October 27, 2017 I Industry Research
Paints Industry
In the financial year 2016-17, value of the paints industry grew by
8% on a y-o-y basis. This was backed by an improvement in
disposable income, rising urbanization, focus on housing, rural
growth, rise in automotive segment, increasing trend of nuclear
families etc. The growth of paints industry is dependent on the
growth of its two segments, decorative and industrial. In the
financial year 2017-18, factors such as roll out of Seventh Pay
Contact:
Commission, salary revisions by States, normal monsoon, schemes
Madan Sabnavis for affordable housing, expected improvement in industrial output
Chief Economist and growth in automotive segment are likely to augur well for the
madan.sabnavis@careratings.com
91-022-6754 3489 paints industry. CARE Ratings thus expects paints industry to grow
by 8-10% in 2017-18.
Bhagyashree C. Bhati
Research Analyst The profit margin of the industry increased by 300-450 basis points
bhagyashree.bhati@careratings.com
91-022-6754 3490 in 2015-16 supported by lower input costs. Crude oil derivatives and
titanium dioxide are major inputs used in manufacturing of paints. In
2016-17, the industry however witnessed no major expansion in
profit margins as increase in raw material expenses weighed on the
margins.
Mradul Mishra (Media Contact)
mradul.mishra@careratings.com While the outlook for demand remains positive for paints industry
91-022-6754 3515 for 2017-18, concerns for the industry would remain on the raw
materials front if the y-o-y growth in crude oil prices continues.
Indian Paints Industry
Chart 1: Value of paints industry (in Rs. crore)
48,000 46,980
46,000
44,000 43,500
42,000
Disclaimer: This report is prepared by CARE Ratings Ltd. CARE 40,300
Ratings Ltd. has taken utmost care to ensure accuracy and
objectivity while developing this report based on information 40,000
available in public domain. However, neither the accuracy nor
completeness of information contained in this report is 38,000
guaranteed. CARE Ratings Ltd. is not responsible for any errors
or omissions in analysis/inferences/views or for results obtained
from the use of information contained in this report and 36,000
especially states that CARE Ratings Ltd. has no financial liability 2014-15 2015-16 2016-17
whatsoever to the user of this report.
Source: Industry and CARE Ratings
Industry Research I Paints Industry
The paints industry in India grew at a CAGR of 12.9% from 2011-12 to 2014-15 to Rs.40,300 crore backed by an improvement
in disposable income, rising urbanisation, rural growth, increasing trend of nuclear families, reduction in average repainting
cycle on account of improvement in disposable income and lifestyle. The repainting cycle is now approximately 7-10 years
compared to around 15 years earlier. These factors supported the industry’s growth in 2015-16 and 2016-17 as well. In 2016-
17, the industry’s value grew by 8% on a y-o-y basis to Rs.46,980 crore.
Major segments of paints industry
The paints industry is mainly divided into two segments – Decorative and Industrial. The decorative segment accounts for a
major portion of the paint industry’s value, around 75%, and the industrial segment accounts for the rest 25% of the
industry’s value.
Chart 2: Structure of paints industry
Paints Industry
Decorative (75%) Industrial (25%)
Exterior and interior Auto OEM paints and
emulsion protective coatings
Auto refinish
Enamels
Primer and Thinner GI Paints
Distemper Power Coatings
Decorative paints
The decorative segment consists of exterior and interior emulsions, enamels, primer and thinner, distemper, wall putti.
Emulsions and distempers are used for painting walls, enamels for wood and metals, primers and putties for bringing
evenness on the walls before final paint is applied. Of the emulsion and distemper paints, emulsion paints are comparatively
costlier on account of its better quality as emulsions provide smoother finish to walls and are more durable and long lasting
compared to distempers.
2
Industry Research I Paints Industry
Industrial paints
The industrial paint includes auto OEM paints and protective coatings, auto refinish, GI (General Industrial) paints, powder
coatings. Auto OEM paints and protective coatings and auto refinish paints are used by auto producers for painting
automotive interiors and exteriors, GI paints are used for construction, heavy engineering & agricultural equipment etc.
Powder coatings are usually used for coating metals and for auto ancillaries, electrical equipments, consumer durables etc.
This segment is dependent on business cycle activity and economic conditions while the decorative paints segment is
dependent on the housing sector and repainting cycle. The average price for decorative paints is in the range of Rs.110-
Rs.120 per litre whereas for industrial paints, the average price is approximately Rs.300 per litre. Industrial paints are anti
corrosive paints.
Organised and unorganised paints segment
The paints industry is largely dominated by organised players accounting for about 65% of the industry’s value and the
unorganised players accounting for the rest 35%.
Of the two segments in the paints industry, the industrial paints segment mainly comprises organised players whereas the
decorative segment also involves some component of unorganised players as the decorative paints segment is not
significantly dependent on technology compared to the industrial paints segment that involves higher technical know-how.
The unorganised segment involves selling of low end products like low end distemper, cement paints etc.
Chart 3: Market share of top players in organised paints industry for 2016-17 (in %)
22.7%
Asian Paints
41.4% Berger Paints India
Kansai Nerolac Paint
9.3%
Akzo Nobel India
Others
13.1%
13.5%
Source: Ace Equity and CARE Ratings
Around 80% of the organised market of paints industry is covered by the top players with the largest share of 41.4% held by
Asian Paints followed by Berger Paints India, Kansai Nerolac Paint and Akzo Nobel India with a share of 13.5%, 13.1% and
9.3%, respectively, during 2016-17.
Among these players, Asian Paints is the market leader in the decorative paints segment while Kansai Nerolac Paint is the
market leader in the industrial paints segment.
3
Industry Research I Paints Industry
Water-based paints and solvent-based paints
The paints manufactured are of two types – Water based paints and solvent based paints (also sometimes called as oil-based
paints). For water based paints, binder is water-based while for solvent based paints, the binder is oil-based.
Emulsions are water-based paints and enamels are solvent-based paints. The emulsions are ideal for painting walls while
enamels are used for woodwork and metals. Also, solvent-based paints are ideal for bathrooms and kitchens as these paints
are not much affected by water.
The solvent based paints release Volatile Organic Compounds (VOCs) into the atmosphere that harms the environment while
water-based paints do not release such harmful compounds and thus have least impact on the environment. Also, solvent-
based paints are known to produce bothersome odor.
Inputs used for manufacturing paints
The manufacturing of paints involves a significant input cost as raw materials account for around 45-50% of the industry’s
sales on an average. The raw materials used for manufacturing paints include resins (binders), pigments, solvents, additives.
One of the key pigments used in the manufacture of paints is titanium dioxide. It accounts for about 15-20% of the total raw
materials cost of the industry.
Titanium dioxide
Titanium dioxide is a white pigment that provides white colour to liquids, pastes or coatings. Apart from this, titanium dioxide
scatters light and is Ultraviolet (UV) resistant which prevents decolouration and also titanium dioxide makes substance more
opaque.
Titanium dioxide (TiO2) is commercially available in two forms – anatase and rutile. Of these two forms, rutile titanium
dioxide is considered more durable and stable compared to anatase titanium dioxide. Rutile form is also considered to be
more efficient in scattering light.
Imports of titanium dioxide
Chart 4: Country-wise quantity share of imports of titanium dioxide by India for 2016-17(in %)
5.0% 8.8% China
Germany
6.8%
41.6% Korea Republic (South)
6.4% Japan
USA
15.4%
Czech Republic
Others
16.0%
Source: CMIE
4
Industry Research I Paints Industry
Most of the paint companies in India meet the requirements of titanium dioxide through imports. Of the total titanium
dioxide quantity imported by India from various countries, China accounted for the largest share of 41.6% followed by
Germany, Korea Republic (South) accounting for 16%, 15.4%, respectively, during the year 2016-17. India imported 13,901
tonnes of titanium dioxide in 2016-17.
Chart 5: Rutile and anatase price movements in India (in Rs. /kg)
240
220
210
200
180 192.5
160
150
140
136.5
120
100
Mumbai Rutile R-902 Delhi Anatase t.t.k
Source: CMIE
The prices of rutile in Mumbai remained in the range of Rs.150-Rs.186 per kg during the period April 2016-Februray 2017 and
the prices of anatase were in the range of Rs.136-Rs.147 during the period April 2016-March 2017. On an m-o-m basis, the
prices of rutile increased by 12.9% to Rs.210 per kg in March 2017 and that of anatase grew by 8.2% to Rs.158.5 per kg in
April 2017. Prices for rutile then remained in the range of Rs.210-Rs.215 per kg during March-September 2017 and for
anatase they were in the range of Rs.158-Rs.193 per kg during April-September 2017. Resultantly, the prices of rutile and
anatase averaged 29.2% and 32.9% higher, respectively, during the period April-September 2017 on a y-o-y basis.
This increase in prices can be attributed to the growth in titanium dioxide prices in China from which India imported 41.6% of
titanium dioxide during 2016-17. The prices in China grew on account of stricter regulations imposed by the government on
production of titanium dioxide to control air pollution in the country.
Financials of the paints industry
Chart 6: Sales growth rate (in %)
14
13.0
12 11.9
10 10.5
8
6 6.5
4
2 2.2
0
2012-13 2013-14 2014-15 2015-16 2016-17
Source: Ace Equity
5
Industry Research I Paints Industry
In the financial year 2016-17, sales of the 6 paint companies in our sample increased by 6.5% on a y-o-y basis compared to
2.2% growth reported by the industry in 2015-16. The increase in sales in 2016-17 was on account of various product-mixes
offered by the industry. However, sales growth was impacted in second-half of the year due to demonetisation announced by
the government in November 2016.
Chart 7: Operating and net margin (in %)
25
20 20.6
19.4
15 15.7 15.3 16.0
13.7
12.5
10 10.1 9.3
9.0
5
0
2012-13 2013-14 2014-15 2015-16 2016-17
Operating profit margin Net profit margin
Source: Ace Equity
As seen from the above chart, the operating and net profit margin expanded by 300-450 basis points in 2015-16 on a y-o-y
basis and the expansion in margins was maximum during the year among the years mentioned above. The expansion in profit
margins was mainly on account of input costs as raw materials as percentage of sales dropped to 49.7% in 2015-16 from
51.2% in 2014-15.
Chart 8: Raw materials as percentage of sales (in %)
60%
54.8%
55%
53.6%
51.2% 51.4%
49.7%
50%
45%
2012-13 2013-14 2014-15 2015-16 2016-17
Source: Ace Equity
The drop in this ratio was primarily because of the decline in crude oil prices. The prices of crude oils were at multi-year low
during the year 2015-16 as shown below. Many of the inputs used in the manufacturing of paints are crude oil derivatives
that accounts for about 30-35% of the total raw materials cost of the industry.
6
Industry Research I Paints Industry
Chart 9: Prices of Crude oil (Brent) Europe
120 10
110.1 107.6 2.5
100 0
-3.9 -2.3
85.5
in USD/barrel (FOB)
80 -10
in y-o-y % change
60 -20.5 -20
47.3 48.5
40 -30
20 -40
-44.7
0 -50
2012-13 2013-14 2014-15 2015-16 2016-17
Crude Oil (Brent) y-o-y % change
Source: CMIE
The crude oil prices that ruled in the range of USD 107-115 per barrel during the financial years 2011-14 slumped to USD 85.5
per barrel in 2014-15 and declined to USD 47.3 per barrel in 2015-16. In fact, the Brent crude oil prices were at their lowest in
2015-16 when compared to the last 10 years. The fall in prices was due to global surplus oil production.
In the year 2016-17, no major expansion was seen in profit margins compared to the expansion witnessed in profit margins
during 2015-16. An increase in raw material expenses is believed to have weighed on the margins. The prices of crude oil and
titanium dioxide which were lower on a y-o-y basis in the initial months of the year 2016-17 increased on a y-o-y basis in later
half of the year. Crude oil derivatives and titanium dioxide are major raw materials used in manufacturing of paints.
Outlook
The implementation of GST is unlikely to have caused any major disturbances in demand for paints though it is believed to
have resulted in de-stocking of paints. With GST, paints have been put under the highest tax rate slab of 28% compared to the
earlier 24-27% taxes paid through excise, value added tax (VAT),entry taxes.
The paints industry is expected to rise by 8-10% in the financial year 2017-18 backed by a growth in its two segments,
decorative and industrial. The roll out of Seventh Pay Commission and salary revisions by States is expected to result in
increase in income thus supporting the demand for decorative paints. In addition to this, normal monsoon is likely to result in
rural growth which, in turn, is expected to aid the consumption of decorative paints in rural areas. Also, the festive season is
anticipated to support the demand for paints. Further, roll out of schemes like Housing for all and Pradhan Mantri Awas Yojna
(PMAY) for affordable housing is also likely to help increase consumption of decorative paints going forward.
The demand for industrial paints is also likely to grow backed by an expected improvement in industrial output. In addition to
this, CARE Ratings expects 10-12% growth in the two-wheeler segment (accounting for about 80% of the automobile
industry’s sales) which is also likely to augur well for the paints industry. The automotive segment drives the demand for
industrial paints as it forms a significant component of industrial paints.
While the outlook for demand remains positive, concerns for paints industry would remain on the raw materials front if the y-
o-y growth in crude oil prices continues. The Brent crude oil prices averaged at USD 50.9 per barrel during April-September
2017, implying a y-o-y increase of 11.5%.
7
Industry Research I Paints Industry
Concluding remarks
The demand for paints is likely to grow on account of an expected increase in income backed by the roll out of Seventh
Pay Commission and salary revisions by States, normal monsoon, festive season, scheme for affordable housing. In
addition to this, a likely improvement in industrial output coupled by an expected growth in automotive segment will
aid the demand for industrial paints. The paints industry thus is expected to grow by 8-10% in the financial year 2017-
18.
While the outlook for demand remains positive, concerns for paints industry would remain on the raw materials front
if the y-o-y growth in crude oil prices continues.
The implementation of GST is unlikely to have caused any major disturbances in demand for paints though it is
believed to have resulted in de-stocking of paints.
CORPORATE OFFICE:
CARE Ratings Limited
(Formerly: CREDIT ANALYSIS & RESEARCH LIMITED) Follow us on /company/CARE Ratings
Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road,
Off Eastern Express Highway, Sion (East), Mumbai - 400 022. /company/CARE Ratings
Tel: +91-22-6754 3456 I Fax: +91-22-6754 3457
E-mail: care@careratings.com I Website: www.careratings.com
