1 | Page 1. EVOLUTION OF THE PAINT INDUSTRY Paint is defined as the group of emulsions, consisting of pigments suspended in a liquid medium, for use as decorative or protective coatings. ―Paint‖ ranges from the broad group of environmentally-sound latex paints used to decorate and protect homes and the translucent coatings that line the interior of food containers, to the chemically-complex, multi-component finishes that automobile manufacturers apply on the assembly line. Paint — the group of emulsions generally consisting of pigments suspended in a liquid medium for use as decorative or protective coatings — made its earliest appearance about 30,000 years ago. Cave dwellers used crude paints to leave behind the graphic representations of their lives that even today decorate the walls of their ancient rock dwellings. The paint and coatings industry, however, had to wait for the Industrial Revolution before it became a recognized element of the American national economy. The first recorded paint mill in America was reportedly established in Boston in 1700 by Thomas Child. A century and a half later, in 1867, D.R. Averill of Ohio patented the first prepared or "ready mixed" paints in the United States. In the mid-1880s, paint factories began springing up in population and industrial centres across the nation. Mechanization was making the manufacturing process accessible to a larger and less specialized group of entrepreneurs. The weight of prepared paint makes it expensive to transport, so a decentralized structure of small manufacturers in discrete markets dominated the industry until the mid-1900s. Besides mechanizing and professionalizing the paint industry, the Industrial Revolution also created vast new markets for paints and coatings. Virtually every product created on an assembly line — from the Model T Ford to the latest-model television — makes extensive use of paints and coatings to beautify, protect and extend the life of the manufactured goods.
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1. EVOLUTION OF THE PAINT INDUSTRY
Paint is defined as the group of emulsions, consisting of pigments suspended in a
liquid medium, for use as decorative or protective coatings. ―Paint‖ ranges from the
broad group of environmentally-sound latex paints used to decorate and protect
homes and the translucent coatings that line the interior of food containers, to the
chemically-complex, multi-component finishes that automobile manufacturers apply
on the assembly line.
Paint — the group of emulsions generally consisting of pigments suspended in a
liquid medium for use as decorative or protective coatings — made its earliest
appearance about 30,000 years ago. Cave dwellers used crude paints to leave behind
the graphic representations of their lives that even today decorate the walls of their
ancient rock dwellings.
The paint and coatings industry, however, had to wait for the Industrial Revolution
before it became a recognized element of the American national economy. The first
recorded paint mill in America was reportedly established in Boston in 1700 by
Thomas Child. A century and a half later, in 1867, D.R. Averill of Ohio patented the
first prepared or "ready mixed" paints in the United States.
In the mid-1880s, paint factories began springing up in population and industrial
centres across the nation. Mechanization was making the manufacturing process
accessible to a larger and less specialized group of entrepreneurs. The weight of
prepared paint makes it expensive to transport, so a decentralized structure of small
manufacturers in discrete markets dominated the industry until the mid-1900s.
Besides mechanizing and professionalizing the paint industry, the Industrial
Revolution also created vast new markets for paints and coatings. Virtually every
product created on an assembly line — from the Model T Ford to the latest-model
television — makes extensive use of paints and coatings to beautify, protect and
extend the life of the manufactured goods.
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Many of today's paints and coatings may go unnoticed by the consumer, but play
immeasurably valuable roles in delivering high-quality foodstuffs, durable goods,
housing, furniture and thousands of other products to market. Total sales for the
industry were approximately $20.9 billion in 2006.
As soon as the impact and potential risks of various paint components have been
quantified, paint manufacturers take action. Historically, the industry readily
responded to environmental and health concerns by altering the chemistry of its
products to control risks. Paint manufacturers started replacing lead pigments in some
paints, for example, before World War II, when safer alternatives became available.
Industry consensus standards limiting the use of lead pigments date back to the 1950s,
when manufacturers led a voluntary effort to remove lead from house paints.
Common house paints have contained little, if any, lead since then. In 1978, the
Consumer Product Safety Commission banned the use of lead in consumer paint.
Contemporary paints and coatings consist of countless compounds uniquely
formulated to fulfil the varied requirements of hundreds of thousands of applications.
"Paint" ranges from the broad group of environmentally-sound latex paints that many
consumers use to decorate and protect their homes and the translucent coatings that
line the interior of food containers, to the chemically-complex, multi-component
finishes that automobile manufacturers apply on the assembly line.
However you look at it, paints and coatings have evolved from the simple Early Man
colours on cave walls into a primary protective barrier between our possessions and
our environment.
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GLOBAL PAINT INDUSTRY
1.1 OVERVIEW
The current global economic downturn has affected virtually every industry, including
paints and coatings. Over the period 2002 to 2007 the global paint and coatings
industry grew at an annual rate of nearly five percent in terms of volume and nearly
seven percent in terms of revenue. The market slowed significantly in 2008 and is
projected to be flat to declining for 2009. Orr & Boss estimates that total global 2008
revenues for the paint and coatings industry were approximately US$93 billion on a
volume of more than 27 billion litres.
Pie Chart Showing the Total Global Coatings Sales Volume
Source: Coatings World Magazine
In terms of sales volume, Asia-Pacific has become the largest geographic region
accounting for more than 35% of the total global coatings volume. Europe is the next
largest region at nearly 30% of the global volume. NAFTA trails Europe and makes
up 21% of the volume. The balance of the market volume is split between Latin
America and the rest of the world (ROW). Market distribution based on coatings
value varies from the volume distribution. Europe is the largest region in terms of
coatings value, representing approximately 35% of the market volume. Asia-Pacific
trails Europe and comprises roughly 31% of the global value. As with volume,
Asia-Pacific35%
Europe30%
NAFTA21%
Latin America and ROW14%
Asia-Pacific Europe NAFTA Latin America and ROW
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NAFTA is the third largest region making up approximately 24% of the market. Latin
America and ROW split the balance.
1.2 GLOBAL PRODUCTS
The paint industry can be broadly classified as decorative/architectural paints and
industrial paints. Decorative paints were mainly used for painting interior and exterior
of houses, office buildings, and factories and articles like wooden furniture. The
industrial include automotive paints, powder coating paints, marine paints and special
purpose coatings.
Decorative coatings are the largest of the major segments representing approximately
51% of the global volume and 43% of the global coatings value. The balance of the
market is distributed across the nine industrial market segments with general
industrial being the largest, comprising roughly ten percent of the volume and 11% of
the market value.
Globally, the decorative coating segment has grown at an annual rate of more than
five percent in volume and nearly eight percent in value over the past five years.
Similarly, industrial coatings have grown more than six percent annually in volume
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and slightly more than seven percent in value. Within the industrial sector, powder
coatings and industrial maintenance and protective coatings have posted the highest
average annual growth rates both in terms of volume and value. Packaging coatings
and automotive refinish have experienced the lowest average growth rates. It is
important to note that there has been significant regional variation in growth rates
within the various major market segments.
1.3 GLOBAL PLAYERS
The world coatings industry is not yet a real oligopoly. The top firm Akzo Nobel
owns only about 10% of the market, and the top five companies own about 30%.The
top 11 companies were American, European and Japanese companies. Most have
extensive multinational operations. Many of these companies are involved in other
manufacturing areas, especially chemicals. Almost all of them have expanded
operations into China, India, South America, and Eastern Europe. According to a
survey conducted by the Paint and Coating Magazine the top ten players are:
COMPANY HEADQUARTERS
Akzo Nobel Netherlands
PPG United States of America
Sherwin Williams United States of America
Du Pont Coatings United States of America
ICI Paints United Kingdom
BASF Coatings Germany
Valspar United States of America
Sigma Kalon Group Netherlands
Nippon Paints Japan
Kansai Paints Japan
Source: PGI Magazine
AKZO NOBEL NV
Akzo Nobel is the world‘s largest coatings manufacturer and holds leading positions
in most of its business. Despite difficult market conditions, coatings reported
excellent performance with revenue growth at 5 percent, reaching €6.537 billion
($9.628 billion). Its portfolio includes decorative paints; products for industrial
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applications including powder and specialty coatings; car refinishes; marine,
protective and aerospace coatings; and coatings-related products such as wood and
building adhesives. Brands include global and household names such as
International®, Sikkens®, Crown®, Interpon®, Levis® and Sadolin®.
Recent Acquisitions and Divestments
In November 2007, Akzo sold Organon BioSciences (OBS) to Schering-Plough Corp.
The company also finalized the acquisition of Imperial Chemical Industries plc (ICI)
on January 2, 2008. Akzo intends to consolidate its position as the world leader in
decorative paints and performance coatings in all product markets. It will focus on
growth in the emerging markets of Asia, Eastern and Central Europe, and South and
Central America through a combination of organic growth and selected acquisition. It
intends to strengthen its position in key mature markets through small and medium-
sized acquisition. In July 2007, the company‘s Powder Coatings business opened its
first production plant in Russia. In January 2008, the Powder Coatings business
opened a landmark facility in Dubai, strengthening its presence in the Middle East.
Further expansion in China in 2007 included opening manufacturing plants in
Chengdu, Sichuan province, and a new Decorative Coatings site in Langfang in
northern China.
PPG INDUSTRIES INC.
PPG‘s coatings business is made up of coatings for auto OEM, auto refinish,
industrial, architectural, aerospace, packaging, and protective and marine applications.
PPG is the technology leader in coatings for the wood-flooring industry. Additionally,
PPG is a leader in the supply of paints for consumer electronics, including cell
phones, personal digital assistants (PDAs) and computers. It is the largest producer
worldwide of transportation OEM and refinishes coatings. It also has a global position
in industrial and packaging coatings and is a major player in architectural coatings in
the United States. Coatings represent about 67 percent of 2007 corporate sales of
$11.2 billion. Industrial Coatings sales increased $410 million or 13 percent in 2007.
Performance Coatings net sales increased $720 million or 23% in 2007.
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Recent Acquisitions and Divestments
In 2007, South Africa-based Barloworld, Ltd. sold its Australian architectural paint
unit, Barloworld Coatings Australia, to PPG Industries. PPG also completed its
acquisition of the architectural and industrial coatings businesses of Renner
Sayerlack, S.A., Gravatai, Brazil, and acquired certain assets of Champion Coatings,
Inc., of Houston. PPG completed the acquisition of the SigmaKalon Group, a
worldwide coatings producer based in Uithoorn, the Netherlands, on Jan. 2, 2008.
DUPONT COATINGS & COLOR TECHNOLOGIES GROUP
DuPont Coatings & Colour Technologies Group‘s platform includes its core markets
of automotive, collision repair, paper, industrial coatings, architectural coatings and
plastics. The company offers high-performance liquid and powder coatings as well as
high-performance specialty products. The group is also the largest manufacturer in the
world of titanium dioxide. In 2007, global coatings sales were $4.4 billion. North
American coatings sales in 2007 are estimated at $1.4 billion. DuPont, the parent
company, had worldwide sales of $29.4 billion in 2007
In January 2008, DuPont Performance Coatings opened a plant in the Jiading district
of Shanghai. DuPont also entered into an agreement with German automotive
coatings manufacturer Bollig & Kemper to use DuPont‘s EcoConcept coatings
technology in plants in Germany and elsewhere in Europe.
SHERWIN-WILLIAMS Co.
The Sherwin-Williams Co. is engaged in the manufacture, distribution and sale of
coatings and related products to professional, industrial, commercial and retail
customers primarily in North and South America. The company has three operating
segments: Paint Stores Group, Consumer Group and Global Group. Consolidated net
sales in 2007 increased $195.5 million, or 2.5 percent, to $8.005 billion in the year,
due primarily to strong paint sales by the Global Group and by stores open for more
than 12 calendar months in the Paint Stores Group. It is estimated that between 70 to
75 percent of sales, or about $6.0 billion, represents coatings sales, with the remainder
being related products, including wall coverings, floor coverings and application
supplies. Sherwin-Williams have company-operated stores in all 50 states, Canada
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and some countries in Latin America. The company also manufactures and sells
coatings such as Dutch Boy, Pratt & Lambert, Martin-Senour, Dupli-Color, Krylon,
Thompson‘s and Minwax, plus private-label brands to independent dealers, mass
merchandisers and home-improvement centres. Sherwin-Williams produce coatings
for original equipment manufacturers in a number of industries and special-purpose
coatings for the automotive-aftermarket, industrial-maintenance and traffic-paint
markets.
Recent Acquisitions and Divestments
In 2007, Sherwin-Williams completed seven acquisitions, including four outside the
United States. Foreign investments included NITCO, an architectural coatings
company in India; Pinturas Industriales, an industrial paint company headquartered in
Montevideo, Uruguay; NAPKO, an industrial-maintenance coatings company in
Monterrey, Mexico; and Flex Recubrimientos, Acabados Automotrices and related
companies, leading manufacturers and distributors of automotive after-market body
fillers, putties, primers and other vehicle refinish products headquartered in
Monterrey, Mexico. Acquisitions inside the United States included M.A. Bruder, a
Philadelphia-based company with 132 paint stores; Spokane-based Columbia Paint &
Coatings; and VHT Paint Lines, an aerosol coatings company in Scottsdale, AZ. The
company also formed a joint venture with Altair Nanotechnologies, called AlSher
Titania, to commercialize a new, low-cost Ti02 pigment manufacturing technology.
In February 2008, Sherwin-Williams announced it had acquired Becker Powder
Coatings Inc. in North America. The company also announced it had signed a
definitive agreement to acquire the Liquid Coatings Subsidiaries of Inchem Holdings
of Inchem Holdings International Ltd., a producer of coatings applied to wood and
plastic products in Asia.
ICI PAINTS
As of the end of 2007, ICI Paints was a leading international paint business and
accounted for 49 percent of the Group‘s continuing sales in 2007.
On January 2, 2008, AkzoNobel purchased ICI. In May 2008, AkzoNobel announced
that the ICI name will no longer be used, but the ICI logo will continue to appear on
relevant products during the migration period.
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BASF COATINGS AG
BASF Coatings, a division of the world‘s largest chemical company, BASF, produces
and markets a high-quality range of automotive OEM paints, automotive refinish and
industrial coatings as well as decorative paints. When it comes to automotive OEM
coatings, BASF Coatings is among the top three global leaders. For its industrial
coatings, the company focuses on coil, foil, liquid and powder coatings. BASF‘S
architectural coatings activities are based in Europe and South America. Since the
integration of the RELIUS Group in early 2007, BASF Coatings offers construction
paints for interior and exterior applications as well as external wall insulation systems
in Europe. 2007 coatings sales increased 7 percent from 2006.In 2007, BASF
Coatings opened a new training centre in Shenyang, China, for the company‘s refinish
coatings product users.
VALSPAR CORP.
Valspar achieved growth of 9.1 percent in 2007. The company operates its coatings-
related businesses in two reportable segments: Paints and Coatings. Sales in the Paints
segment increased 10.5 percent (2007 revenue of $1,088.8 million) and 10.0 percent
in the Coatings segment (2007 revenue of $1,851.7 million), for a total coatings sales
of $2,941 billion. Sales growth was driven by strong performance in new acquisitions
and international operations. International sales rose 34 percent to $1.2 billion. The
company‘s fastest-growing markets are China, Latin America and Eastern Europe. In
2007, revenues from Asia increased more than 80 percent.
In Sept. 2007, Valspar acquired Teknos Nova Coil TNC Oy, a Helsinki-based
manufacturer of high-performance coil coatings widely used in the construction
industry. The company also successfully transitioned Lowe‘s premium paint line to
the Valspar brand and introduced Cabot stains at stores across the United States.
SIGMA KALON GROUP BV
As of January 2, 2008, SigmaKalon Group BV was purchased by PPG Industries and
is now a subsidiary of PPG. With a portfolio of leading brands, SigmaKalon is a
worldwide player in decorative, marine, protective and industrial coatings.
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SigmaKalon Group BV is headquartered in Uithoorn, the Netherlands, and was
formed in 1999 from a subsidiary of Total SA. The company employs around 10,000
people in more than 40 countries, with a focus on Europe, Asia and Africa. It has
plants and research and development facilities in Poland, Germany, the Netherlands
and Belgium. SigmaKalon USA LLC was formed on Feb. 1, 2006, in Houston as a
Sales, Marketing and Technical group and as an integral part of the Protective
Coatings (Industrial) & Marine operating unit of the SigmaKalon worldwide
company.
NIPPON PAINT CO.
Japan‘s oldest paint company is also its largest. Nippon Paint produces coatings for
the automotive and marine markets as well as other industrial products. It also makes
paints for residential and commercial buildings and for the do-it-yourself market.
Nippon Paint‘s manufacturing operations are located principally in Asia, but the
company also has facilities in North America and Europe. In the United States, it has
two subsidiaries that manufacture and sell paints: NB Coatings (liquid automotive
coatings for plastic) and NPA Coatings (automotive body coatings and powder
coatings).
RPM INTERNATIONAL INC.
RPM is a holding company with subsidiaries that are world leaders in specialty
coatings and sealants serving both industrial and consumer markets. Industrial
products include corrosion control coatings, flooring coatings and specialty
chemicals. Major industrial brands are Stonhard, Tremco, Illbruck, Carboline, Day-
Glo and Dryvit. Consumer products are used by professionals and do-it-yourselves for
home maintenance and improvement, boat repair and maintenance, and by hobbyists.
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1.4 GROWTH INFLUENCERS
There are a number of factors that affect coatings demand. Three major determinants
are overall economic activity, construction levels and by the quantity of specific end-
use products manufactured such as automobiles, furniture and containers. The period
2002 to 2007 saw significant growth in the global economy with global GDP
expanding at a compound annual rate of more than seven percent. The growth rate fell
to less than four percent for 2008. In their most recent projection, the International
Monetary Fund forecasts a 2009 growth in GDP of only 0.5%. This is the lowest
forecast annual global growth rate since World War II. Clearly the stagnation of the
global economy is having a negative impact on overall coatings demand.
Construction activity directly impacts a number of end-use markets and is a major
driver of coatings demand. In addition to the decorative coatings segment, industrial
maintenance, coil coatings and wood finishes are tied to construction. These end-use
segments make up approximately 70% of overall coatings demand. Following years
of significant expansion, the global construction market has dropped off considerably.
Specifically, construction markets in leading Western economies are forecast to
decline in 2009. The North American construction market is projected to shrink by
roughly nine percent. The construction market in Japan is forecast to decline by seven
percent and Europe is projected to decline by nearly two percent. For the near term,
the decorative, industrial maintenance, coil and wood finishes markets will be
negatively impacted by this decline in the construction market.
Industrial coatings demand is, by and large, driven by the demand for, and production
of, the end use products. For example, transportation coatings demand is dictated by
the number of cars, trucks and planes that are built. Unfortunately, demand for these
manufactured products is down significantly. In 2008, global vehicle production
declined more than five percent versus 2007 and a further decline of nearly nine
percent is forecast for 2009. Transportation is not the only market facing a downturn.
The U.S. Energy Information Administration (EIA) is projecting that the
Manufacturing Index for the U.S. will fall below 2002 levels during the course of
2009.
Regional growth in coatings demand has mirrored regional economic development.
Over the past five years, those regions that have seen the greatest economic growth
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have experienced the greatest increase in coatings demand. This is most evident in the
Asia-Pacific region where both GDP and coatings volume have been growing in
excess of ten percent per year. It is important to note, however, that while growth
follows the overall economy, there is wide disparity in per capita coatings demand.
North America has the largest per capita demand followed closely by Europe. Other
regions of the world lag by a significant margin. Chart 3 depicts coatings demand per
capita for each region.
Source: Coatings World Magazine
1.5 GROWTH PATTERN OF THE GLOBAL PAINT INDUSTRY
The coatings industry is one of the most truly global industries in the world. Coatings
are manufactured virtually everywhere, although the industrial world accounts for
around 70% of global consumption. While the industry as a whole is growing at only
about 3% annually, the portion that uses instrumentation is growing much faster.
The last ten years have seen an enormous consolidation of the industry as large
companies have bought up global market share. The Financial Times reports that in
1979 the top ten paint manufacturers accounted for 15% of total global sales. By 1996
the top ten companies sold a quarter of all coatings. This number further reduced in
2000. According to Chemical and Engineering News, there were 1,100 paint
companies making paint in the US ten years ago, and now there are fewer than 800.
Per Capita Coatings Demand by Region
0
2
4
6
8
10
12
North
America
Europe Latin
America
Asia
Pacific
ROW
North America
Europe
Latin America
Asia Pacific
ROW
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This consolidation has increased the market share of major suppliers, but at the
expense of profitability.
While this consolidation has substantially changed the competitive makeup of the
industry, it has not made it monolithic by any means. The industry contains a huge
and growing number of niche markets. There are many small coating companies that
do quite well in specialized markets, and even the major industry players are more
masses of small niche market companies than large companies with standardized
markets and products. Many of the smaller companies are in specialized markets with
relatively high-tech products.
Much of the impetus for the change in the industry has been the new environmental
laws throughout the world mandating coatings that use less of the solvents that
contribute to air pollution. There have also been breakthroughs in the quality of
coatings that have made the industry more competitive and at the same time have
created new markets for new coating products. Another competitive factor is the race
to find cheaper ways of producing coatings. In this increasingly competitive field the
goal is to create cheap, clean, high quality products and find new applications for
them. The most important of these competitive drivers remains the need to comply
with environmental laws.
The growth of the various new coating technologies has been very uneven throughout
the world, with specific local laws and cultural preferences contributing to the
acceptance (or lack of it) from country to country. Germany, for example, has been
quick to embrace water-borne paint technology. The technology has gained little
acceptance in the US, however, where the high-solid paints that have not caught on in
Europe are much more popular. There are indications that Europe has become the
centre of new coating technology development, partly due to more uniform
environmental laws.
Despite the erratic growth pattern of various coating products in different regions,
there is a global pattern that clearly shows virtually all countries moving toward more
high-tech forms of coatings. This is good news for instrument makers since the more
sophisticated the coating product and the more difficult the competition in coatings
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becomes, the more coatings companies will need instrumentation to give them a
competitive edge.
There is a wide range of instrument techniques used by the coatings industry, for a
similarly wide range of purposes. The main use is still in quality control and quality
assurance, but research into new coating products is increasingly important as well.
Many coating companies have used the mandate for clean coating technologies to
come up with products that not only reduce pollution, but have superior performance
as well. And with the slimmer margins most companies have seen since the massive
consolidation, coatings companies are looking for ways to produce more innovative
and environmentally friendly products with higher efficiency and tighter quality
control than ever before. The highly fragmented, niche-driven nature of this market
presents an opportunity to makers of nearly every type of analytical instrumentation,
but growth considerably faster than the average is expected for
rheometers/viscometers, thermal analyzers and particularly hyphenated GC, which is
expected to see growth well into double digits.
1.6 IMPACT OF THE DOWNTURN
The global economic downturn is affecting companies across the entire coating
industry value chain. Raw material suppliers, formulators, distributors and applicators
are all struggling to manage declining demand. Companies must take action to
address the current market conditions. In order to effectively manoeuvre through this
downturn, Orr & Boss recommends that companies focus on three key strategies:
reducing operating costs, reducing working capital and managing top line sales.
To reduce operating costs companies must take a hard look at business processes,
work flows and organizational structures to identify means of eliminating non-value
added activities while preserving the ability to meet customer requirements. These
efforts must cross all areas of the business. In addition, companies need to identify
ways to reduce material and energy waste. Raw materials are by far a company‘s
largest component of cost, so minor savings can have a major impact. Furthermore,
savings related to material and energy management will immediately impact the
bottom-line.
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Working capital requirements for specialty chemicals manufacturers and formulated
products companies can be as high as 40% of sales. These requirements tie up
significant resources and affect the borrowing ability of the business. Two key areas
that companies can target are inventories and receivables. The challenge with
optimizing these areas is maintaining service levels while reducing working capital.
Lowering working capital at the expense of losing key customers is not a sustainable
strategy.
The effects of the global downturn are felt across the value chain, including your
customers. Their needs and expectations have likely changed as they attempt to
manage these difficult market conditions. Suppliers must be able to adapt to these
changes. Pricing strategies, credit terms, product mix and service offerings may need
to be altered to meet these shifting needs. In addition, the present economic climate
may present new market opportunities. Businesses that are able to respond will gain a
competitive advantage by being well positioned when the inevitable recovery occurs.
1.7 STEPS TAKEN TO COUNTER THE DOWNTURN
The economies of many countries in Eastern Europe, including Russia and its
neighbours, have dragged down into the recession after several years of strong growth
in their gross domestic product (GDP).In February the region was on the edge of a
full-blown economic crisis as investors pulled out of the area, sending local currencies
into a sharp decline, which prompted calls for a rescue package provided by the
International Monetary Fund (IMF).However, Western and domestic coatings
companies are already planning for the economic recovery in the region because its
battered economies are expected to be among the first in Europe to come out of the
downturn. Coatings will be one of the first sectors to benefit from this revival.
A quick recuperation is predicted to take place in the ten Eastern European (EU 10)
states, which in recent years have joined the European Union (EU).
The London-based European Bank for Reconstruction and Development (EBRD), a
public-sector body that invests funds into companies and development projects in
Eastern Europe, expects that growth in its 30 countries will be static this year against
a 4.8% increase in GDP in 2008. The World Bank has predicted that the economies of
six of the EU 10 countries—the Czech Republic, Poland, Bulgaria, Romania,
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Slovakia and Slovenia—will grow by between zero and two percent this year. It is
also forecasting that although output in the whole of the Eastern European region may
suffer a small decline this year it will return to growth in 2010. Overall the area‘s
economic performance will be better than that of Western Europe‘s. Outside of the
EU Russia‘s government is conceding that its GDP will fall by more than two percent
this year while some analysts expect that that of neighbouring country Ukraine could
decline by more than five percent but during the downturn across Eastern Europe
some coatings segments, particularly for decorative paints, which comprise a major
proportion of the total market, are proving to be surprisingly resilient. Kingfisher plc,
a UK-based retail company with a chain of DIY stores in Eastern Europe, reported
strong sales growth in the region in the fourth quarter of its fiscal year ending January
31, 2009. In the full year like-for-like sales, after excluding factors like new stores
and currency fluctuations, went up by 5.5% in Poland and 17% in Russia, where the
company now has seven large stores.
Major markets for industrial coatings in Eastern Europe include automotive, metal
and wood products. The region has experienced a big surge of investment in car
plants in recent years while countries like Poland and Russia are major exporters of
furniture and other wood items.
Optimism among economists and foreign coatings and other industrial companies
about the medium- and long-term futures of the Eastern European economies partly
stems from the rapidity with which they have rallied after previous financial
meltdowns. After Russia‘s financial markets collapsed in 1998 triggering a five
percent dive in GDP, the country recorded growth rates of 6.4% and ten percent in the
next two years. The recession is not deterring Western coatings and raw materials
suppliers from building a strong position in terms of production and logistical
capacity in Russia.
BASF Coatings has just started operating a 6,000 ton-a-year plant for basecoats and
clear coats at Pavlovskij Posad, near Moscow—the first OEM coatings facility of an
international paint manufacturer in the country. The company already has production
capacity for coil coatings in the country.
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Brazil‘s state oil and petrochemicals company Petróleos Brasileiro S.A. or Petrobras
has announced a massive $174 billion capital investment program over the next five
years, which will bode well for suppliers of industrial paints and coatings. Producing
more than two billion barrels of oil per day, Petrobras also currently operates 16
refineries, but plans are to both double oil production and refinery capacity over the
coming decade. Construction on five new refineries within Brazil is expected to begin
over the next five years. Such investment should help increase sales of industrial
coatings in Brazil, both for new and existing infrastructure. One recent U.S.-based
company to win a coatings contract from Petrobras is Northern Technologies Inter-
national Corp.‘s (NTIC) Brazilian joint venture, Zerust Prevencao de Corrosao S.A.,
which will provide anti-corrosive coatings for the internal roof surfaces of oil storage
tanks at Petrobras‘ Reduc refinery in Rio de Janeiro. Reduc has an estimated 330 oil
storage tanks thus far, however the complex is being expanded.
1.8 GROWTH PROSPECTS
The current global economic slowdown is having, and will continue to have, an
impact on the coatings industry. The recovery of the coatings market is inherently tied
to recovery in the end use segments, and thus overall economic activity, construction
and manufacturing. The short-term forecast may indeed be negative; however, the
medium- to long-term prospects for the industry are much more positive. While the
International Monetary Fund has downgraded its 2009 global GDP forecast to 0.5%
annual growth, it is projecting an annual growth of approximately three percent for
2010. This is consistent with an economic recovery occurring sometime between
midyear 2009 and early 2010. Beyond 2010 the forecast is for a return to historical
economic expansion levels.
This forecast is one of a number of potential scenarios and is based on the assumption
that the current recession, despite being very severe, is none-the-less ―typical.‖ That
is, a cyclical corrective response within the economy to such disruptive factors as over
capacity, excess inventories, inflation, deflation, disruptive technological
developments and regional growth among other factors. However, there are other
scenarios that suggest that as regional economies are undergoing fundamental
structural changes, the economic patterns of the past two to three decades were
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basically debt-driven and that growth is now unsustainable. This would mean that the
coatings industry will have to identify those fundamental changes that are occurring
and adjust regional, product and manufacturing strategies accordingly.
Following a difficult 2009, the construction sector is forecast to recover as this will be
the basis for most stimulus plans. Construction growth, however, is unlikely to return
to the high levels experienced during recent years, particularly in North America and
in Western Europe. Decorative coatings and wood finishes are forecast to grow as the
construction market rebounds. Industrial maintenance and protective coatings will
grow in response to infrastructure spending and the recovery in non-residential
construction spending. This will be particularly evident in the leading Western
economies. Industrial coatings will generally follow overall end use builds. Recovery
in the manufacturing sector is much more difficult to forecast. In general,
manufacturing growth is likely to be concentrated in the developing world.
1.9 LOOKING AHEAD
The global coatings market is a large and important part of the global economy and
has enjoyed significant growth over the past five years. At present, however, the
coatings market faces challenges as a result of the current economic conditions.
Decline in overall economic activity, construction spending and manufacturing output
have all had a negative impact on coatings demand. This downturn is likely to
continue to at least mid- to late-2009. Western economies, and thus coatings demand
in those regions, have been particularly hard hit as these economies have fallen into
full-blown recession. Once booming areas like China and India will still show
positive growth, but at a much lower rate than has been experienced of late.
Over the mid- to long-term, the forecast for the coatings industry is positive. The
coatings market will rebound as does the global economy. If the recovery occurs as is
currently predicted, the coatings market will approach $120 million by 2012. Growth,
however, will vary significantly from region to region and across the end-use
segments. In order to enjoy this predicted prosperity, companies must be able to
survive the short-term crisis by limiting exposure to the market downturn and by
positioning themselves to take advantage of the inevitable upturn.
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2.1 STATEMENT OF THE PROBLEM
The paint industry is one of the oldest industries in India; it is over hundred years old
.But despite that it has not reached a prominent position in the Indian industrial
scenario. In India Paints were considered a luxury item. Only people with high
incomes were expected to decorate their houses with the use of paints. Paints, as a
protective element, were totally unheard of. But rapid industrialization and
improvements in the infrastructure and Government‘s liberal policy gave impetus to
this sector till the recession gave it another hiccup.
2.2 OBJECTIVES OF THE STUDY
- To analyze the evolution of the paint and coatings industry.
- To compare the financial ratios of the leading and the lagging companies in the
industry.
- To find the impact of the global slowdown on the industry.
2.3 METHODOLOGY OF STUDY
The whole study can be termed as a desk research. Hence there is no field work and
collection of primary data for this research except for secondary information obtained
by the medium of internet, journals and magazines. The top 5 and the bottom 3
performers of the industry have been chosen on the basis of their sales in the previous
years.
2.4 SOURCES OF DATA
Only secondary data was collected from the internet, company websites, magazines
and various articles. Capitaline databases have been the main source of information
for company analysis.
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3.1 HISTORY
The earliest paint factory in India dates back to 1902, when Shalimar Paints, Colour &
Varnish Company, A Pinchin Johnson unit, was established at Calcutta. Growing
Industrialization, expansion of the railways and introduction of electric power a
couple of years earlier had all kept business confidence soaring high. However, this
did not provide a ready and expanding market for the nascent paint industry then.
Imports from Britain continued to swarm the market and raw materials were not easy
to come by. The industry still consisting of one lone unit went through a rather
prolonged period of infancy, till the World War II brought in dramatic opportunities.
With the stoppage of imports owing to war conditions, the domestic market at last
became almost the exclusive reserve of the domestic industry. European
manufacturers, hitherto exporting to India, readily saw the advantages of setting up
manufacturing facilities here. The period between the wars thus saw the greatest ever
influx of foreign paint companies into India- Goodlass Wall (1918),Elephant Oil Mills
(1917) in Bombay, and British Paints, Jenson & Nicholson and Macfarlances in
Calcutta. Macfarlanes was brought over by the Poddars and became a completely
Indian company, while the other three: Shalimar Paints (Pinchin Johnson), British
Paints and Jenson Nicholson continued as British operated units.
While talking about the post independent development of the Paint industry in India,
mention must be made of Asian Paints, a completely Indian unit which started on a
very small scale, grew so big and so beyond recognition over the years that it is today
not only the largest unit in India but way ahead of the second largest, Kansai
(Goodlass) Nerolac Paints Ltd., formerly a unit of Goodlass Wall (UK).Besides Asian
Paints, numerous factories, wholly Indian in ownership and with rare exceptions in
technology as well were set up in Calcutta, Kanpur and Bombay. The British units,
though a few in number, were technically strong and financially sound and, with the
active support and patronage of the Government, controlled a vastly higher share
of the market. The post independence period witnessed a steady growth in the paint
industry. From a mere Rs.200 million turnover in 1950, the paint industry crossed the
Rs.14000 million marks in 1990-91.
But even in this period, paints were considered a luxury item. Only people with high
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incomes were expected to decorate their houses with the use of paints. Paints, as a
protective element, were totally unheard of. The industrial segment, which was
traditionally a low user of paints, vis-à-vis its counterparts in the decorative segment,
too contributed to this notion. In line with this misconceived notion, the government
drastically increased duties on paints in the early nineties with an aim to bolster
exchequer revenues. The result was obvious. This inevitably brought about a
downturn in the fortunes of the industry. The products, which are highly price elastic,
saw a negative growth rate of 20 % in 1991-92. The next year was also not good,
registering a growth of only 2%, bringing it back to the 1990-91 level, thus
corroborating the fact that the industry needed lower excise levels to grow. The
industrial slowdown during that period also did not help matters. In line with the
liberalized policies and the realization that paints are not necessarily a luxury item,
duties were progressively reduced from 1993-94.This squared growth as most
companies passed on duty reductions. Further, the entry of world majors in the
automobile and white goods market in India since 1993 helped the market to expand.
Demand for auto paints shot up suddenly. Form a modest 8% growth rate in 1993-94,
paint demand touched 12% in 1995-96.
Rapid industrialization and improvements in the infrastructure such as transport,
energy and communication during the last decade gave a further fillip to the growth of
the paint industry. Aided by Government‘s liberal policy of technology import, the
automotive and consumer durable segments expanded phenomenally, with a flurry of
foreign collaboration. Increased demand for decorative, protective and functional
coatings was a natural fall out, which brought, in its stride, a host of indigenous
developments as well as the injection of new technology.
3.2 OVERVIEW
The Indian paint industry has been growing at an average rate of 13% over the last
five years. However, the per capita paint consumption in India is only 1.2-1.4 litres.
The industry is less than half the size of the Chinese market by volume and about one
fifth of the U.S. market by volume. Even Sri Lanka and Pakistan have higher per
capita paint consumption.
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India‘s market is dominated by the decorative paint and coatings segment.
Architectural coatings largely used in households constitute almost three-fourths of
the market‘s value. The other large segments are automotive OEM paints, automotive
refinish paints, protective coatings and powder coatings.
There are many players in the Indian paint market. The top four companies—Asian
Paints, Berger, Kansai Nerolac and ICI (India)—constitute more than 5.5% of the
Indian domestic market. In addition to these, there are more than one thousand other
companies in both the organized and unorganized sectors. The unorganized sector
itself constitutes 25-30% of the market.
A number of foreign players have subsidiaries in India including: Jotun (powder,
marine and decorative); Akzo-Nobel (powder, protective and automotive refinish);
Nippon Paints (decorative); Choguku (marine); DuPont (automotive refinish); and
Becker (coil coatings). Others like Sherwin Williams are in the process of entering
India. As a result, all the leading international players in the decorative, automotive
OEM and automotive refinish paint markets will be operating in India.
India also imports a small volume of specialty wood finishes including polyester and
polyurethane water-based coatings, and special effect emulsions. The Indian paint
market has the potential to grow over the next decade at 15-20% per annum as the
current per capita consumption is much lower than other developing countries and
less than half of China.
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The low per capita paint consumption until recently can be linked to the large number
of kuccha (temporary), and semi-pucca homes (semi-temporary), low purchasing
power, the small size of homes, the long repainting cycle, and use of chuna (lime
powder) and French polish (paint substitutes).
3.3 INDIA – A UNIQUE MARKET
The Indian market is in many ways different from other markets. Some features
unique to the Indian markets include the following.
India has a large number of paint shops or outlets, more than 50,000. Unlike in most
of the developed world, there are a large number of small paint and hardware shops
that cater to the local population. There are no company owned outlets or large retail
formats for the DIYer. However this is beginning to change as some have been in
operation as of 2007.The distribution policy of Indian paint companies to directly
cater to most of these more than 25,000 shops is unlike other industries where
companies operate through distributors. Each company has a large number of depots
to service these outlets and a large sales force for this purpose.
A large number of shops have automated/manual dealer tinting systems. There are
more than 20,000 in operation, probably the highest for any country. In contrast, there
are only approximately 7,000 tinting systems in China for a market two and half times
India‘s size.
The high volumes of low cost distempers sold in India, which amounts to
approximately 200,000 tons per annum at an average cost of Rs35 per kg ($0.88) at
the present rate. This is significantly lower priced than anything sold elsewhere in the
world. The high percentage of solvent-based alkyd enamels sold in India. These have
been largely replaced by water-based systems across the developed world.
Lastly, the absence of the DIY market, which constitutes between 25-50% of the
decorative markets in the West, is not present in India. Indians depend on the skilled
painter largely on account of lower labour costs, greater necessary surface preparation
and an inherent laziness among the Indian consumer when it comes to painting. Hence
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the range of products sold and the manner in which they are sold and used are very
different in India.
3.4 INDUSTRY CHARACTERSTICS
Four Major Players control 50% of the market share
The demand for paints is relatively price elastic but is linked to the industrial and
economical growth
Pricing power – The four major players have successfully raised average prices
over the last 3 years without losing market share.
The industry majors have a vast dealership network and are required to maintain
high inventory levels.
Global Strategic tie-up take place in technology and R&D
Paint industry is characterized by low capacity utilisation as most of the companies
get the work done on job work basis. This is because of the longer processing time
required in the paint industry when paint is manufactured in smaller batches the
production falls. Most of the plants operate at 50% capacity with the exception of
Berger paints which manages a capacity utilisation of around 70%. The main reason
for this is that it has strong presence in the premium enamel and emulsion segment
and does not switch between decorative and industrial paint like the other
manufactures.
There is tremendous potential for the paints manufacturers in India because as against
an average per capita consumption of paints in India is very less. Economic
liberalisation is attracting international giants like BASF Germany, Curtlauds UK and
Jotun Norway. Jotun has announced plans to set up a powder coating plant, while
International Paints UK intends to set up marine paints plants. Since decorative paints
are a consumer product Sales are price elastic any change in the government policy on
the excise duty has a direct bearing on the sales. Over the last 4 years, the
government has reduced the excise duty from a peak of 40% to current 20%.
The entire benefit of the duty reduction has been passed to the consumer which has
not only enabled this segment to come out of the recession but also enabled the
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organised sector to increase its market share at the expanse of organised sector. The
share of organised sector has increased from 20% to 25% as a result of reduction in
excise duty.
Distribution channel plays an important role in the industry. Awareness and
perception of specific brand is more important than the corporate brand equity. Asian
Paints, the market leader has around 16,000 dealers in its network which are spread
across the country. Goodlass Nerolac comes second with around 9,000 dealers.
3.5 DEMAND DRIVERS FOR THE PAINT INDUSTRY
Increase In Per Capita Consumption Of Paints
The per capita consumption of paints in developed countries is around 15-25 kgs and
world average is around15 kgs. Comparing this with domestic consumption, India‘s
contribution to world paint markets is 0.6% with per capita consumption of around
800-900 gms. Based on the expenditure in the construction activity and increase in the
repaint activity coupled with industrial growth, the industry is expected to increase at
an 11.85% CAGR over next three years.
Increase In Real Estate Investments
The demand for decorative paints is directly related to the increase in the investment
in the real estate thus increasing the cement area. Out of the total demand for
decorative paints, around 30-40% of the demand comes from the fresh construction
(Source: CrisInfac). The size of real estate industry is estimated to grow to Rs. 18,517
Bn, over next five years period (Source: CrisInfac). Investment in real estate will be
primarily led by housing, which is expected to account for nearly 90% of total
investment in the sector (Source: Cris-Infac). India‘s robust economic growth and
resultant increase in income are speeding up the pace of urbanization. In India, about
three fourth (3/4) of real estate development is for residential use and balance one
fourth (1/4) is predominantly for commercial use.
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Housing investments (permanent, non-slum houses) are expected to grow at a TAGR
of 12% over the next 5 years period.
On other hand, repainting activity which accounts for 70% of the decorative paint
demand is also increasing, mainly due to increase in per capita income. The demand
from the repainting activity has increased by 6-7 percent in last two year. Based on
the expected investment in the housing, demand for paint is expected to increase at a
CAGR of 12 percent over the next 5 years (source: CRISINFAC).
Increase in Industrial Paints
The industrial paint segment is divided into automotive industrial paints and non-
automotive industrial paints. Increase in income levels of the consumers contributes
towards the growth in the auto-segment and growth in the industrial segments like
power, road and infrastructure leads to growth in the non-automotive segment. Along
with these, growing needs for consumer durables and export opportunity for auto
ancillaries will also contribute towards the growth of industrial paints.
Increase in Per Capita Income
The above mentioned increase in demand for paints is backed well by increase in per
capita income.
Due to increase in disposable income, Indian consumer is expected to shift from lime
wash to paints and those already consuming paints would move up the value chain.
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On other hand, the increasing capacity would also drive automotive and consumer
durable, thereby increasing the consumption of industrial paints.
Prices In Line With Substitute Product
Large scale operations and technical know-how have helped prices of paints to come
down. They are now in line with those of substitute products like lime wash,
distemper etc., manufactured by local players. This gives consumers the incentive to
shift from lime to paints.
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3.6 SUPPLY SIDE
The major players that control the organized sector are shown in the diagram shown
in the next page. The dynamics that control the supply side scenario are:
Distribution
In case of industrial paints, distribution network doesn‘t play an important role,
whereas the situation is totally different in case of the decorative paints. India being a
wide and scattered market having a large distribution network it becomes a prime
requirement for any company in decorative paints business.
Outsourcing
The organized players in the decorative paint segment have to compete directly with
those in the unorganized sector manufacturing low cost paints like distemper and
enamels. In-order to face this competition organize players outsource small part of
their production (25-30%).
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Import Scenario
Indian climatic conditions are not conducive for foreign formulations and
modification cost in product formulation is quite high. As a result, imports are no
threat to the Indian players. In case of industrial paints, most of the major players in
the industry already have a tie-up with global players, for 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 last 8 years.
3.7 COST STRUCTURE
The paint industry is raw material intensive industry. It takes around 300 different raw
materials to make paint, most of which are petroleum based. These raw materials can
be divided into three broad categories as shown in the chart below:
Titanium Dioxide (TiO2) is the largest consumed raw material for manufacture of
paints. It constitutes around 30% of the total manufacturing cost. TiO2 is available in
two grade i.e. rutile (imported and mainly used by the Indian paint industry) and
anatase (manufactured domestically).Besides TiO2, there are other petroleum based
raw materials which constitute around 40-50% of total raw material consumed. Hence
any movement in crude oil prices will impact the profitability of the company.
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3.8 MANUFACTURING PROCESS
3.9 RAW MATERIALS SECTOR
The coatings industry in general has about &0% of its total cost factor on account of
its raw material inputs. The Indian coatings industry is essentially dominated by the
multinationals, both with their manufacturing presence in India, as well as through
imports. About 30% of the raw materials consumed by the Indian coatings industry
are fulfilled by imports. The reliance of the industrial segment is considerably higher
with about 40% of the raw material inputs being imported while for the decorative
segment the figure is about 25%.
The paint industry is a raw material - intensive one with over 300 inputs going into
the manufacturing process. Half of these are petro based. The raw materials for paints
may be classified into 5 segments---pigments, solvents, binders, additives and white
cement/urea and account for roughly 50% of total cost. Hence the industry's profits
are sensitive to international price rises. When the international prices of
petrochemical products comes down, the paints companies benefit and vice versa.
With raw material prices and tariffs expected to come down in the next few years the
organised sector's operating profit and margins should go up substantially.
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Most companies are hit by the fact that they do not make the raw material themselves.
PAN which is manufactured from Ortyhoxylene and which goes into the production
of paints with titanium dioxide is only manufactured by Asian paints. The other paint
majors import their stock. Since PAN prices generally outpace international
orthoxylene prices by almost 50% paint Companies end up paying huge price or when
the price rise. For instance in Aug 1994 when the price of Ortyhoxylene shot up form
Rs 24/ Kg to Rs 35 per Kg, the Pan prices surged from Rs 38/Kg, to Rs77/Kg. Major
raw materials used in the paint production are:
Pigments account for nearly one third of the total cost of paint production.
Pigments are finely ground solids of different shades which are used to give colour,
consistency, durability and other properties to the paint. Titanium dioxide (TiO2) is a
vital pigment is available in two grades: anatase and rutile. Of which the former is
used in interiors while the latter is preferred for exteriors. The present demand for
anatase grade Tio2 is estimated to be around 12,000 Tonnes per annum and this is
expected to grow at 8% per annum while that of rutile grade is estimated to be around
50,000 TPA and this is expected to grow at 10% p.a. The paint industry presently
imports Tio2 in excess of Rs 1.30 billion and this figure may go close to Rs 2 billion
by the turns of the century.
Solvents: are volatile organic compounds (VOC) used to dissolve, suspend or
change the physical properties of other materials. They are generally used to bring
down the viscosity of paints to the desired level which also reduces the cost of paint
formulation. Solvents constitute 70% to 75% of the paint liquid and ultimately escape
into the atmosphere when the fluid dries. Solvents such as ethylene glycol and
alcohols are finding wider use as co-solvents in new water borne formulations.
Binders: are generally oils, resins and plasticisers that give painting its protective
property. Most resin manufacturers make alkyds, polyesters, emulsion polymers,
epoxy resins, amino resins etc.
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Additives: are added in small proportions to the paint to improve its performance
characteristics in various ways. Skinning inhibitors, fungicides, wetting agents, driers
etc are included in this category.
Carbon Black: The total installed capacity of carbon black in India of about 350
tpa marginally exceeds the demand of about 320 tpa. The major players in India are
Philips Carbon Black the market leader in India, and Indian Rayon and Cabot
Corporation. Degussa is the other significant player in this segment. The Indian
Carbon black industry is characterised by strategic alliances between global giants
and local Indian Players.
3.10 MARKET STRUCTURE
The size of the paints market in India is estimated at Rs 110 bn, with the contribution
of the organised and unorganised segments in the ratio of 65:35. Reduction of excise
duties over the last few years, from 40% to the present level of 14%, has helped create
a level playing field between the unorganised and the organised segments, as the
former is not subject to excise duty. As the unorganised sector loses its competitive
edge, it is also losing market share to the organised sector players.
In view of the low per capita annual consumption of paints in India (0.5 kg, compared
to 4 kg in South East Asian countries, 22 kg in developed countries and a global
average of 15 kg), the domestic paints industry has tremendous potential
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The Paint industry is working-capital intensive, rather than fixed-asset intensive. As
in consumer non-durables, distribution strengths and brand building are of paramount
importance.
3.11 PRODUCT CULTURE
Most companies have an identical range of products for the decorative-paint market.
In the industrial segment, the range of products 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 application or in
categories like water-based and solvent-based. Moreover, most companies have been
advertising their products in the exterior emulsions category, which has expanded the
market and triggered a shift from cement paint. While solvent-based enamels are still
popular in India, outside India there is a clear shift visible from solvent- to water-
based glossy enamels. India will take some time before this change is accepted on
account of three hurdles currently faced including cost (water-based is expensive),
low level of gloss in water-based enamels and the psychological barrier that water-
based coatings cannot be superior to solvent-based coatings for protecting wood or
metal surfaces.
Composition of the Indian Paint Industry
55%
45%Organised
Unorganised
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3.12 MARKET SEGMENTS
On product lines, paints can be differentiated into decorative or architectural paints
and industrial paints. While the former caters to the housing sector, the automotive
segment is a major consumer of the latter.
3.13 DECORATIVE PAINTS
Decorative paints can further be classified into premium, medium and distemper
segments. Premium decorative paints are acrylic emulsions used mostly in the metros.
The medium range consists of enamels, popular in smaller cities and towns.
Distempers are economy products demanded in the suburban and rural markets.
Nearly 20 per cent of all decorative paints sold in India are distempers and it is here
that the unorganised sector has dominance.
Indian Paint Industry:Products
Decorative
70%
Industrial
30%
Decorative
Industrial
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FEATURES
Caters to the housing sector
Premium decorative paints are acrylic emulsions used most in the metros. The
medium range consists of enamels, popular in smaller cities and towns.
Distempers are economy products demanded in the suburban and rural markets.
Distribution Network is the key. A strong distribution network acts as an entry
barrier.
Nearly 20% of all decorative paints sold are distempers
Brand equity, a wide range of shades, distribution strength and efficient working
capital management are key success factors in the decorative paints segment
Within the decorative segment, enamel is the largest sub-segment, accounting for
over 50%, followed by wall finishes, primers and wood finishes.
The season for decorative paints is from October to March, a period characterized
by festivals like Diwali, and the summer, when painting is normally carried out.
Composition of Paints in the Decorative
Sector
50%
19%
17%
12% 2%
ENAMELS DISTEMPER
EMULSIONS EXTERIOR COATING
WOOD FINISH
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MARKET TRENDS
Over the last few years, there have been a significant number of new trends in the
decorative coatings market.
Premium products have seen significant growth and it has been much higher than
economy products. The sale of premium and luxury emulsions, high-end exterior
finishes and wood finishes like polyesters and polyurethanes reflect a change in usage
patterns of Indian customers who are willing to spend more on superior products. This
phenomenon is seen across markets, in larger cities as well as smaller towns. There is
a continuous demand from consumers for newer and better products. Although a
major part of the market continues to be highly price-sensitive.
There has been a higher growth of emulsion paints for interiors vis-à-vis distempers.
There is an increasing use of economy emulsion in place of lower priced distempers.
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 colours.
India‘s market has also seen a higher growth of exterior emulsions. Over the last ten
years, exterior emulsions have gradually replaced cement paints largely on account of
longer life, better looks and ease of usage. This trend is expected to continue with
economy exterior emulsions replacing cement paints. The higher-grade cement paints
have been largely replaced by emulsions and it is but a matter of time before cement
paints on the exteriors cease to be an easily accepted option. Increased advertising by
all leading paint companies has educated consumers and made them aware of better
exterior products.
The higher growth of dark shades vis-à-vis whites and pastels is a sign of changing
décor styles and a willingness to experiment fuelled by examples shown by
Bollywood—India‘s Film Industry—and television serials. This is coupled with easy
availability of dark/accent shades, which has in turn increased the usage of dark
shades in homes and commercial establishments across India.
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The increased involvement of the consumer in home décor has fuelled the growth of
bright and dark shades as one-wall themes or borders. Consumers today are not just
open to change but look for change and search for options or themes which differ
from past experiences.
Painting and décor services are on the rise also. In 1999, Asian Paints in India
launched a paint service called Home Solutions based on consumer research, which
gave homeowners across many Indian cities the option of having their homes painted
by Asian Paints. Although out-sourced, the company supervised and took full
responsibility for the service delivered. The company promised to deliver quality
service in a fixed time frame and the painting was given a one-year warranty. Today a
few other paint companies have launched similar services.
Theme walls have also become a popular element of the Indian decorative coatings
market. Led by Kid‘s World and Wall Fashions from Asian Paints and Disney from
Kansai Nerolac, more consumers are looking at painting as a décor item in itself and
are willing to spend a little more to get something extra.
Special effects continue to gain in popularity too. Today many paint companies are
offering effect finishes. Products from Jotun, Oikos, ICI‘s Duette and Inspira,
Kansai‘s Impressions, Berger‘s Illusions and Asian Paints‘ Royale Play provide the
consumer many more options than simply painting his wall with a simple colour.
Today there are a wide range of options from metallic to stucco, ragging and combing
which provide consumers newer finishes and effects for their homes.
The Indian paint market is poised to grow at a steady rate over the next decade fuelled
largely by a growing economy and changing consumer attitudes. Paint marketers have
to continually meet the needs of the changing Indian consumer and regularly provide
him with newer products and services to meet his requirements.
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TECHNOLOGICAL TRENDS
While water based systems for decorative segment are rapidly growing in market
share, particularly in the construction segment in the urban areas, the alkyd enamels
find large use in the rural areas. The last few years have seen the rapid emergence of
the water borne technology in the Indian Architectural Coatings industry. This has
been fuelled by increasing demands for consumer friendly coating and also the ever
improving quality of construction, calling for the better quality of coating systems as
well. However the mandating of migration to water borne systems has not yet been
experienced due to lack of any solvent emission directives or VOC regulations akin to
those in the developed countries. The share of water borne coatings for the
architectural segment is projected to grow at a much faster rate and is expected to
constitute about 60% of the decorative coatings in India within the next three years.
MARKET SHARE
Asian paint is the market leader in the decorative segment with a market share of
37%.
The leader in the high volume medium and mass segments of decorative paints, Asian
Paints has been consolidating its market leadership over the last six years and now has
Market Share
37%
16%14%
11%
6%4%
12%Asian Paints
Nerolac Paints
Berger Paints
ICI Paints
Jenson and Nicholson
Shalimar Paints
Others
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the biggest slice of 37 per cent of the market for decorative paints in the organized
sector as shown on the previous page. Trailing behind are Goodlass Nerolac and
Berger Paints with market shares of 13 per cent and 11 per cent respectively. Other
major players from the organized sector include Jenson & Nicholson with a low 6
percent and ICI with 8 per cent. With the exception of Asian Paints, the market shares
of most of the major players have been stagnating over the last few years. This was
primarily due to extensive focus on urban markets and neglecting the high-potential
semi urban and rural markets.
3.14 INDUSTRIAL SEGMENT
In terms of volume, though the industrial paints segment has made significant gains, it
still trails behind decorative paints. As against the Decorative segment, the share of
the unorganized sector in industrial paints is limited to roughly 35 per cent. This is
because technology is the overriding factor in this segment and industrial paints
require constant up gradation and servicing. In contrast to the decorative paint
business, tapping the industrial paint segment is not by brand-building or establishing
a distribution network but through getting the right foreign partner (for technology)
and captive customers. While decorative paint manufacturers need to offer variety and
have a wide reach to stay ahead of competition, industrial paint producers need to be
competitive in terms of technology and service.
Industrial paints comprise automotive paints, high performance coating, marine
paints, powder coatings and coil coatings. Goodlass Nerolac is the market leader in
this segment. The user industries are automobiles, engineering and consumer
durables. The industrial coating segment in India has grown by 15% over the year and
companies like Asian Paints have registered a growth of 48% for the same period.
Automotive paints constitute a large share of industrial paints market which requires
high quality standards, supplier reliability and ability to offer complete coating
systems they are used for giving high quality finish to automobiles. High performance
coatings are applied in plants for fertilizers, petrochemicals and offshore oil and
40 | P a g e
atomic energy installations where anticorrosion is very important.
Powder coatings (water-based) are free of solvent and are used in consumer goods
like washing machines, refrigerators etc. Marine paints are used for painting ships and
vessels to make them water resistant and corrosion free.
Half of the Industrial paints produced in the country are Automotive paints and close
to one third is the high Performance Coating. Automotive sector is a high growth
sector with a number of new entrants like Mercedes Benz, Mitsubishi, Daewoo,
Hyundai, Honda, and Fiat. However, recently there is some slackness in Auto
demand. Two-wheeler markets are booming due to demand from large India middle
class. In the Powder Coatings sector, there is high growth due to increase in sales of
white goods and auto ancillaries. Similarly, in the High Performance Coating sector,
there is a steady growth due to higher investments in Refinery Segment and power
sector, especially Thermal and Nuclear It is a high growth sector with a number of
new entrants like Mercedes Benz, Mitsubishi, Daewoo, Hyundai, Honda, Fiat,
General Motors, and Ford. However, recently there is some slackness in Auto
demands. Two wheeler markets were booming due to demand from large Indian
Industrial Paints :Revenue distribution
4% 4% 5%8%
37%2%
31%
8% 1%
Marine coil
refinishes powder coatings
protective/high performance OEM -railway
OEM-general industrial OEM-automotive
Other
41 | P a g e
middle class. Goodlass and Asian Paints are the leading OEM players and ICI leading
player in the replacement market.
MARKET SHARE
GNPL dominates the industrial paints segment with 43 per cent market share. It has a
lion's share of 70 per cent in the OEM passenger car segment, 40 per cent share of
two wheeler OEM market and 20 per cent of commercial vehicle OEM market. It
supplies 70 per cent of the paint requirement of Maruti, India's largest passenger car
manufacturer, besides supplying to other customers like Telco, Toyota, Hindustan
Motors, Hero Honda, TVS-Suzuki, Mahindra & Mahindra, Ashok Leyland, Ford
India, PAL Peugeot and Bajaj Auto. GNPL also controls 20 per cent of the consumer
durables segment with clients like Whirlpool and Godrej GE. The company is also
venturing into new areas like painting of plastic, coil coatings and cans. APIL, the
leader in decorative paints, ranks a poor second after Goodlass Nerolac in the
industrial segment with a 15 per cent market share. But with its joint venture Asian-
PPG Industries, the company is aggressively targeting the automobile sector. It has
now emerged as a 100 per cent OEM supplier to Daewoo, Hyundai, Ford and General
Motors and is all set to ride on the automobile boom. Berger and ICI are the other
players in the sector with 10 per cent and 9 per cent shares respectively. Shalimar too,
has an 8 per cent share.
Industrial Segment:Market Share
43%
14%14%
8%
8%8% 5%
GoodlassNerolac
paints
Asian Paints
Berger
ICI
Jenson n Nicholson
Shalimar
Others
42 | P a g e
3.15 SWOT ANALYSIS
Strengths:
Besides a large basket of indigenous raw materials, India has strong manufacturing
base and strong marketing /distribution network to reach out to the geographically
distributed industry. It also has human resources to support this industry. Also its
strong engineering base for machinery and packaging material are playing an
important role in its development. It also has entry barriers for new entrants as
consumers give a lot of importance to brand image.
Weaknesses:
The level of technical knowledge is an extremely poor and there is poor global
distribution of experts. Except few top leaders almost all of the paint companies are
using old techniques to produce paint. The taxation n systems are also retrograde
compared to global standards. Infrastructure in India is a main constraint.
Opportunities:
There is huge potential in the industrial segment because as compared to other nations
in India 30% segment is for industrial paints where as in other nations it is almost
50%. This presents a huge opportunity the paint industry to develop this segment and
also the growth in industrial sector will help in boost demand as well. Besides this the
fiscal incentives provided by the government also present an opportunity to be
capitalized. It can also capitalize as a commodity in the ever growing FMCG sector.
Threats:
Lack of infrastructure development is a main constraint. Also Dependence on
petroleum based products with lack of development in water based systems is a huge
threat to Indian paint industry. Volatility of crude oil prices and skewed import
policies are making things more difficult for this industry.
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3.16 PORTERS FIVE FORCES
Bargaining Power of Customer:
The bargaining power of customers is low, as there are only few major players in
the organized sector. The selection of paint is mostly done by architects and
contractors who decide on behalf of the customer, this means that a lot depend
upon the amount of commission given by the supplier to these contactors.
However, the bargaining power is of the consumers is high during repainting
which makes up 60-70 percent of the market, as the decision is in the hands of the
consumer. But in this case the choice of texture shades etc precedes over price and
most players offer wide variety of shades and textures. In the rural segment the
customer is more price sensitive and goes in for cheaper options .Even there the
bargaining power is low as paint companies offer a large no of distempers which
are economical
44 | P a g e
In case of the industrial customer the bargaining power is significant, owing to
their large demand especially by the automotive sector.
Bargaining Power of Suppliers
High power with Suppliers:
The two major raw materials used in paint industry include titanium dioxide and
Pthalic Anhydride. Titanium Dioxide is an important raw material and its short
supply will spell doom for the industry. This gives more power to the supplier
while negotiating the prices. Also its rutile form has to be imported this also adds
to the raw material cost.
Some of the materials are based on crude oil. The volatility in its prices affects the
paint industry adversely.
Threat of new entrants
Local Players:
There are a large number of players in the unorganized sector, and this is
indicative of the low capital required to enter the market and acts as an incentive
for new players to enter. Further, the reduction in excise duty from 40% to 16%
for import of raw material has reduced the price advantage which the small units
in unorganized sector had making them unviable. This has helped the organized
paint Industry, as it has lead to a lot of consolidation in the form of mergers and
acquisitions can be seen. E.g. Kamdhenu the construction steel maker has entered
the decorative paint segment with their brand Color dreamz. There is also very
little interference by the government.
The technology constraints besides developing and maintaining a strong
distribution network are some of the primary problems faced by the paint industry.
Other than these factors which are critical to the success of the business it also has
to face the challenge of high working capital requirements.
45 | P a g e
Foreign players:
Per capita consumption of paint in India is low at 0.5 kgs compared to global average
of 15 kgs and average of 22 kgs in East Asia. Moreover, the scope of growth in
industrial paint segment is high given the division of industrial versus decorative
paints is 30:70 in India compare to the global segmentation of 50:50. This is attracting
many foreign players also there is minimal government intervention in this industry.
E.g. Sherwill Williams, Nippon, Du-Pont etc.
Threat of Substitutes:
Lime wash (chunna): The high price elasticity in the paint industry leads to high
risk of customer shifting to cheaper products like Lime wash, which is
conventionally used in the rural markets.
Wallpaper: Although the use of wallpaper is not very extensive in India it can be
a growing threat to the decorative segment especially the luxury market.
46 | P a g e
Competitive Rivalry
The organized sector has 4-5 major players who hold a major share of the market.
Since this sector is makes up 55 percent of the total industry the competition is not
very fierce as there is room for everyone. Though it is likely to get more intense with
the entry of foreign and local players due to low govt interference .This is also likely
lead to an increase in mergers and acquisitions and more consolidation.
Product differentiation is an important parameter for success in this industry. One
major point of differentiation is the shade and at present players like Asian paints has
more than 50,000 shades, and same is the case with Nerolac and other players. Thus
by providing the customers in the decorative market with more choice, they are able
to penetrate into the market. To be competitive, players are offering services which
make the painting work easier for the customers. E.g. Asian Paints gives a sample of
200ml for customers to try the paint, if they like it they can go for mass purchase in
case they like it. The paint retail shops are computerized and they can show the
customer the mixing of shades, they can plan the entire painting activity. Beside these
some players also offer painting services like the Asian Paints Home Solutions – a
professional painting service.
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4.1 ASIAN PAINTS
'The Asian Oil & Paint Company' was started in the year 1945 and now the Asian
Paints is 10th largest decorative paint company in the world. By the way of producing
Decorative Paints and Industrial Coatings, the company pioneered in the segment
from inception of its business. Asian Paints operates in five regions across the world
viz. South Asia, South East Asia, South Pacific, Middle East and Caribbean Region
through the four corporate brands viz. Asian Paints, Berger International, SCIB Paints
and Apco Coatings. Also presents in 22 countries with 27 manufacturing locations,
over 2500 SKU's, Integrated SAP, ERP & i2 and SCM solution.
Asian Paints mascot, Gattu, the mischievous kid was born in the year 1954. The name
was changed to Asian Paints (India) Private Limited in the year 1965. The Company
was converted into a public limited company in the year 1973. A major modernization
programme was undertaken to streamline the paint production facilities by improving
the layout of machines, addition to balancing equipment and replacement of old
machinery during the year 1974 to meet the demand. During the year 1985, The
Company had set up a third paint unit at Patancheru, a notified backward area near
Hyderabad, for the manufacture of 15,000 MT of paints and enamels and also in the
same year entered into a collaboration agreement with Nippon Paints Company
Limited, Japan, to obtain technical know-how to manufacture powder coating and coil
coatings. Asian Paints commissioned a plant for the manufacture of synthetic rubbers
lattices with a capacity of 1,200 tonnes per annum in the year of 1987. In the identical
year of 1987, the company jointly with Tamil Nadu Industrial Development
Corporation (TIDCO) promoted a joint sector company under the name of Pentasia
Chemicals Ltd. (PCL).
In the year 1990, the company had promoted Asian Paints (South Pacific) Ltd., in Fiji
and Asian Paints (Tonga) Ltd are two joint venture sets up in abroad with the
Company supplying the necessary know-how. Both these are the Company's
subsidiaries. Apart from this, also the company had formulated two more joint
ventures in the same year of 1990 under the names and styles of Asian Paints (Nepal)
Pvt. Ltd and Asian Paints (S.I.) Ltd. The Company acquired 19,10,000 equity shares
48 | P a g e
of Rs 10 each in the share capital of Pentasia Chemicals Ltd from TIDCO in May of
the year 1991. As an upshot, PCL became a subsidiary of the company.
Manufacturing facilities for the powder coatings with a capacity of 300 MT were
installed and commissioned at Kasna plant during 1992-93 and in the year 1993, the
company had set up a joint venture unit along with its overseas subsidiaries, in
Queens land, Australia for manufacture of paints, enamels and varnishes. Pentasia
Chemicals Ltd was merged with the company. The assets and liabilities of the
erstwhile PCL are vested with the company with effect from 1.10.1994. Asian Paints
had sets up a joint venture unit during the year 1995 for the manufacture of paints,
enamels and varnishes in the Republic of Mauritius. The joint venture involved a total
cost of 1, 83, 00,000 Mauritius Rupees. Out of this 49% financed by the company and
the remaining balance from Mauritian parties.
A joint venture company namely Asian PPG Industries Pvt. Ltd was set up during the
year 1996 along with PPG Industries, Inc. of USA to market and/or manufacture
automotive paints and certain Industrial products. The Company had introduced three
new products, NC range of wood finishes, ACE Exterior Emulsion and Asian wall
putty in the year 1998 and also in the same year launched a new marketing thrust with
the introduction of a one-stop Colour shop for paints complete with a software for
consumers to choose and select their different shade combinations. The company
opened its first exclusive showroom in Mumbai. In its first-ever acquisition overseas,
the company had acquired a 76 % of equity stake in Sri Lanka-based Delmege
Forsyth & Co (Paints) Ltd during the year 1999. APL had launched two variants in
polyurethane (PU) wood finish under the brand name Opal in the year 2000 and in the
same year opened a manufacturing plant in Oman in partnership with a local
company. Also the company had acquired the entire paints business of Pacific Paints
Company based in Australia in the year 2000 for over of Rs 1 crore. For the festive
season in the year 2001, the company had introduced Utsav Enamel.
In 2002, APL revamped its international operations and transferred shares in its
subsidiaries in Fiji, Tonga, Solomon Island, Vanuata, Australia and the Sultanate of
Oman to the Mauritius based subsidiary Asian Paints International. During the same
year 2002, the company had acquired controlling stake of 50.1 per cent in Berger
49 | P a g e
International, Singapore, for the consideration of Rs 58 crore. In 2003, Asian Paints,
via its Singapore-based subsidiary - Berger International - inks a technology and
brand licensing agreement with PT Abadi Coatings Solusi, an Indonesian paint
company and also in the year, acquired Taubmans Paints (Fiji) Ltd through its
subsidiary in Fiji, Asian Paints (South Pacific) Ltd (APSP). Asian Paints amongst the
leading Indian companies in Corporate Governance ranked by The Asset, one of
Asia's leading financial magazines in the year 2002. During 2003-04, Pentasia
Investments Ltd (wholly owned subsidiary of the company) was merged with the
company. In 2004, the company had launched paint solutions for kids. In January of
the year 2005, Asian Paints new paint plant at Sriperumbudur, in Tamil Nadu was
commenced its production. Berger International made a partnership with Filipino firm
Dutch Boy during the year 2005. During the year 2006, the company had
commissioned a manufacturing facility for powder coatings at Baddi, Himachal
Pradesh. The Company was ranked 24th amongst the top paint companies in the
world by Coatings World - Top Companies Report 2006. In September of the year
2007, Asian paints tailored its first exclusive industrial coatings manufacturing
facility at Taloja in Maharashtra; it covers 12 acres of land and has an installed
capacity of 14,000 KL per annum in the first phase. The Company performed
'Bhoomi Pooja' (ground breaking ceremony) at the site of its proposed state-of-the-art
paint plant with initial production capacity of 1.5 lakh KL at the Industrial Model
Township (IMT), Rohtak of Haryana in June 22nd of the year 2008.
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KEY FINANCIAL RATIOS:
YEAR 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
Key Ratios
Debt-
Equity
Ratio 0.13 0.16 0.15 0.14 0.17 0.24 0.41 0.52 0.59 0.73
Current
Ratio 1.15 1.22 1.14 1.08 1.07 1.14 1.26 1.34 1.36 1.32
Turnover Ratios
Fixed
Assets
Ratio 4.68 4.38 3.87 3.46 3.21 3.07 2.91 3.01 3.05 3.16
Inventory
Ratio 8.39 8.63 8.23 8.71 9.82 10.39 9.36 7.92 7.73 6.9
Debtors
Ratio 16.74 16.06 16.77 16.47 16.09 15.95 13.8 14.64 16.1 14.04
Interest
Cover
Ratio 42.84 35.57 42.32 42.22 27.57 18.94 13.44 8.05 8.05 5.52
SOURCE: CAPITALINE DATABASE
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KEY RATIOS:
Debt- Equity Ratio
This is a measure of financial leverage and also measure of capital gearing. From the
above table we can easily make out that from 1999 to 2008 the company gradually
decreased the debt-equity ratio. It shows the company does not want to depend on
external debt and the company is very cautious regarding financial risk.
Current Ratio
The current ratio is a measure of the firm‘s short term solvency .If we can see from
the table, there are lots of fluctuations regarding current ratio. The ratio continued to
decrease from year 2000 to 2004 where again we can see the increase till 2007. For
2008, the current ratio is 1.15. Here the current ratio is greater than one, which means
that current assets are greater than current liabilities. This is healthy to the company,
but still the company has to manage these fluctuations and increase the liquidity of
cash.
Inventory Turnover
This ratio shows the efficiency in inventory management. This shows the number of
times a company‘s inventory is turned into sales. For the industry as a whole this ratio
52 | P a g e
is 7.5 and for this company it is 8.39. From this we can clearly see that it is very close
to the industry standards. In the last ten years it is relatively constant so we can say
that the company‘s inventory management is satisfactory.
Debtors Turn Over
This ratio shows the number of times each year the debtors turn into cash. Generally
the higher the Debtor Turnover Ratio, the more efficient is the management of credit.
Asian paints debtors turnover ratio is approximately 15.5 in an average. In 2008 the
debtor‘s turnover ratio of Asian paints was 16.74. The debtors turnover ratio of Asian
paints is high when compared to industry standards (10.01). It shows the company‘s
efficiency in management of debts.
Interest Cover Ratio
The interest coverage ratio shows the number of times the interest charges are covered
by funds that are ordinarily available for their payment. A higher ratio is desirable but
it also shows that company is very conservative in using debt. If we see the debt
equity ratio it shows that company is decreasing debt portion in their capital. This is
the reason why the company‘s interest cover ratio is increasing steeply. In 2008 it
stood at 42.84 .The Company has managed to improve its interest coverage ratio
considerably over a period of 8 years. This also shows that the company is
conservative in using debt
ROCE
ROCE is the measure of the firm‘s operating performance it indicates the firms
earning power. From the above mentioned data we can easily come to a conclusion
that the company has shown a tremendous improvement over the last eight years. In
1999 the returns on capital employed was 25.28 and at present it is 60.92.
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RONW
RONW is return on net worth it is also called ROE that is return on equity. It is used
to calculate to see the profitability of owner‘s investment. From the above data of
Asian paints we can see that the RONW is showing an increasing trend. It shows the
growth of the company (in terms of profits). In 2008 the RONW of the company
stood at 44.86 well above the industry average of 21.16.
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4.2 KANSAI NEROLAC
Goodlass Nerolac Paints Ltd. (GNPL), the Indian subsidiary of Japan based Kansai
Paint Co. Ltd, is the second largest paint company in India with presence in
decorative paints as well as industrial paints & marine paints, enamels, varnishes,
coatings, resins etc. It is the second largest coating company in India. The company
markets its products under the brand names Nerolac, Glossolite, Goody, Allscapes,
Excel, in decorative. The Company was established in 1920 as Gahagan Paints and
Varnish Co. Ltd. at Lower Parel in Bombay. In 1930, three British companies merged
to formulate Lead Industries Group Ltd. In 1933, Lead Industries Group Ltd. acquired
entire share capital of Gahagan Paints in 1933 and thus, Goodlass Wall (India) Ltd.
was born.
Subsequently, by 1946, Goodlass Wall (India) Ltd. was known as Goodlass Wall Pvt.
Ltd. In 1957, Goodlass Wall Pvt. Ltd. grew popular as Goodlass Nerolac Paints (Pvt.)
Ltd. Also, it went public in the same year and established itself as Goodlass Nerolac
Paints Ltd. It came into the fold of Tata Forbes Group in 1976, as its foreign holdings
were acquired by Forbes Gokak. It turned into Joint Venture Company in 1986 as the
foreign collaborator Japan based Kansai Paints picking 36% of equity capital of the
company. With the acquisition of entire stake of Forbes Gokak and its associates by
Kansai Paints it became the subsidiary of the latter in 1999. The stake of Kansai
Paints in the company now stood at 64.52% of the total equity of the company. The
company has five manufacturing facilities at Kanpur, Ratnagiri, Ahmadabad,
Perungudi, and Rewari spread across India. The Company serves its customers
through 66 Sales locations and five strategically located factories.
Technical Assistance Agreements of the company with renowned players in paint
industry at international level puts the company in a strong position to offer products
which meets stringent international specifications. It started in 1993 when the
company tied-up with Kansai Paints of Japan (for manufacture of sophisticated
architectural Coatings) and Nihon Tokushu Torya Co. Ltd also of Japan (for body seal
and under seal coatings). And the latest being the technical assistance agreement with
DuPont Performance Coatings GmbH & Co. KG, Germany for know-how of
manufacture of Anodic Electro-deposition Coatings System during the year 2000-01.
55 | P a g e
The company's other Technical Assistance agreements include E.I. DuPont De
Nemours & Co. Inc. of USA for automotive coatings; Oshima Kogyo Company Ltd.,
of Japan for heat resistant paints; Valspar Corporation of US for powder coatings;
Drew Chemicals Corporation of US for water and fuel treatment chemicals and
Ameron Inc. USA for high performance coatings.
The company has strong presence in automotive paints as it controls 45% of the
organised Industrial paint segment. Its major clients include OEMs like Maruti
Udyog, Bajaj Auto, TELCO and Mahindra & Mahindra. It was a pioneer in
introducing electro-deposition (ED) technology for Maruti, capturing a sizeable share
of the automotive paint market. The company has two wholly owned subsidiaries
namely Saurashtra Paints and GNP (Madras). The above subsidiary companies were
amalgamated with the company from April, 2002 with consent approval from both the
state‘s High courts.
It has the software package, computerised colour dispensing machine from Fluid
Management Holland, Gyro shaker of 10-Litre capacity touch screen monitor, 136
column palette-share display units and a Kirloskar Champion UPS 1 KVA. The
system has an ability to supply over 1305 shades accurately, consistently and instantly
in several products covering a variety of application viz. doors, windows, walls,
exteriors, gates, grills etc. During 2001-02, the company has entered into a technical
agreement with EFTEC Shroff (India) Ltd. for the manufacture and supply of
Automotive Paint Shop Sealers and under body Compounds.
The Company is in the process of setting up a new manufacturing unit at Bawal,
Haryana at an estimated cost of Rs.100 crores with an annual capacity of 20000 MT
p.a. The above project is being financed through internal accruals. During 2004-05 the
company has setup a new Greenfield plant, with a capacity of 20400 MT, at Bawal,
district Rewari of Haryana and this was commissioned on 19th March 2005.
During 2003-04, the capacity at the Jainpur was increased by 24% for water based
paints, by setting a new facility. Consequent to the approval of the High Court of
Madras and Bombay the amalgamation of Chemguard Coatings Ltd with the company
was completed on 1st September 2005.
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During 2005-2006, the company made an investment in a Malaysian Company, a joint
venture company between the company and Kansai Paint Co Ltd., Japan (Kansai),
where the company will hold 55% stake and 45% Stake by Kansai. Further the
Malaysian company has entered into an agreement to acquire the paint business of
Sime Coatings Sdn.Bhd., Malaysian and this is subject to approval. During the same
period the companies Production capacity of Paints Varnishes and enamels has
increased from 138400 MT to 153900 MT. The capacity of Synthetic Resins stood at
36250 MT and Capacity of Pre-treatment Chemicals stood at 2400 MT.
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KEY FINANCIAL RATIOS
Mar
08
Mar
07
Mar
06
Mar
05
Mar
04
Mar
03
Mar
02
Mar
01
Mar
00
Key Ratios
Debt-
Equity
Ratio
0.19 0.24 0.27 0.27 0.29 0.32 0.38 0.37 0.37
Current
Ratio
2.03 1.92 1.49 1.39 1.55 1.70 1.87 1.94 1.93
Turnover Ratios
Fixed
Assets
3.57 3.81 3.78 4.02 4.14 4.04 4.20 4.90 5.49
Inventory 9.12 8.27 8.37 9.58 8.89 8.46 7.38 7.04 7.46
Debtors 7.92 8.76 9.86 9.82 7.91 6.96 7.04 7.50 8.07
Interest
Cover
Ratio
121.84 168.67 186.44 179.26 68.24 34.59 10.99 6.19 6.23
SOURCE: CAPITALINE DATABASE
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Debt Equity Ratio
We can see that the ratio has been gradually decreasing over the years indicating the
decreasing share of outside creditors contribution in the firm‘s financing and
increasing share of owners‘ (shareholders‘) contribution. A high proportion of equity
provides a larger margin of safety. From the shareholders point of view, a low
financial leverage is a disadvantage.
Current Ratio
In case of Nerolac, the ratio was decreasing from 2000 to 2005, indicating decreasing
ability of firm to meet their short-term financial obligations towards creditors.
However, the ratio started increasing from 2006 to 2008, indicating increase in current
assets, thereby increasing the firm‘s ability to meet short-term liabilities/obligations.
Inventory Turn Over
The above table shows an increasing trend in the inventory turnover ratio. It is also a
sign of efficient inventory management. In 2008, it was 9.12, which is more than the
industry standards and also other companies like Asian paints.
Debtors Turn Over
In case of Nerolac, the ratio is slightly higher than the industry standards (10.01) but
in 2005 and 2006 the ratio was 9.82 and 9.86 respectively which was satisfactory. But
again in 2007 and 2008 the ratio was 8.76 and 7.92 respectively. Overall, it can be
said that there is not a very huge gap between the company‘s ratios as against the
industry standards.
Interest Cover Ratio
This is a measure of protection available to creditors for payment of interest charges
by the company. We can see that the firm was relying heavily on debt from 2000 to
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2002. Then, from 2003 to 2006, the ratio kept increasing, indicating a satisfactory
cover provided for the interest payments, which in turn, indicated a higher margin of
safety.
ROCE
Initially in 1999 it had a low ROCE of 19.69 and it steadily improved and came up to
31.40 in 2006(31.40) It further increased in 2004(28.39) and 2005(37.01) . In 2007
and 2008, it came down but, it has never fallen below the industry average.
RONW
Return on net worth shows the profitability of the owner‘s investment. In
2005(31.26), the profitability was high but it decreased in 2006, 2007 and
2008(21.70).
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4.3 BERGER PAINTS
Berger Paints India Ltd is the third largest paint manufacturer and the second largest
decorative paint player in India. They are offering their customers a variety of
innovative painting solutions, decorative or industrial. The company is headquartered
in Calcutta and service the market through a distribution network comprising of 75
stock points and above 12,000 paint retailers. They are having their manufacturing
facilities in West Bengal, Uttar Pradesh, Pondicherry, Goa, and Jammu & Kashmir.
The Company has Technical License Agreements with DuPont Performance Coatings
in the area of automotive coatings, Nippon Paint Co Ltd for new generation of
automotive coatings, Orica Australia Pty Ltd In the area of protective coatings,
TIGERWERK Lack-u.Farbenfabrik GmbH & C. KG, Austria for specialized powder
coatings and Nippon Bee Chemical Co Ltd for coating on plastic auto parts and
mobile phones.
The company was incorporated on December 17, 1923 as Hadfield's (India) Ltd in
Kolkata. In December 12, 1947, British Paints Holdings acquired the company and
the name was changed into British Paints India Ltd. In the year 1965, British Paints
(Holdings) Limited, UK was acquired by Celanese Corporation, USA. As a result, the
controlling interest of the Company passed on to CELEURO NV, Holland. In the year
1969, Celanese Corporation sold their interest in the Indian company to Berger,
Jenson Nicholson Limited, UK. In December 1983, the company name was changed
to Berger Paints India Ltd.
From 1983 till date, the company has solely used and developed the name and
trademark of Berger and all their other variants in India. The company launched
Colour Bank tinting system through which the consumer can select form a range of
over 5000 colours and which are then made available in minutes. In the year 1997, a
new paint manufacturing unit at Pondicherry was commissioned. In the year 1999,
Rajdoot Paints Ltd was merged with the company.
In the year 2000, the company acquired 100% share in Jenson & Nicholson Nepal
Pvt. Ltd which was wholly owned subsidiary of Jenson & Nicholson India Ltd and
renamed Berger Jenson & Nicholson, Nepal. During the year 2001-02, the Motors &
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Industrial paints business of ICI India was acquired through their subsidiary, Berger
Auto & Industrial Coatings Limited. During the year 2003-04, a new unit in Jammu
started commercial production. Also, the company entered into a joint venture with
Principal Financial Group USA, Punjab National Bank and Vijay Bank for Pension
Fund and Insurance Business.
Berger Auto & Industrial Coatings Ltd, a wholly owned subsidiary company
amalgamated with the company with effect from April 1, 2004 and operates as
BAICL Division of the company. The company invested in Berger Cyprus, a
company incorporated in Cyprus on February 3, 2005 for the purpose of setting up a
paint manufacturing facility in Russia. During the year 2005-06, the company started
the commercial production at their new 2400 MTPA powder coating plant in Jammu.
In April 2007, the Jammu Resin plant of the Company with a capacity of 9,000
MTPA has commenced their production. The Company has entered into a Joint
Venture Agreement with Nippon Bee Chemical Co Ltd, Japan for the purpose of
formation of a company for manufacture and sale of coatings for plastic substrates
used in automobiles and parts thereof in India. Berger Paints Overseas Ltd in Russia
has commenced commercial production in September 2007 at their modern plant in
the Republic of Adygeya, with alkyd based and water based paints.
The company expanded the capacity in the Goa solvent based paint to 18000 KL per
annum. The company is in the process of setting up an automobile paint
manufacturing plant with a combined capacity of 24000 MTPA at Jejuri Industrial
Estate in Pune. The Company has started preliminary work for expansion of water
based paint and resin manufacturing capacity in their existing plant at Rishra in West
Bengal and installation of a resin manufacturing plant in Goa.
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KEY FINANCIAL RATIOS
Mar
08
Mar
07
Mar
06
Mar
05
Mar
04
Mar
03
Mar
02
Mar
01
Mar
00
Key Ratios
Debt-
Equity
Ratio
0.38 0.31 0.25 0.26 0.22 0.36 0.57 0.61 0.62
Current
Ratio
1.40 1.33 1.34 1.59 1.85 1.69 1.56 1.60 1.67
Turnover Ratios
Fixed
Assets
5.88 5.65 5.42 5.63 5.52 5.32 5.26 5.81 6.22
Inventory 5.84 5.85 6.09 6.80 7.14 6.61 5.96 5.41 4.99
Debtors 10.08 10.45 11.50 12.31 11.74 11.34 10.25 9.72 9.00
Interest
Cover
Ratio
10.29 11.10 14.95 17.53 20.62 8.83 5.04 4.69 4.20
SOURCE: CAPITALINE DATABASE
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RATIO ANALYSIS
Source: Capitaline Database
Debt Equity Ratio
The above table shows that the company is highly dependent on debt, which indicates
a high level of interest obligations. The company‘s debt-equity ratio has been stable
over the past 6 years.
Current Ratio
The current ratio represents the margin of safety. As per the ‗rule of thumb‘, a current
ratio of 2:1 is considered satisfactory. This ratio was constantly on the rise from 2000
to 2005, being the highest in 2004. This indicates that the current assets are sufficient
to meet the obligations of the company. But, the ratio slightly started coming down
from 2006 to 2008, indicating a decline in the current assets of the company.
Inventory Turnover
Berger‘s inventory turnover ratio in 2008 is 5.84, which is lesser than the industry
turnover ratio (7.5). In 2004 and 2005 this ratio was near 7 Therefore, the company
has to adopt a more efficient inventory management policy.
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Debtors Turn Over
Berger with 10.08 is slightly higher than the industry standards (10.01) and is lower
than that of Asian paints (16.74). This again shows the company‘s efficiency.
Interest Cover Ratio
From the table, we can see that the ratio had hit an all time low during the period from
2000 to 2003, indicating the firm‘s excessive usage of debt indicating huge payments
of interest to the lenders. The ratio increased from 8.83 in 2003 to 20.62 in 2004
indicating an increase in the debts of the company. But the ratio has again come down
to 10.29 in 2008.
ROCE
Change in consumers‘ behaviour from time to time and a drastic change in the
economic conditions was one of the important reason for the increase in Berger‘s
ROCE. Since the last 5 years it has shown a great improvement and it is moved ahead
of industry average. In 2008 it had an ROCE 30.65.
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RONW
Return on net worth is reasonable and quiet stable and good in case of Berger. It is
always maintained a good average compared to industry average. But now in 2007 it
decreased a little that is by 4%.
.
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4.4 ICI INDIA
ICI India Ltd manufactures and markets paints and speciality chemicals. Their
manufacturing activities in India commenced in 1939 with the setting up of Alkali and
Chemical Corporation of India Ltd in Rishra, West Bengal. In the year 1954, as the
result of an agreement with the Government of India, the set up Indian Explosives Ltd
in Gomia. Chemical and Fibres of India Ltd came up in Thane in 1963, manufacturing
polyester staple fibre.
The company began their fertilizer manufacturing operations in Panki near Kanpur in
the year 1969. This was the largest private sector investment in fertilizers in India.
The company established ICI Research and Technology Centre in Thane in the year
1976 and a Crop Protection Chemicals and Pharmaceuticals unit came up in Ennore,
near Chennai in 1978.
In the year 1984, the ICI group companies in India were merged into one corporate
which is India's largest mergers of that time. In the year 1987, Nalco Chemicals India
Ltd was formed with Nalco Chemical Company USA and ICI India Ltd, each holding
40% of the equity.
In the year 1993, the company divested their seeds, fibbers and fertilizers businesses
and in the year 1995, agrochemicals business was transferred to a joint venture
company with Zeneca Ltd of UK. In the year 1996, the company established a joint
venture with The Ensign-Bickford Company of USA namely, Initiating Explosives
Systems India Ltd for the manufacture of Initiating Explosives Systems.
In the year 1997, the company commissioned paint plant and polyurethanes systems
house in Thane. They also commissioned the Uniqema Innovation Centre at Thane. In
the year 1998, the company exited form their joint ventures with Nalco Chemical
Company, USA and Zeneca, UK, as part of their continuing restructuring exercise. In
March 1998, the company commissioned the new state-of-art 20 million litres per
annum automotive refinish and decorative paint manufacturing facility at Mohali near
Chandigarh.
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During the year 1998-99, one of the company's division, Pharmaceuticals divested
some Animal Health brands to focus more strongly on their core areas of
Cardiovascular and Anaesthetics. In September 1999, the explosives business was
transferred to Indian Explosives Ltd, a joint venture between the company and Orica
Investments Pty Ltd, Australia.
During the year 2000-01, the Polyurethane business was sold to the Huntsman Group
of USA in line with their strategic objective. The company in association with Quest
International and Hindustan Lever Ltd formed a joint venture to make and sell
fragrances, flavours and food ingredients. In May 2001, the company transferred the
Motors and Industrial Paints business to a Joint Venture with Berger Paints India Ltd,
from which they exited in the year 2002.
In the year 2002, the Pharmaceuticals business of the company was divested to
Nicholas Piramal India Ltd and catalyst business divested to Johnson Matthey Group.
The company divested their 51% shareholding in Indian Explosives Ltd and thus
Indian Explosives Ltd and Initiating Explosives System India Ltd ceased to be the
company's subsidiaries with effect from November 6, 2003.
During the year 2003-04, the company launched Duette, a premium interior emulsion
paint with a two-tone finish in select market. In March 2004, the Nitrocellulose and
Trading businesses were divested to Nitrex Chemicals India Pvt. Ltd in which the
company holds a minority stake.
During the year 2004-05, the company launched two premium products namely Water
Shield Max and Tile Shield in the paint segment. Also, they commissioned a new
polymer plant during the year. In December 2005, the Rubber Chemicals business
was transferred to a subsidiary of PMC Group International, USA. The company
acquired the remaining shares in their subsidiary Quest International India Ltd in two
lots from the other shareholders, making it a wholly owned subsidiary company since
October 2006. In November 2006, they sold their 100% equity shareholding in Quest
International Ltd to Givaudan (India) Pvt. Ltd. In December 2006, the company
acquired controlling interest in Polyinks Ltd, Hyderabad, which manufactures Hot
Melt Adhesives. In March 2007, the Advanced Refinish Paints Business (2K) was
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divested to an affiliate of PPG Industries, USA. Also, Uniqema business was divested
to Croda Group of UK during the financial year.
During the year 2007-08, the company launched low cost Acrylic Distemper, Primer
and Putty in the pain segment. They entered into a contract with Henkel CAC Pvt.
Ltd, an affiliate of the Henkel Group, to divest their Adhesives business. AkzoNobel
NV, Netherlands has become the owner of the entire equity capital of Imperial
Chemical Industries, UK with effect from January 2, 2008, through a scheme of
arrangement. Consequently, the company became an AkzoNobel company.
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KEY FINANCIAL RATIOS
Key Ratios 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
Debt-Equity
Ratio 0 0 0.01 0.03 0.02 0.03 0.08 0.12 0.32 0.56
Long Term
Debt-Equity
Ratio 0 0 0 0 0 0.03 0.08 0.11 0.23 0.32
Current Ratio 0.81 0.84 0.9 0.8 0.75 0.83 1.2 1.45 1.34 1.24
Turnover Ratios
Inventory
Ratio 9.04 8.62 8.55 7.55 7.63 7.49 7.47 8.13 2.5 2.39
Debtors Ratio 8.62 7.91 9.13 8.32 9.1 8.69 7.93 7.58 7.82 7.23
Interest Cover
Ratio 31.65
46.25
23.15
18.96
11.93
12.08
8.41
6.41
3.82
3.11
Source: Capitaline Database
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RATIO ANALYSIS
Debt Equity Ratios
In 2000 the company‘s debt-equity ratio was 1.91 and from the above table we can
see that the company decreased its debt-equity ratio. It is very good sign for the
creditors. We can say that this company is a risk averse. It is a good sign in recession
time.
Current Ratio:
Current ratio is crude and quick measure of the firm‘s liquidity. As per the table
company‘s current ratio has been less than 1 it shows the liquidity problem in the
company. The company should increase its current ratio or else it will face working
capital constraints. So the company should concentrate to maintain its current ratio in
the range of 1 to 2.
Inventory Turnover:
This shows the number of times a company‘s inventory is turned into sales. If we see
the table, there exists a constant increase in this Inventory Turnover Ratio. The
increased inventory turnover is a sign of increase of efficiency in inventory
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management. The company has been successful in reducing the time taken in
converting its inventory into sales, which is a good sign.
Debtors Turn Over
We can infer from the data that the average debtors turnover ratio is approximately
8.5%. It‘s maintaining a decent rate of debtor‘s turnover ratio. The ratio has
improved a lot compared to what it was 1999 .In 2008 the ratio stands at 8.62 which is
not very near to the industry standard that is 10.01.
Interest Cover Ratio
This ratio measures the debt-servicing capacity of the firm so far as fixed interest on
long-term loans is concerned. In 1999 it was 3.11 and it has gone up to 31.65 in a time
span of 9 years.
ROCE
Return on capital employed is a very important ratio to be analyzed. ICI never showed
a steady improvement it always kept on fluctuating in last ten years as you can see in
the above table. There debt-equity ratio is very less which in turn affects the ROCE
(profitability). The degree of financial leverage is less.
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RONW
It signifies the return on shareholder equity .In 2008 it stood at 7.39 and it is no
where in tune with the industry average which is 21.16.
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4.5 SHALIMAR PAINTS
Shalimar Paints Ltd., a company primarily incorporated by British entrepreneurs
under the name Shalimar Paint Colour & Varnish Company in 1902 to take over the
business of 'The Shalimar Works', a company which manufactures paints, colour and
varnish from its factory at Shalimar and Goabaria in Bengal. It is having plants in
Howrah (West Bengal), Nasik (Maharashtra) and Sikandrabad, Dist.Bulandsahar
(Uttar Pradesh).
Courtalds Coatings, UK was the holding company and it holds majority shareholding
through its subsidiary International Paint Company, UK. It became a private limited
company in 1956 and later on in 1961; it was converted into a public limited
company. The company acquired its present name in 1963.
Courtalds slowly started disinvesting since 1978 and finally in 1989, it fully
disinvested its stake and maintained only its technical and marketing collaboration
with the Indian company till 1994. The Courtald's stake was acquired by G
Jhunjhunwala; a Hong Kong based NRI (20%) and the Delhi-based O P Jindal group
(42%).
The company has three product segments - industrial, marine and architectural paint
segments. It also manufactures varnishes, resins, etc. The company has two
manufacturing units one at Howrah, West Bengal and the other at Nasik, Maharashtra.
90% of its raw materials are obtained from Kerala Mining and Materials (KMML).
The company diversified in 1993 into aviation coatings. It also launched a premium
range of wall finisher - Hussain Collections - in the decorative sector. It also entered
into a technical collaboration with Salchi, Italy to manufacture solvent borne
industrial paints. A joint venture company, Grace Shalimar (P) Ltd, has been formed
with W R Grace & Co, to produce 2000 tpa of packaging coatings for which a new
plant will be set up at Nasik.
In 1999-2000, the company introduced two new products, MELA, an acrylic
distemper and XTRA, a premium 100% acrylic exterior finish paint. In 2000-01, the
company has entered into a tie-up with Creanova, a world leader in colorants and in
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2001-02 the company launched colour tinting system business under the brand name
of Colour Space. Several new products including Roadcoat, Shaktiman were
introduced during 2001-02.
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KEY FINANCIAL RATIOS
YEAR 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
Key Ratios
Debt-Equity
Ratio 1.98 2.12 1.96 1.7 1.58 1.74 1.9 1.97 1.91 1.92
Current Ratio 1.14 1.18 1.18 1.17 1.23 1.36 1.51 1.7 1.81 1.71
Turnover Ratios
Fixed Assets
Ratio 6.54 6.27 5.83 5.66 5.21 5.36 5.46 6.05 6.65 6.6
Inventory Ratio 5.63 5.38 4.91 4.82 4.95 4.89 4.65 4.89 4.8 4.73
Debtors Ratio 4.79 5.1 5.42 5.81 5.34 5.24 5.12 5.35 5.6 5.43
Interest Cover
Ratio 3.3 2.52 2.71 2.72 3.01 1.63 1.61 1.21 1.4 1.3
SOURCE: CAPITALINE DATABASE
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RATIO ANALYSIS
Debt Equity Ratio
This Company is more dependent on external debt for their investment. In 2007 its
debt-equity ratio was 2.12 and they managed to reduce it to 1.98 in 2008. It is risky
because if the company‘s financial leverage is high even a slight sales decrease in
sales will affect profitability drastically.
Current Ratio
The current ratio is a measure of the firm‘s short term solvency. If you see from the
table, from 1999 to 2008 it has gradually decreased. In the year 2008 it is only 1.14
which means that current assets are marginally greater than current liability but it is
not ideal. So company needs to increase its current ratio to avoid a crunch in working
capital.
Inventory Turn Over
Shalimar‘s inventory turnover ratio in 2008 is 5.63 which is considerably lesser than
the industry average of 7.5.It should gradually try and increase its inventory
conversion period.
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Debtors Turn Over
We can clearly infer from the table given above that the debtors turnover ratio of
Shalimar paints is very low (4.79) compared to industry standards (10.01).But the
company‘s debtor‘s turnover ratio over the last ten years has been relatively constant.
The company should try and increase its turnover ratio for its betterment.
Interest Cover Ratio
The interest cover ratio of Shalimar paints is very low compared to Asian paints and
the industry average. This is a measure of protection available to creditors for
payment of interest charges by the company. This ratio is calculated to measure the
whether the company has sufficient funds to cover its interest. The current Interest
cover ratio is 3.3 which is very less when compared with industry averages. There has
been an improvement in the interest cover ratio when compared to 2008 .The interest
coverage ratio should be improved in order to improve the credit worthiness of the
company.
ROCE
Return on capital employed. It is the measure of firm‘s operating performance. The
ROCE of Shalimar was 12.67 in 1999 but it decreased to 6.35 in 2003.This was
mainly because there were some disputes relating to duty and increased competition
in the market .In 2008 it has increased to 22.85.
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RONW
It is return on shareholder‘s equity. In 1999 the RONW of the company was only 8.19
and in a span of 9 years it has gone up to an impressive 31.41.
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CORRELATION AND REGRESSION ANALYSIS
Year Sales
(Dependant
Variable)
Raw material
(Independent
Variable)
Selling O.H.
(Independent
Variable)
Mfg O.H.
(Independent
Variable)
latest 9606.76 4294.75 1632.31 862.92
2008 8950.49 3944.16 1544.72 821.15
2007 8122.64 3767.71 1335.94 745.98
2006 7094.46 3180.49 1084.46 733.8
2005 5916.19 2642.7 941.21 613.53
2004 5175.41 2214.6 868.36 515.14
2003 4872.74 2076.31 805.12 472.93
2002 4742.99 2029.39 773.27 398.41
2001 4633.81 2109.39 710.41 383.43
2000 4400.14 2065.95 639.5 375.83
1999 3713.91 1724.83 530.18 327.73
Source- capitaline.com
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REGRESSION
Variables Entered/Removed (b)
Model Variables Entered Variables Removed Method
1 Mfg overhead, Selling
overhead, Raw material . Enter
a) All requested variables entered.
b) Dependent Variable = Sales
Model Summary
Model R R Square
Adjusted R
Square
Std. Error of the
Estimate
1 1.000(a) .999 .999 62.10577
a) Predictors: (Constant), Mfg overhead, Selling overhead, Raw material
In the table given above the adjusted r square is .999.It indicates that the relationship
is significant.
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ANOVA (b)
Model
Sum of
Squares df Mean Square F Sig.
1 Regression 40443115.
458 3 13481038.486 3495.099 .000(a)
Residual 26999.887 7 3857.127
Total 40470115.
344 10
a) Predictors: (Constant), Mfg overhead, Selling overhead, Raw material
b) Dependent Variable: sales
Coefficients (a)
Mode
l
Un standardized
Coefficients
Standardized
Coefficients t Sig.
B
Std.
Error Beta
1 (Constant) 304.5
75 69.451 4.385 .003
raw
material 1.098 .129 .495 8.494 .000
selling
overhead 2.168 .303 .397 7.162 .000
Mfg
overhead 1.171 .420 .114 2.787 .027
a) Dependent Variable: sales
REGRESSION EQUATION
Sales = 304.575 + 1.098(R.M) + 2.168(Selling O.H.)+ 1.171(Mfg O.H.)
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INFERENCES
Here sales are considered as the dependent variable .The independent variables are
raw materials prices, selling and manufacturing overhead. From regression analysis
we can infer that even in the absence of raw material costs, selling overheads and
manufacturing overheads the sales will be Rs 304.575.There is a positive relationship
between sales (dependent variable) and raw material costs, manufacturing overheads
and selling overheads (independent variables) because the constant is positive.
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The Indian paint industry is witnessing buoyant demand growth on the back of rising
disposable incomes, booming real estate market and impressive growth in
construction activity. The paints sector is raw material intensive, with over 300 raw
materials (30% petro-based derivatives) involved in the manufacturing process. The
raw material costs amount to around 60% of the net sales.
On the margin front, the sector has benefited out of the appreciation in domestic
currency against the greenback, causing a substantial reduction in cost of imported
inputs. This in turn induced some of the players in the industry to reduce the prices of
select products to pass on the benefit to the customers.
The budget 2008-2009 has provided the following provisions, which will have an
impact on the industry:
General Excise Duty cut from 14% to 12%
The Abatement rate has been reduced from 40% to 35%
Excise duty on small cars reduced from 16% to 12%
Excise duty on hybrid motor vehicles is being reduced from 24% to 14%.
Excise duty on three-wheelers (for transport of not more than 7 persons, including
the driver) is being reduced from 16% to 12%.
Excise duty on Motorcycles (including mopeds and scooters) is being reduced
from 16% to 12%.
The exemption limit on personal income tax has been increased in the case of all
assesses, from Rs.110000 to Rs.150000, thus giving every assessee a relief at a
minimum of Rs.4000. In the case of women, the same has been increased from Rs
145000-Rs 180000.
Following an agreement between the Central Government and the State
Governments, the rate of Central Sales Tax was reduced from 4 per cent to 3 per
cent in this financial year. It is now proposed to reduce the rate to 2 per cent from
April 1, 2008. Consultations are underway on the compensation for losses, if any,
and once agreement is reached the new rate will be notified
Housing for the poor is one of the six elements of Bharat Nirman and is
implemented through the Indira Awas Yojana (IAY). Against a target of 60 lakh
houses, 41.13 lakh houses have been constructed up to December 2007 and the
cumulative number will be 51.77 lakh houses by end March 2008. Reflecting the
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higher cost of construction, the subsidy per unit in respect of new houses
sanctioned after April 1, 2008 will be increased from Rs.25,000 to Rs.35,000 in
plain areas and from Rs.27,500 to Rs.38,500 in hill/difficult areas. The subsidy for
up gradation of houses will be increased from Rs.12,500 per unit to Rs.15,000. A
beneficiary will still need own funds to complete the house. Public sector banks
will be advised to include IAY houses under the differential rate of interest (DRI)
scheme and lend up to Rs.20, 000 per unit at an interest rate of 4 per cent.
DUTY STRUCTURE
Source: Coatings World
KEY POSITIVES
Steady Growth
The Indian paint industry has very low consumption levels as compared to the
other developing economies. While the decorative segment is growing at 1% per
annum, the industrial paint segment (led by powder and protective coatings) is
also expected to record strong growth rates going forward.
A Mixed Bag
A robust housing sector is likely to boost demand in the decorative segment.
Long-term growth potential of the auto sector is also a big positive.
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Structural Shift
Continuous fall in excise duty in the past has benefited organized players and the
impending consolidation will add to the pricing power.
Capex Cycle Booster
With investment cycle showing signs of momentum, industrial paint demand
could grow at a much higher rate than the last five years.
KEY NEGATIVES
Raw Material Worries
Since the paint sector is highly raw material intensive, rise in crude and
petrochemical prices affects performance and the reliance is unlikely to reduce
going forward.
Monsoon Blues
The performance of the decorative division also hinges on rainfall. In the last six
years, the country has witnessed three years of poor rainfall, which has impacted
paint demand.
BUDGET IMPACT
Some gains accrue to the Paint sector, through cut in excise duty from 16% to 14%
(but the benefit restricted due to cut in abatement rates from 40% to 35%) and
reduction in CST. Also, the sector would benefit from invigorating the auto sector
through excise duty cuts (industrial paint segment), cut in personal income tax and
waiver of agriculture debt (decorative paint segment).
The Excise Duty on two wheelers and passenger three wheelers, and buses together
will boost demand in the industrial segment/ The provisions made in favour of
housing and construction will drive growth in the decorative segment and in return
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benefit the Paint industry. Moreover, overall consumption is set to improve with
change in Tax limits at the individuals' levels. On the flipside, corporate taxes remain
unchanged. The industry was expecting removal of surcharge on Corporate Tax.
OUTLOOK
The Indian Paint Industry is witnessing strong growth, thanks to healthy off take, both
in the decorative and industrial segment. Nevertheless, the sluggish trend in
automotive segment and deceleration in the industrial production together has resulted
in relatively lower growth in industrial segment and better growth in decorative
segment. Hence, the decision to cut excise duties in 2&4 wheeler segment in the
current budget is a welcome move and is likely to trigger increased growth in the
automotive segment. Moreover, Tata‘s Nano can bring in enormous demand growth
in the automotive segment, while huge investments planned in SEZs and surging
demand in capital goods segment can power industrial segment. Also, the decorative
segment demand is powered by rising housing construction, industrial construction
and huge investments in malls powered by increased popularity of organized retail.
The Government‘s move to provide increased thrust in the construction, housing and
infrastructure segments will further boost demand in the decorative segment, auguring
well for the paint industry. On the margin front, the sharp appreciation of rupee
coupled with sluggish price trends in inputs holds good for the industry. On the
whole, the Union Budget 2008-09 is a positive one for the paint industry.
BUDGET OVER THE YEARS
Union Budget 2004-2005
A sum of Rs 400 bn will be pooled in by a consortium of financial institutions to
provide finance for various infrastructural activities like power, ports, roads and
civil aviation.
Continuation in interest exemption on housing loans. Besides, income from
housing projects for the construction of residential units of prescribed
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specification and approved from local authorities is exempt from income tax. This
exemption is available for project that is approved upto March 31, 2005.
Allocation of Rs 22 bn to provide a subsidy upto Rs 10,000 and loan upto Rs
40,000 for the eligible households.
Dwelling units financed so far and National Housing Bank has offered to reduce
the rate of refinance by 25 basis points this year.
Union Budget 2005-2006
Construction of residential complexes having more than twelve residential houses
or apartments together with common areas and other appurtenances.
Exemption on tax deductible housing loan to continue.
Under the rural development programme, 6 m additional houses to be constructed
for the poor. Peak customs duty reduced from 20% to 15%
The new income tax brackets, the change in exemption and deductions available
to individuals and the increase in exemption for women.
IT to generate around 7 m jobs till 2009
Union Budget 2006-2007
Peak rate of customs duty reduced from 15% to 12.5%. Basic inorganic chemicals
reduced from 15% to 10%.
Excise duty is being reduced from 24% to 16% on small motor vehicles. Duty to
be reduced on major bulk plastics like PVC, LDPE and PP from 10% to 5%; on
naphtha for plastics to nil; on styrene, EDC and VCM which are raw materials for
plastics to 2%.
Emphasis on the Bharat Nirman project and its timely completion
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Union Budget 2007-2008
Hike in allocation for rural and urban housing infrastructure development.
Reduction in custom duty on chemicals from 12.5% to 7.5%
Dividend distribution tax to be hiked from 12.5% to 15%.
Additional education cess of 1% to fund secondary and higher education.
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6.1 INTRODUCTION
The Rs. 6,000 crore paints industry has been hit by the slowdown in the economy and
with the major user industries - housing, automobiles and white goods - having a dip
in performance; things have not been moving smooth.
The second quarter performance of the leading players reflects the situation. Asian
Paints India has posted a marginal drop in net profit at Rs. 29.62 crores in the quarter
ended September 30, 2001 against Rs. 30.46 crores in the corresponding period last
year on a net sales of Rs. 338.33 crores (Rs. 348.09 crores). Goodlass Nerolac Paints
(GNPL) recorded a net profit of Rs. 11.48 crores for the quarter ended September
2001 against Rs. 10.98 crores in the corresponding period of the previous year. Net
sales were up marginally at Rs. 158.89 crores (Rs. 155.74 crores). Berger Paints, the
other player in the industry, also reported virtually flat growth rates for the second
quarter ended September 2001 achieving a net profit of Rs. 7.45 crores (Rs. 7.52
crores) on a sales of Rs. 140.90 crores (Rs. 133.51 crores). Players have at best
maintained profitability levels on stagnant sales. The organized paint sector
constitutes about 65 per cent of the market and is expected to grow at 3-4 per cent in
the current full year. The per capita consumption of paint in India today is as low as
200 gm against 5 kg in the developed countries which illustrates the inherent potential
for the sector.
Paint makers have suffered 3-10% fall in sales (volume-wise) during the third quarter
of FY09 as against the same period of the previous year. However, most paint
companies have decided to put their expansion plans on hold till the situation looks
up. The focus is now on better inventory management, review working capital
requirements and production volumes.
Now let us examine the various companies in the Indian Paint industry and assess
how they have been affected by the economic slowdown.
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6.2 ASIAN PAINTS
From the graph given below it can be inferred that there was steady growth of sales
till the Q3 of the financial year 2008-09.But in Q3 there was a dip in sales (it went
down 1006.40) as a result of the onset of recession combined with volatility in the
general price level. The operating profit also fell in the third quarter. This was a result
of a steep increase in the prices of raw materials used in the paint industry including
crude oil .Due to recession there was a slump in demand for automobiles, which is a
major consumer of paints, leading to a slump in the gross profit in the third quarter.
The onset of recession is always felt in the real estate market and even in India the
real estate prices have also been falling steadily and currently there has been an
oversupply position in the market .This has lead to the decorative segment being
affected and Asian paints being a leader in this segment has suffered a major setback.
Parameters Dec ' 08 Sep ' 08 Jun ' 08 Mar ' 08
Sales 1,006.40 1,168.34 995.24 868.51
Operating Profit 79.52 179.80 143.68 132.45
Interest 2.56 3.00 2.26 1.28
Gross profit 94.32 194.47 157.37 142.37
EPS (Rs) 5.21 12.59 10.27 9.18
0
200
400
600
800
1000
1200
Sales Operating profit
Interest Gross profit EPS (Rs)
Asian Paints: Overall Review
Mar ' 08
Jun ' 08
Sep ' 08
Dec ' 08
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From the graph given above it can be clearly inferred that the Earnings Per Share has
come down considerably after Q3.This is because the profits in Q3 have not been
attractive .This is a bad sign and investors might reduce their investment in paint
industry shares.
Reasons for the Poor Performance in Q3
The main reasons for the poor performance of Asian Paints in the 3rd
quarter are:
Slowdown /onset of recession in India leading to consequences like
postponement of re-painting activity (75% of sales) at the bottom end of the
market and lull in the construction industry.
The de-stocking of trade inventory which was build in the system due to
successive price increases exceeding 15% in past few months
Sharp material cost pressures (gross margins decline of 520bp) during the
quarter. Titanium Dioxide (30% of raw material) has been up 25% YoY, and15%
up QoQ. In addition decline in crude prices had not started getting reflected in
lower prices of solvents and chemicals. Packaging costs had also increased
sharply due to spike in HDPE prices.
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6.3 SHALIMAR PAINTS
Parameters Dec ' 08 Sep ' 08 Jun ' 08 Mar ' 08
Sales 88.56 102.12 81.14 102.51
Operating profit 3.01 5.74 4.07 7.88
Interest 2.46 1.71 1.58 2.16
Gross profit 0.87 4.3 3.11 6.86
EPS (Rs) 0.11 6.15 3.96 11.42
The sales of Shalimar Paints have also dipped in the third quarter to 88.56. The
increase in sale in the March quarter can be attributed to the increase in prices of
paints. The operating profit also shows a pattern to that of sales. A dip in the last
quarter is observed due to the economic slump.
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The graph given in the previous page clearly shows that earning per share has clearly
dipped by the end of the 3 rd quarter. It came down to Rs 0.11 by the end of
December 2008.
Shalimar paints have also been affected by the slowdown and the increasing cost of
raw materials made things worse. Prices of titanium dioxide account for an
estimated16% of total raw material costs. While crude oil is not a direct input for
manufacturing titanium dioxide, most manufacturing facilities in the international
markets are crude based plants. As a result, a rise in crude prices results in a
commensurate rise in raw material costs. Since raw material costs account for almost
50% of sales, it could have significant impact margins and profitability.
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6.4 BERGER PAINTS
Parameters Mar ' 08 Jun ' 08 Sep ' 08 Dec ' 08
Sales 336.32 378.16 423.78 359.76
Operating profit 35.73 31.71 40.61 28.3
Interest 3.99 2.18 3.25 5.06
Gross profit 35.09 36.48 39.72 25.49
EPS (Rs) 0.75 0.73 0.91 0.47
Berger India reported a 35.65% dip in net profit to Rs 14.96 during the third quarter
to December 31, 2008 against Rs 23.25 crore in the earlier corresponding period.Net
sales during the period saw a marginal increase of 1.09% to 358.25 crore.
Berger India reported a 35.65% dip in net profit to Rs 14.96 during the third quarter
to December 31, 2008 against Rs 23.25 crore in the earlier corresponding period.Net
sales during the period saw a marginal increase of 1.09% to 358.25 crore.
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Sales for the first nine months of FY09 were up 15.17% to Rs 1157.6 crore from Rs
1005.1 crore in the corresponding period of the previous year. Net profit depicted a
marginal fall to Rs 67.27 crore for the first nine of FY09 months (Rs 68.15 crore).
As per the graph given above the EPS has gone down to Rs 0.47 in the third quarter.
Paints sector analysts feel the slowdown in the real estate sector that kicked off from
September 2008 has affected the profitability of Berger Paints in Q3 of FY09.The
slowdown has affected the decorative segment considerably as most people have
postponed repainting of their homes.
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6.5 KANSAI NEROLAC PAINT
Parameters Mar ' 08 Jun ' 08 Sep ' 08 Dec ' 08
Sales 308.41 354.34 390.56 316.59
Operating profit 40.51 44.73 45.38 34.54
Interest 0.35 0.39 0.55 0.54
Gross profit 44.14 51.48 48.82 39.15
EPS (Rs) 8.89 11.2 10.04 7.88
By looking at the graph presented above one can infer that the sales have fallen to a
low of Rs 316.59 in the third quarter. The operating profit has also dipped to
34.54.The Gross profit dipped to an all time low of 39.15 due to the ever increasing
raw material prices. The interest obligation has also risen moderately from Q1.The
graph given in the next page also indicates that the Earnings per Share have come
down considerably. The graph is indicative of the fluctuations in the earnings per
share throughout the year
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Reasons for the Poor Show in the Third Quarter
Subdued margins in automotive paints While the company's strong presence in
the automotive paint category is a positive, margin in this segment are lower. The
reasons are multi-fold. Firstly, the bargaining power of the company is on the
lower side. Auto majors tend to squeeze their OEM suppliers in order to safeguard
their own margins in a downturn. Volatility in raw material prices and maturity in
value-addition to OEMs have also played a part in limiting the scope for margin
expansion.
Prospects linked to monsoon and the economy: Paint sector is heavily reliant on
the festive season (usually October to December quarter), which in turn is led by
better agricultural and industrial sector. But this time around Diwali fell in the
second quarter leading to poor show in third quarter.
Raw material related pressure: The paints sector is raw material intensive, with
over 300 raw materials involved in the manufacturing process. Prices of titanium
dioxide account for an estimated16% of total raw material costs. While crude oil is
not a direct input for manufacturing titanium dioxide, most manufacturing facilities
in the international markets are crude based plants. As a result, a rise in crude
prices results in a commensurate rise in raw material costs. Since raw material
costs account for almost 50% of sales, it could have significant impact margins and
profitability.
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6.6 COMPARATIVE ANALYSIS
COST ANALYSIS
Raw Material Costs as a Percentage of Sales
Quarter
Asian
Paints
Kansai Nerolac
Paints Berger paints ICI
Mar'08 59.79 52.56 54.07 46.23
Jun'08 57.43 70.7 68.23 48.85
Sept'08 67.96 71.27 69.86 56.84
Dec'08 63.42 48.59 56.7 44.11
From the graph, we can infer that in the 2nd
quarter of the financial year 2008-2009
i.e. in the September quarter, the raw material costs as a percentage of sales have
increased drastically. This has been mainly caused by the increase in crude oil prices,
rise in titanium dioxide prices and increased labour costs. Prices of titanium dioxide
account for an estimated16% of total raw material costs. While crude oil is not a
direct input for manufacturing titanium dioxide, most manufacturing facilities in the
international markets are crude based plants. As a result, hike in crude oil prices in the
later part of the year 2008 resulted in a commensurate rise in raw material costs. Since
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raw material costs account for almost 50% of sales, it had a significant impact
margins and profitability.
SALES ANALYSIS
Quarter Asian Paints Kansai Nerolac
Paints
Berger paints Shalimar
Paints
Mar’08 865.51 316.59 359.76 102.51
Jun’08 995.24 390.56 423.78 81.14
Sep’08 1168.3 354.34 378.16 102.12
Dec’08 1006.40 308.41 336.32 88.56
From the graph given above it can be inferred that in the case of Asian paints the sales
has been rising steadily but it has been mainly been affected by the rising costs of
production. But even with Asian paints the sales has dipped in the 3rd
quarter to
1006.40.Kanai Nerolac has been the worst affected because its sales have dipped to an
all time low of 308.41.This is because of it‘s over dependency on the automotive
sector. The sales during the different quarters have gone down because of various
reasons like the global slowdown and rising inflation .This has affected the decorative
segment adversely because it has lead to stagnancy in the real estate sector and people
have postponed repainting of their homes. Moreover each industry in India like
automobiles etc have been affected and it has lead to a downward trend in the
industrial segment as well.
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6.7 STRATEGIES THAT CAN BE ADOPTED TO COUNTER
RECESSION
• Take decisive actions. A ―Do nothing‖ response to market upheaval and dramatic
downturns can be devastating for Paint Companies. Developing and implementing a
well thought out and sustainable strategy is essential for paint companies to getting
past the bad times.
• Reduce working capital requirements. Significant cash must be freed up by reducing
inventory and receivable levels. These untapped cash reserves can be accessed over
the near-term with usually little to no capital investment required by undertaking
initiatives involving optimizing the planning tools of management information
systems typically in place but under-utilized or poorly understood.
• Reduce operational costs. Streamlining the organization and improving business
process efficiencies will free up cash requirements. Once again, this usually results in
immediate cash flow improvements.
• Adapt to meet shifting customer needs. The pricing strategies, credit terms, product
mix and service offerings may need to change with them. Being prepared to show
customers that they can be flexible in these areas and that will help them during the
difficult times to gain much sought after customer loyalty.
• Improve credit worthiness. Use the above strategies to improve credit worthiness by
reducing debt and strengthening your balance sheet. Bankers are looking much harder
at these factors in today‘s economic environment. Good credit worthiness and a
strong balance sheet translate into a decisive competitive advantage in the
marketplace, especially during these difficult economic times.
• Seize upon game-changing opportunities. Be ready to identify and move on the
―right opportunities‖ such as geographic expansion, new industry sectors, new
products and acquisitions among others. These actions will address near-term revenue
shortfalls and help position your business to capitalize upon the upturn in the
economy when it arrives.
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6.8 LOOKING AHEAD
The organised decorative paints industry, which suffered a setback in the third quarter
of 2008-09 due to economic slowdown, is hoping to witness growth in February-
March 2009. A major reduction in paint prices, due to a dip in input costs, is expected
to emerge as a major growth driver for the paint companies in the next few months.
Prices of decorative paints have declined by 10-12% in the last three months and
some of the organised paint makers like Shalimar Paints feel that there may be
another round of price reduction by the end of this month.
Paint makers also feel that with home loan rates easing, the real estate sector will
witness some activity, which in turn will help the Rs 10,000-crore decorative paints
industry see some growth. Till September 2008, the paints industry was doing
significantly well. Dealers had built up their stocks in the anticipation that sales would
further pick up in October-December period. But on the contrary, economic
slowdown hit the country and the volumes went down. Berger Paints has witnessed 2-
3% drop in volumes in the third quarter of FY2009. But the situation is likely to
change in the February-March period when demand from north and western India
picks up. Paint makers have suffered 3-10% fall in sales (volume-wise) during the
third quarter of FY09 as against the same period of the previous year. However, most
paint companies have decided to put their expansion plans on hold till the situation
looks up. The focus is now on better inventory management, review working capital
requirements and production volumes. The players in the Indian Paint industry have
adopted a wait and watch policy. They feel that demand will surge from March
onwards and by June-July sales will pick up significantly. A cut in home loan rates
will give a fillip to the real estate sector, which is good for the paints industry. As of
now the Indian Paint industry is hoping for the best.
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7.0 KEY FINDINGS
Paint industry has been growing steadily over the years with the impetus given by the
liberal policy of the government till it was hit by the global economic slowdown and
volatility in raw material prices. Till September 2008, the paints industry was doing
significantly well. Dealers had built up their stocks in the anticipation that sales would
further pick up in October-December period. But on the contrary, economic
slowdown hit the country and the volumes went down. Berger Paints has witnessed 2-
3% drop in volumes in the third quarter of FY2009.Paint makers have suffered 3-10%
fall in sales (volume-wise) during the third quarter of FY09 as against the same period
of the previous year.
With the industry business becoming complex, most companies have restructured and
have used information technology as the key driver for reengineering. They have
aligned their organized structures on the basis of expanding business and its
complexities. This was essential in order to tighten controls. Today, companies have
divided their sales organizations into decorative, industrial and high performance
coatings business units. The national level organization structure is split into zones,
regions and branches.
Companies not working on operational efficiency business models have been losing.
Asian Paints and Goodlass Nerolac have been aggressively working on cutting
costs/operating expenses. Berger has been managing well with economical yet
acceptable formulations and low operating costs.
There is also an increase in technology collaboration with foreign players. Like
Berger has a joint venture with Becker Industrial. A lot of importance is being paid to
developing environment friendly products. Like Dulux has expanded its line of low-
VOC paints with two green coatings. Pro Premium is an interior wall and ceiling paint
for commercial applications where performance, coverage, durability, and touch-up
are important. Pro Standard is a cost-effective interior wall and trim paint. Both
products meet LEED indoor air quality standards, as well as the Master Painters
Institute Green Performance Standards.
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The consumer‘s perception towards paint is also changing. Earlier it was considered
to be a luxury .But that perception has slowly changed over the years .It has changed
from a commodity to an FMCG. This has mainly due to good advertising and good
product positioning. There is efficient brand building in the part of the paint
companies and communication can make or break your brand.
A lot of paint companies have started focusing on the rural segment as well. In a few
years we will see cut throat competition in the rural segment as well
The organized sector which occupies 65% of the total industry will expand as a result
of more foreign players entering the market. The industry is likely to see more of
Mergers and Acquisitions. The paint industry in India is still not an oligopoly. But in
future it is likely to materialise into one.
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SCOPE
In this report we have only analyzed the performance of top 5 companies and its
performance over a period of ten years. This report has just given a broad outlook on
the impact of recession on the Indian Paint Industry. But further research can be done
on the following topics:
Impact of the lull in the automobile segment on the Indian Paint Industry
Impact of the slowdown on the Decorative segment
Moving away from the impact of recession on the paint industry we can also analyze:
the reasons for the low per capita consumption of paints in India
the role of advertising in changing the perceptions of the consumers towards
paint
the growth potential of Paint Industry in India in light of the deflationary
trends in the economy
the potential of the rural segment
LIMITATIONS OF THE STUDY
The study was based on secondary data collected from magazines, newspapers, books,
blogs and websites were used. The report also contains analysis of the top 5
companies in India.
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REFERENCES
http://www.coatingsworld.com/articles/2007/07/2007-topcompanies-report.php
www.asianpaints.com
www.shalimarpaints.com
Capitaline Database
EBSCO Database
www.force10networks.com/company/customer_profiles/pdf/cp_AsianPaints.pdf
Article by Sutanuka Ghosal, Colourful Q4 likely for paint companies published on
5 Jan 2009, Economic Times.
Article by Sutanuka Ghosal, Leading paint makers likely to jack up prices
published on 14 May 2008, on Times Now News.
ACMIIL Research & Asian Paint Ltd. Annual Report FY07
http://www.researchandmarkets.com/reports/2391/
www.emeraldinsight.com/1741-0401.htm
Business Line Newspaper
http://www.valuenotes.com/AChugh/ac_shalimar_25sep06.pdf
http://www.shalimarpaints.com/images/pdf/Annexure%20-
%20II%20To%20Director's%20Reports_2006.pdf
SIP report on Kansai Nerolac – AG Nandakishore
www.nerolac.com/index.jsp?page=home
http://en.onccc.com/news/10100102/40410.html
www.akzonobel.com
ACMIIL Report on Paint Industry Published on 15 April 2008.
www.crisil.com
http://www.i2.com/assets/pdf/CSS_PRO_Asian_Paints_css6846.pdf
Wikipedia
Equitymaster
http://www.managementparadise.com/forums/archive/index.php/t-72869.html
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ANNEXURE 1
FORMULAE OF RATIOS
The formulae of ratios used in comparative analysis of top five and bottom five
companies are:
1.) DEBT-EQUITY
A measure of a company's financial leverage calculated by dividing total
liabilities by stockholders' equity of the company. It indicates what proportion of
equity and debt the company is using to finance its assets.
DEBT-EQUITY = DEBT / EQUITY
2.) INTEREST COVERAGE RATIO
A ratio used to determine how easily a company can pay interest on outstanding
debt. The interest coverage ratio is calculated by dividing a company's earnings
before interest and taxes (EBIT) of one period by the company's interest
expenses of the same period.
INTEREST COVERAGE RATIO = EBIT / INTEREST EXPENSES
3.) CURRENT RATIO
Liquidity ratio that measures a company's ability to pay short-term obligations
CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITY
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4.) FIXED ASSET TURNOVER RATIO
Indicates the relationship between assets and revenue.
FIXED ASSET TURNOVER RATIO = REVENUE / TOTAL FIXED
ASSETS
5.) INVENTORY TURNOVER RATIO
A ratio showing how many times a company's inventory is sold and replaced over
a period.
INVENTORY TURNOVER RATIO = COST OF GOODS SOLD /
AVERAGE INVENTORY
6.) PRICE – EARNINGS RATIO:
A valuation ratio of a company's current share price compared to its per-share
earnings.
PRICE – EARNINGS RATIO=MARKET VALUE PER SHARE /
EARNING PER SHARE
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