1. Indian Paint industry
The Indian Paint industry, estimated to be a Rs.21,000 Cr. industry, has been growing at a rate of above 15% for
the past few years. The organized players of the industry cater to about 65% of the overall demand, whereas the
unorganized players take care of the remaining 35%, in value terms. The unorganised players mainly dominate
the distemper segment.
The industry consists of two segments, namely
 Decorative segment – caters to the housing sector and
 Industrial segment - consists of powder coatings, floor coatings and other protective coatings catering to
the automobile, marine and other industries.
In the domestic market, Decorative segment accounts for 70% of the total demand for paints whereas the
industrial segment accounts for the remaining 30%. Globally, the demand for paints is almost equally
distributed, where both the segments account for close to 50% of demand.

2. So, how does the industry work? Here is the analysis….
The working of the Paint industry has been explained pictorially below:
Raw Materials: On an average, raw materials constitute ~56% of the total expenditure in paint companies.
Titanium dioxide is one of the major raw materials and price fluctuations in its cost have direct and substantial
impact on the cost of production. Crude oil derivatives are the other major raw materials and have similar
impact. Apart from these a large number of other raw materials are used for adding/giving specific properties to
the wide product range offered by the industry.
End-User: The decorative paints segment products find use in households and construction whereas the
industrial segment products find use in automotive industry, consumer durables industry and other OEM’s.

3. What does the Past Say?
Growth of the paint industry has been consistent with the growth of Indian GDP. Paint industry has been
growing at a rate of 1.5 to 2 times of Indian GDP growth. The Decorative segment shows a seasonal trend with
sales peaking during the festive seasons in the months of September to November, whereas the demand is low
in the monsoons.
The top 5 companies make up more than 80% sales of the organized market. The market share of the
organized sector is continuously improving as consumer preference is shifting towards better products offered
by the leading brands. Established Foreign companies have entered the Indian market by acquiring existing
Indian companies. Kansai Paints, Japan entered the Indian Market by acquiring Nerolac, Akzo Nobel, the
world’s largest Paint company, entered the Indian market by acquiring ICI Paints (now Akzo Nobel India.)
Asian Paints is the market leader in the Indian Paint Industry and gets the major portion of its revenue from the
Decorative segment. Over the years, it has outperformed its peers in every aspect by wide margins. This is
mainly due to its strong moat (competitive advantage) which lies in its strong Brand Equity and an extensive
Distribution Network. The company’s Net sales, Net Profit and Book Value have grown with a 5 year CAGR of
22%, 27% and 28% respectively. Also the company’s debt is very low and its ROIC has been 40% on an
average over the last six years.
Kansai Nerolac holds the second position in the Indian Paint market, and is the market leader in the Industrial
Paint Segment, owing to its leadership position in the Automobile Paint segment. It is the subsidiary of Kansai
Paints Ltd., the leading Japanese paint company. Berger paints has the third position and derives its major
revenue from the Decorative segment. Akzo Nobel (former ICI Paints) is the subsidiary of the world’s largest
Paint Company and is at the fourth position. Shalimar Paints is at the fifth position.

5. What are the growth drivers of the industry? Here’s the analysis…
1. Increasing level of income and education – The increasing proportion of young population along with
increasing disposable incomes is leading to a change in consumer habits. The Indian economy is shifting from a
savings economy to a spending economy. With more income at their disposal, people are now ready to pay for
better products and paint is no exception.
Educated consumers are more brand conscious and seek value in what they consume. Thus, paint companies
offering value-added features like non-toxicity, weather protection, texture, eco-friendly production, etc. will
attract more demand. These value-added products enable the manufacturers to earn a better premium as
compared to the regular paints, thus offering higher margins.
2. Increasing Urbanization: Urbanization is leading to a shift from temporary houses to permanent houses.
Urban houses are well-designed in its interior as well as exterior aspect. This calls for more houses being
painted using medium and premium paints. For urban houses, interior design is becoming a fashion statement
and a lot of paint is used to decorate the interiors. This will lead to an increase in the per capita consumption of
paint which will increase the overall demand of paint. Urbanization also brings more nuclear families. More
nuclear families mean more number of houses even for the existing population thus further driving the demand.
3. Increasing share of organized sector: Decrease in taxes on key raw materials will improve the position of
the organized players. The Organized sector is expanding its distribution network and adopting the installation
of tinting machines at retail outlets. These tinting machines offer a wide variety of colour shade options to
choose from. The unorganized players are not in a position to offer such facility as it is comparatively capital
intensive. Shift in use, from distemper segment towards premier segment is also shifting market share from the
unorganized sector to the organized sector.
4. Development of the Realty, Automobile and Infrastructure sector: The growth of the paint industry is
largely dependent on the development of the realty and housing sector, as decorative segment generates about
70% of the total paint demand from this sector. The Automobile segment generates more than two-third of the
demand for Industrial paints, and hence is the growth driver for Industrial Paints. The Infrastructure segment
creates direct demand for paints as well as creates indirect demand through supporting the growth of the realty,
automobile, FMCG and other industries where paint is used.
The growth potential in the above 3 sectors is immense, the paint industry being dependent on these 3 sectors is
expected to grow along with them.
5. Availability of financing options: Easier housing finance and auto finance is expected to favour more
people to buy houses and travel in personal vehicles. This will drive the growth of housing and automobile
sector, of which the Paint industry will get its share.
6. Increasing Penetration in the Rural Markets: Paint usage in rural areas is generally in the distemper
segment, hence dominated by the unorganized players. Demand in rural areas is dependent on agriculture,
which is dependent on the monsoons. With the development of irrigation facility, the dependence of agricultural
output on monsoons will be on a decreasing trend. Also, with the modernization of agriculture and
accompanying development of rural India, consumer preferences are expected to improve. Paint companies are
expanding their distribution network in rural parts of India, which is a relatively untapped market for the
organized players. These factors supported by the increasing penetration of the paint companies will help drive
the demand for paints.

6. So, is there anything to be concerned about?
• Cost of raw materials: The Cost of Raw materials is an important factor as the industry is raw material
intensive. Fluctuation in the prices of Titanium dioxide and Petroleum directly affect the production cost. This
is more of a concern for the Industrial segment as compared to the Decorative Segment, as it is comparatively
easier to pass on the costs in case of decorative paints. Also, a large portion of raw materials are imported,
leaving the cost factor vulnerable to exchange rate fluctuation.
• MNC’s entering the Indian Paint Market: The entry of Established foreign players in the Indian market
may increase the competition among the players of the industry. This may lead to price competition which may
impact the profit margin of the companies. As a result, the increase in volume growth may not equally reflect in
the profit growth for the companies.
What is the future Outlook for the Paint industry in India?
The Indian paint Industry has a wide potential for growth which is demonstrated by the fact that the per capita
consumption of paint in India is merely around 1 kg as compared to about 20 kg in the developed countries or a
global average of about 15 kg. So, the absolute consumption of paint in India is definitely expected to rise.
The market share of the organized sector is on an increasing trend. Also, the contribution of industrial segment
will increase with the continuing economic development of the country. With India moving towards becoming a
developed economy, the decorative to industrial paint ratio of 70:50 is expected to move towards the global
average of 50:50. Thus the Indian paint industry is in its growth phase and is expected to grow at a rate faster
than that of GDP. The future prospects of the industry are strong.
Looking at the above points, we can say that the long term future prospects of the Indian Paint Industry
appear to be Green (Very Good.)
Companies which have high revenues, efficient operations and distribution network, comfortable debt levels
and robust capacity expansion plans will be best suited to capitalize on the growth prospects.
It is very important that while investing in a company, an investor selects an industry, where the long-term
future prospects are bright. We have seen that in the long run the Indian Paint industry is expected to have good
growth.
Also, it is equally important that the company has an excellent financial track record (i.e. Green 10 Year X-Ray)
and its long-term future prospects are Green (Very Good).
*The 10 YEAR X-RAY facilitates analysis of the financial performance of the company considering the five
most important parameters. A 10 Year period will normally encompass an entire business cycle. Analysing the
performance over this time frame is essential to understand how a company has fared during the good as well as
bad times. The five most important parameters that one needs to look at are Net Sales Growth Rate, EPS
Growth Rate, Book Value per Share (BVPS) Growth Rate, Return on Invested Capital (ROIC) and Debt to Net
Profit Ratio.
Given below is the MoneyWorks4me assessment for a few Paint companies:

7. The table above gives you a list of the top 5 companies from the Paint Industry. Due to the very nature of the
paint industry, it is best advised to invest in companies which have created a strong brand equity for themselves
and have a strong competitive advantage. While such companies usually trade at a premium and are rarely
cheap, you should look to invest in them when they are available at a good discount. To find out the right price
to invest in these companies, become a member of MoneyWorks4me.com.
Disclaimer: This publication has been prepared solely for information purpose and does not constitute a
solicitation to any person to buy or sell a security. It does not constitute a personal recommendation or take
into account the particular investment objectives, financial situations or needs of an individual client or a
corporate/s or any entity/ies. The person should use his/her own judgment while taking investment decisions.