Coatings World presents an overview of Indian paint industry in this article.
Overview of Indian Paint Industry
After steady growth for a number of years, the Indian paint industry witnessed one of the worst years in the concluded financial year 2016-17. Growth picked up pace during the second quarter of the last fiscal, owing to a good monsoon and positive investment climate in the country. However, a couple of regulatory measures undertaken by the government impacted the paint industry in both the third and fourth quarter of FY 2016-17. The slowdown continued in the first and second quarter of current financial year (April 2017-September 2017) due to the implementation of GST from July 1, 2017.
The lackluster performance of the paint industry in the last fiscal can be largely attributed to demonetization exercises carried out by the Indian government in November 2016. The Federal Government’s decision to demonetize almost 86 percent of the currency notes in circulation caused a severe cash shortage in the domestic economy, which prefers cash as the mode of payments, even today. This cash shortage led to a strain on the paint consumption demand and operations of paint producers for a greater part of the second half of the last financial year.
During 2015-16, the overall production of paints in India was estimated (estimated because unorganized sector producers do not disclose the right numbers) to be 4.25 million tones, registering a five percent growth over the previous year. In value terms, the paint industry grew by about 8 percent to INR 43.5 billion of which the decorative paints share was 74 percent and the balance being industrial. The industry had grown at a CAGR of 12.9 percent from 2011-12 to 2014-15 in terms of value.
The per capita consumption of paints in India, at 3.23 kgs, is much lower in comparison to some of the other developed economies around the world. However, current low per capita consumption is viewed by domestic paint producers as immense future growth opportunity for the paint industry.
Repainting constitutes about 70 percent of the total paint demand in the country. The shortening of the repainting cycle from 6-8 years earlier to 3-4 years is driving the demand for decorative paints. The retail demand for paints is higher during the months preceding major festivals such as Diwali, Pongal/Makar Sankranti, Onam and Christmas as most of the repainting is done around this period. Demand of industrial paints too, gains with the festival demand push for automobiles, houses and white goods. Since, most of major festivals of the country fall in the second half of a fiscal, the major demand period for decorative paints and, to some extent,
industrial paints is between September and March.
According to Asian Paint’s management, “April to June has been a challenging quarter for our company both in the domestic as well as international front. The quarter started on a positive note continuing from the last quarter of FY2017; however, the domestic business was affected in the month of June in the run-up to the GST implementation from July 1, 2017. The company witnessed de-stocking by the trade as a result of which sales were affected to a fair extent.”
According to Jayakumar Krishnaswamy, managing director, AkzoNobel India, “Indian coating market is poised to grow due to a low per capita consumption of paint and a large number of first-time users. We are confident of our growth and we have taken steps to grow ahead of the market so as to gain market share. All of our businesses have reflected positive growth in the past in spite of the challenging environment.”
Upcoming Expansions by Major Players
Most of the major players are in the midst of expanding their installed capacities in order to tackle the rising demand in coming years. Here is a brief snapshot of these exercises.
India’s largest paint producer, Asian Paints will be investing about INR 10 billion ( $153 million) towards two new paint manufacturing facilities being setup at Mysuru and Vizag in the Southern part of the country. The first phase of both the plants is expected to be commissioned in FY 2018-2019.
Berger Paints has recently entered into two MOUs – one with Promat International Limited NV of Belgium for cooperation in the field of passive fire protective coatings, in India and neighboring countries, and the other with Chugoku Marine Paints Limited of Japan for co-operation and collaboration in the field of marine and related industrial paints in India.
The demonetization exercise, carried out by Indian government in last November resulted in lower growth rates and contraction in demand for a period of four months, particularly in the rural markets and impacted the paint industry in an adverse manner.
Kansai Nerolac Paints Limited , a subsidiary of Japanese Kansai Paint Co. Ltd is the market leader in the industrial paints sub-segment. The company operates four manufacturing facilities at Lote in Maharashtra, Bawal in Haryana, Jainpur in UP and Hosur in Tamil Nadu. To boost the production capability, KNPL is creating new production facilities at Saykha in Gujarat, Amritsar in Punjab and Vishakhapatnam in Andhra Pradesh.
In December 2016, AkzoNobel India commissioned a specialty coatings production facility in Noida that can manufacture 600 kiloliters of coatings annually, with an investment of INR 30 million. In the same month, it also bought BASF India’s industrial coating business. The company is setting up a facility in Mumbai to serve its customers in the Northern and Western parts of India. AkzoNobel India has six manufacturing facilities in Bengaluru, Hyderabad, Mohali, Gwalior, Raigad and Navi Mumbai.
Impact of Goods & Service Tax ( GST) on Paint Industry
The Indian government implemented Goods & Service Tax ( GST) from July 1, 2017. The new tax regime has replaced multiple indirect taxes and state levies. In the short term GST implementation could be disruptive as paint producers are reorganizing their business processes to adapt to the new environment.
Speaking to CW, Subhash Arora, a major distributor of paints in New Delhi said, “Volumes fell 25-30 percent in June 2017 over May 2017, the sharpest drop this year. Some dealers in Delhi have observed decline in sales of as much as 50 percent of the monthly average in July.”
However, most of the executives Coatings World spoke to were optimistic about long term benefits of GST in the medium term. Paint producers would have to incur less on logistics infrastructure, as instead of number of warehouses, paint producers can do with regional warehouses, which, in turn, would lead to cost optimisation.
For example AkzoNobel currently has approximately 77 warehouses across the country. According to a key executive of the company, who spoke on the condition of anonymity, “ The number of warehouses may go down by 15-20 percent, but the actual reduction would depend upon a optimal model that would ensure just in time supplies.”
Despite, the current low per capita consumption, the Indian paint and coatings industry holds a great promise for the domestic and international paint producers in the country. Increasing urbanization (only 32 percent of the population live in cities according to last official census), rising disposable incomes in the hands of a vast section of population, growing popularity of value added paints in rural areas and a number of ambitious schemes of infrastructure development by central and state governments augur well for paint industry in the country.
According to a study conducted by market research firm, Nielsen Corporation in association with the Indian Paint Association, “The Indian paint market is expected to reach INR 708.7 billion ($10.90 billion) by financial year 2019-20 (April 2019- March 2020) from approximately INR 403 billion ( $6.2 billion) in 2014-15. The decorative paint market is expected to witness CAGR of 12.7 percent and the industrial paint market CAGR of 9.5 percent, according to the report.