technology intensive than
the decorative segment.

Summing all up, it can be noticed that the demands faced by the paint
industry are

1.   
Better finish.

2.   
Lesser drying time- there is nothing more annoying than watching paint
dry.

3.   
Durability

4.   
Waterproof

5.   
Dustproof

6.   
Less harmful chemicals

7.   
Environment friendly paints

The paint industry, in
order to keep up with these demands has undergone major changes during the last
40 years and there has been the adoption of new coating technologies. These new
coating technologies include-

·        
Waterborne (thermosetting emulsion, colloidal dispersion,
water-soluble) paints,

·        
High-solids paints,

·        
Two-component systems,

·        
Powder paint,

·        
Radiation-curable paints.

The need for these
varied range of products arose due to several factors like- environmental
regulations, longevity, better finish, durability.

The paint
industry is one of the larger consumers of solvents, which are mostly derived
from petrochemical feedstocks and refinery operations. The paint industry also
uses a considerable quantity of nonpetrochemical feedstocks, such as pigments
and additives, which are not very dependent on crude oil and gas prices. The
nonpetrochemical portion of the feedstocks is approximately one-third, on a
volume basis.

One new
area of interest is nanotechnology, with tens of thousands of patents issued
already just for the paint industry. Very small ceramic or metallic particles
can be added to paint formulations to modify specific properties (e.g.,
scratch, mar, wear, corrosion, and UV resistance) in highly specialized
applications. The average size of nanoparticles is 10–70 nanometers, consisting
of less than 6.5 million atoms. At these sizes, the ratio of surface area to
mass becomes significant, giving the particles unique properties. For example,
at 2 nanometers, the conductivity of metal particles changes and at 20
nanometers, the transparency of ceramic particles changes. At 20 nanometers,
particles of gold turn red and their plasticity disappears.

Some other
futuristic applications of technology in this industry are-

·        
Use of nanotubes for electrically conductive coatings and to increase
the speed of reaction of thermosetting resins;

·        
Organosilane dendrimer coatings;

·        
Buckyball coatings for machine parts;

·        
Metals for conductive coatings in inks.

The technology however, is limited mainly to highly
specialized applications because of the high cost per unit volume needed to
reduce the size of particles and the need to add surface modifiers to keep the
particles from agglomerating. Recent research efforts have been focused
primarily on functionalizing the particle surface of the nanoparticles to make
them more compatible with the coating resin systems, so that easy dispersion,
low viscosity, and covalent bonding between the particles and resins are
achieved.

 

 

Market structure

The Indian paint industry can be divided as-

1.       The organized sector comprising of large
and medium size units.

2.       The unorganized or small-scale sector.

1. The organized
sector has a market share of 60%, valued at 23.4 bn. This is in contrast
to the 55% share that the sector commanded a few years back. There are around
25 units in this segment.
2. The unorganized
sector comprises of around 2,000 units with a combined market share of
around 40%. High excise duties, low technology and low capital costs for
production led to the incidence of a high number of units in the small scale
sector. However, since 1992 the government has been consistently lowering
duties from 40.5% in 1992 to around 16% currently. This has led to lowering of price differential between the
organized and unorganized sector. Moreover the paints sector was also allowed
to claim MODVAT credit on petro-based products, thus lowering the excise
incidence further.
 
 
Characteristics of competition
The primary external competition of the paint industry in
the decorative sector is wallpapers. However, the threat isn’t strong enough
to tumble the paint industry.
The internal competition of the paint industry (competitors
of Berger in specific) can be analysed by having a glance at the Porter’s 5 forces
in this sector.

 
The major competition of Berger in the decorative sector
are Asian Paints, Kansai Paints, Akzo Nobel and Shalimar paints.
These top 5 paint 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 towards better products
offered by the leading brands. Established Foreign companies have entered the
Indian market by acquiring existing Indian companies. Kansai Paints of Japan is
one such entrant that entered the Indian Market by acquiring Nerolac. Another
paint company, Akzo Nobel, the world’s largest Paint company, entered the
Indian market by acquiring ICI Paints (now Akzo Nobel India).
 

 
ASIAN PAINTS 

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 

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.
Currently all
key players in the Indian paint market are in expansion mode. Asian Paints
has enhanced its capacity at its facility in Himachal Pradesh (for powder
coatings) and Maharashtra (industrial coatings) and Berger’s facility in
Jammu started contributing to its top line performance, albeit on the lower
side. Kansai Nerolac is putting up a green field plant at Hosur in Tamil Nadu
and is carrying out expansion at its Lote Parshuram and Bawal plants.
 
PRODUCT RANGE
Most companies have an identical range of products
for the decorative paint market. In the industrial segment, the range is more
customized and guided by the technology support provided by the
collaborators. In the case of decorative products, the technology has been
mostly indigenously perfected over the years and the products can be divided
on the basis of interior and exterior applications or in categories such as
water-based and solvent-based. Moreover, most companies have been advertising
their products in the interior/exterior emulsions category, which has
expanded the market and triggered a shift from distempers and cement paint.
While solvent-based enamels are still popular in India, there is a clear
shift from solvent- to water based glossy enamels in overseas markets, India
will take some time to switch over to water-based coatings. For the
decorative range, it is difficult for international companies to set up shop
on a stand-alone basis because of existing barriers such as the strong
network of established players, brand image, range of products (Indian context)
and required distribution logistics.
Given below is a comparative list of various
products of the major players of the Indian paint industry.

 

 

 

 

 

 

 

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