While the outlook for paints industry remains robust, rising raw material costs (due to crude oil price’s continued northward journey) are major concern for paint makers in India.

 

Increasing income levels, rising urbanisation and growing aspirations of people are helping the paint market to grow considerably. Besides, usage of enamel and emulsion paints over traditional white wash, increasing penetration in the rural market and digitalization are also driving the paint industry.

 

According to CARE Ratings, in the financial year 2016-17, value of the paints industry grew by 8 per cent on a y-o-y basis. This was backed by an improvement in disposable income, rising urbanization, focus on housing, rural growth, rise in automotive segment, increasing trend of 

nuclear families etc. The growth of paints industry is dependent on the growth of its two segments, decorative and industrial. 

 

Factors such as roll out of Seventh Pay Commission, salary revisions by States, schemes for affordable housing, expected improvement in industrial output, growth in automotive segment are likely to augur well for the paints industry. While paints industry is expected to grow by 8-10 per cent in 2017-18, industry may witness hiccups due to implementation of GST in July 2017.

 

“During April-December 2017, aggregate sales of five paint companies grew by a slower 1.4 per cent on a y-o-y basis compared with y-o-y sales growth of 20.7 per cent reported by the industry during the nine month period April-December 2016. Slower recovery in demand post GST affected the industry’s sales. Further, no price hikes were taken by the companies after May 2017 which is also believed to have impacted the industry’s sales during the period. This was despite an increase in raw material prices of the industry,” said CARE Ratings in a report published in April 2018.

 

Crude oil derivatives and titanium dioxide are major inputs used in manufacturing of paints. In 2016-17, the industry witnessed no major expansion in profit margins as increase in raw material expenses weighed on the margins. 

 

In spite of concerns over rising crude oil prices, experts remain bullish on Indian paints industry. “The growth prospective for coatings business is positive for most of the segments. Globally, we are the largest manufacturer of powder coatings and leaders in coil and extrusion costings and aerospace coatings. In India, we are among top three players in marine, protective, powder, refinishes, coil and packaging coatings. The industrial paints segment is far more technology intensive than the decorative segment. For AkzoNobel, industrial coatings is a high growth market for us,” said an AkzoNobel India spokesperson.

 

Decorative leads the industry

The paints industry in India grew at a CAGR of 12.9 per cent from 2012-12 to 2014-15 to Rs 40,300 crore backed by an improvement in disposable income, rising urbanisation, rural growth, increasing trend of nuclear families, reduction in average repainting cycle on account of improvement in disposable income and lifestyle. The repainting cycle is now approximately 7-10 years compared to around 15 years 

earlier. These factors supported the industry’s growth in 2015-16 and 2016-17 as well. 

 

Indian paint industry was valued at Rs 46,980 crore in 2016-17 up by 8 per cent when compared to Rs 43,500 crore in 2015-16. While decorative segment accounts for 75 per cent of the Indian paint industry, industrial segment accounts for the rest 25 per cent. Industrial paint includes auto OEM paints and protective coatings, auto refinish, GI (General Industrial) paints, powder coatings, etc. Auto OEM paints and protective coatings and auto refinish paints are used by auto producers for painting automotive interiors and exteriors, GI paints are used for construction, heavy engineering & agricultural equipment etc. 

 

Powder coatings, used for coating metals and for auto ancillaries, electrical equipments, consumer durables etc, are witnessing strong demand enticing companies to invest in this segment. For example, in February this year, AkzoNobel India opened a powder coatings facility in Mumbai. “The India market is growing faster than we had anticipated a couple of years ago. The inauguration of the powder coatings facility in Mumbai with an investment of Rs 65 crore is a testimony of our commitment to the market. Powder coatings continues to be a high-growth market for AkzoNobel and the Mumbai facility only further strengthens our manufacturing footprint in the country. The facility plays a critical role in our expansion plans in India and boosts our access to the northern and western markets of the country,” said the company spokesperson. 

 

Performance of industrial paints segment depends on business cycle activity and economic conditions while the decorative paints segment is dependent on the housing sector and repainting cycle. The average price for decorative paints is in the range of Rs 110-Rs 120 per litre whereas for industrial paints, the average price is approximately Rs 300 per litre. Industrial paints are anti corrosive paints.

 

The paints industry is largely dominated by organised players accounting for about 65 per cent of the industry, with the unorganised players accounting for the rest 35 per cent. As industrial paints involve higher technical know-how, this segment mainly comprises organised players. On the other hand, the decorative segment involves some component of unorganised players as decorative paints do not significantly dependent on technology compared to the industrial paints.

 

Around 80 per cent of the organised market of paints industry is covered by the top players with the largest share of 41.4 per cent held by Asian Paints followed by Berger Paints India, Kansai Nerolac Paint and Akzo Nobel India with a share of 13.5 per cent, 13.1 per cent and 9.3 per cent, respectively, during 2016-17, according to CARE Ratings.

 

Eco-friendly paints in demand

The paints manufactured are of two types – water based paints and solvent based paints (also sometimes called as oil-based paints). For water based paints, binder is water-based while for solvent based paints, the binder is oil-based.

 

Emulsions are water-based paints and enamels are solvent-based paints. The emulsions are ideal for painting walls while enamels are used for woodwork and metals. Also, solvent-based paints are ideal for bathrooms and kitchens as these paints are not much affected by water.

The solvent based paints release Volatile Organic Compounds (VOCs) into the atmosphere that harms the environment while water-based paints do not release such harmful compounds and thus have least impact on the environment. Also, solvent-based paints are known to produce bothersome odour.

 

Outlook

The manufacturing of paints involves a significant input cost as raw materials account for around 45-50 per cent of the industry’s sales on an average. The raw materials used for manufacturing paints include resins (binders), pigments, solvents, additives. One of the key pigments used in the manufacture of paints is titanium dioxide. It accounts for about 15-20 per cent of the total raw materials cost of the industry.

Backed by an expected improvement in industrial output, the demand for industrial paints is likely to grow. In addition to this, strong growth in the two-wheeler segment (accounting for about 80 per cent of the automobile industry’s sales) augurs well for the paints industry. The automotive segment drives the demand for industrial paints as it forms a significant component of industrial paints.

 

While the outlook for paints industry remains robust, rising raw material costs (due to crude oil price’s continued northward journey) are major concern for paint makers in India. 

 

Information Courtesy: CARE Rating and AkzoNobel India