Encouraging Growth Potential for the Indian Paint Industry

By Devaraj Parthasarathy | August 4, 2009

The Indian paint and coatings industry is still performing well despite slower growth due to the global financial crisis.

The Indian paint industry has been doing well for the past couple of years. In spite of global economic slowdown the industry is performing well. The per capita consumption of paints in India is still low at 1.25 kg against 51.7 kg in Qatar, 38 kg in Singapore or 25.8 kg in the U.S. Even China has a per capita consumption of 2.5 kg and Sri Lanka 3.5 kg. India has a long way to go. Therefore, the future of the industry in India is quite bright.

The size of the Indian industry is approximately 940 million liters valued at approximately $2 billion. The organized sector constituted 54% of the total volume and 65% of the value.

Over the last ten years, the industry has grown at a compounded annual growth rate (CAGR) of 12-13% and in the next five years, it is expected to grow at a CAGR of 11-12%. The industry has a positive correlation with the country's gross domestic product (GDP) as both have the same growth drivers.

Decorative versus industrial paints

India's paint industry can be classified into decorative paints, which account for 75% of the market, and industrial paints, which make up the remaining 25%. The demand for paints is both derived and direct. The demand for decorative paints is a direct demand whereas the demand for industrial paints is a derived demand.

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. Charts 1 and 2 depict the composition of decorative and industrial sector.

Most of the organized companies have a nationwide presence with multi-location manufacturing facilities. The companies in the unorganized sector are mostly regional, spread in and around their manufacturing facilities and deal in low value products.

In the license regime, being restrained by FERA (Foreign Exchange Regulations Act) and MRTP (Monopolies & Restrictive Trade Practices Act), most players were not allowed to increase production capacities until the 1990s. With liberalization, these shackles were removed and the industry expanded.


Indian climatic conditions are not conducive for foreign formulations and modification cost in product formulation is quite high. As a result, imports are not much of a threat to Indian players. In the case of industrial paints, major players already have a tie-up with global players for the latest technology and markets accessible to them. It negates the further supply from the international markets even after reduction of import duty from 40% to 15.3% in the last eight years.

Raw materials

Paint is a raw material intensive industry. It takes over 300 different raw materials to produce paint, most of which are petroleum-based. Titanium dioxide is the largest consumed raw material.

It constitutes approximately 30% of the total manufacturing cost. Besides this, there are petroleum-based raw materials, which constitute 40-50% of the total raw material consumed. Hence any movement in crude oil prices impact prices and profitability in the paint industry.

Product culture

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. Therefore, the safer route has been and will be to tag along with existing companies.

For industrial products, however, this may not apply and based on their tie-ups in home countries and their original equipment manufacturer (OEM) customers, the required range can be produced and sold.

There is, however, room for niche players, with radical and unique ranges of products properly conceived and marketed in the Indian context and supported with machines.

One more concept that is being adopted in India is the use of eco-friendly paints. Conventional paints have more than 1,000 chemicals and substances such as formaldehyde and benzene. These chemicals may lead to health problems. Low level exposure to paint, based on lead-based pigments may irritate or burn the eyes, nose, throat and skin and cause reactions such as headaches, dizziness or nausea while high levels of exposure to some of the elements in paint, even for a short period, can cause severe and lasting impact such as kidney or liver damage or respiratory problems.

Some of the paint companies have proactively worked towards the elimination of lead-based pigments and have substituted non-toxic raw materials.

Thus eco-paints are non-toxic with low VOCs, have no odor and can be tinted to any color with non-toxic tints. They are produced from fewer than 250 chemical components and more than 98% of these chemicals are derived from plant sources and minerals. The raw materials are also low in toxic substances, renewable and feature a low environmental footprint.

Market profile

The leaders in the organized paint industry in India are Asian Paints with over 40% market share, Kansai Nerolac (20%), Berger Paints (19%) and AkzoNobel (12%).

Asian Paints is a market leader in the decorative segment while Kansai Nerolac dominates the industrial and automotive segment.

The share of industrial paints in the total paint consumption is very low when compared to global standards. It accounts for 25% of the paint market with 75% of the paints sold in India for decorative purposes.

In most developed countries, the ratio of decorative paints vis-�-vis industrial paints is approximately 50:50. But, with the decorative segment bottoming out, companies are increasingly focusing on industrial paints. The future for industrial paints is bright. In the next few years its share will go up gradually in line with the global trend.

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.

Current trends

The Indian paint and coatings industry was riding high on the growth in the Indian automobile industry, new construction in the housing segment and improving infrastructure throughout the country. But the recent global slow down impacted the paint industry to some extent as a result of slowdown in real estate and auto industry. Top-line growth is affected to some extent while the bottom-line is certainly under pressure.

Consumers are looking forward to new product launches some for application in special areas. Companies are increasing the value-added services available to customers by offering a variety of finishes through specialized and trained applicators, well supported by back end support of specialized service.

There has been a higher growth of emulsion paints for interiors vis-�-vis distempers. There is increasing use of economy emulsion in place of lower-priced distempers. Similar is the trend for exteriors where emulsion-based coatings are now preferred against conventional cement-based coatings. Continuously looking for better products, more and more consumers are switching to marginally higher-priced emulsions where they get more durable and better-looking finishes in a wider range of colors.

In spite of economic slowdown, the Indian paint industry is growing though at a slower rate. It has tremendous potential for growth in the coming years. The decorative segment has out paced the industrial segment in growth rate but the industrial segment has the greater potential for growth, as and when the automobile industry business improves.

The players with aggressive marketing strategies and comprehensive product portfolios will grow at a faster rate. The emerging trends in technology and marketing indicate that the industry is likely to consolidate in the coming years with industry leaders improving their market share.