ANALYSIS OF PAINT MARKET IN AHMEDABAD WITH SPECIAL FOCUS ON DECORATIVE PAINTS

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University Degree Business and Administrative studies

ANALYSIS OF PAINT MARKET IN AHMEDABAD WITH SPECIAL FOCUS ON DECORATIVE PAINTS

EXECUTIVE SUMMARY

We took the topic of “ ANALYSIS OF PAINT MARKET IN AHMEDABAD WITH SPECIAL FOCUS ON DECORATIVE PAINTS.”

The main reason behind conducting these surveys is to know the preference, perception and attitude of the consumers & retailers during the purchase of paint, so we have conducted this survey to find out this problem and to suggest ways to over come these problems. We also tried to find out the attributes that are important to consumers while making a purchase decision. We have also tried to gain an insight as to who are the major influences for the purchase of a specific product and what are the occasions on which the consumers purchase this kind of paint. The adopted research designs are Exploratory and Descriptive research designs. Exploratory study was undertaken for determining the questionnaire structure and for knowing the preference of brands for paints. Primary Data are collected by means of a survey. Since the aim was to find out perception of respondents, the questionnaire method was adopted. The questions included in the questionnaire were open, dichotomous and multiple choices.

  1. For retailer’s survey, the universe was defined as all the paint shops in Ahmedabad. ( sample size is 50 retailers across Ahmedabad )
  2. For consumer’s survey, the universe was defined as all the households and offices in Ahmedabad. (sample size is 150 consumers across Ahmedabad )

We adopted Method of Convenience sampling because of time constraints. Fieldwork has been carried out at Ahmedabad City only. All the retailers in the city are purchasing directly from the company itself rather than going for intermediaries. Most of the retailers are carrying well-known brands like Asian Paints, Nerolac Paints and Berger Paints. Most of the retailers are stocking a particular brand mainly due to two reasons namely consumer demand and good margins. According to retailers, quality, brand and price are the more influential factors which affects the consumer’ preference for a particular product. Retailers rank Asian Paint highest among all the companies in volume of sales. Oil paint, Distemper and Interior emulsion are the highest selling products among all the products offered by different companies in decorative paint During the months of festivals and marriages that is during Oct-Dec., the sale of paint is higher for retailers.

All the companies whether branded or unbranded are providing transportation facilities to retailers. But very few companies provide marketing assistance to very few retailers. None of the companies provide personal training to retailers.

In more than half of the households, family as a whole makes the decision for buying paint. Most of the consumers ranked brand, quality and advertising as a more influential factor, which affects the preference for a particular product.

Asian Paints, Nerolac Paints and Berger Paints is ranked highest by consumers respectively in terms of brand preference and awareness. Most of the consumers came to know about particular brand through advertising and publicity. An advertisement of the products does helps in making decision regarding which product to buy. Prices charged by the most of the branded companies are relatively fair and consumers also agreed to this fact. Only small proportion of respondents believe that prices charged by branded companies are high. In paint market, most of the consumers are brand loyal. Satisfaction level of consumers in the paint market is higher and most of the consumers satisfied with their preferred companies.

There should be price standardization of the product of the companies. The shade cards provided by the companies are insufficient. Long time of replacing the damaged/defected product should be reduced. The companies should try to design separate schemes for small retailers. Marketing assistance and personnel training should be provided by major paint companies so that it can be made easy for the retailers to convince the consumers about product and schemes.

Promotion schemes should be targeted to the end consumers rather than painters. Training should be given to painters about how to effectively use the paint. Prices of the products should be reduced and more discounts should be offered. The companies should try to increase awareness of the services through advertisements and events. Various companies should carry out more and more events like demonstrations of the products and sponsoring of social events which in turn creates the image of socially responsible company.

OBJECTIVE OF THE STUDY

                        

The study was conducted with the following objectives:

Primary Objective

  1. Sketching the perception of retailers regarding various paint companies in Ahmedabad.
  2. Sketching the perception of consumers regarding different paint companies in Ahmedabad.

Secondary Objective

  1. Retailers’ Survey :
  1. To identify the highest selling brands in decorative paints.
  2. To identify the highest selling products in decorative paints.
  3. To identify the most influential factors which influence the decision of consumers regarding preference of various products.
  1. Consumers’ Survey :
  1. To identify the most influential factors which influence their preference for a particular product.
  2. To know the effectiveness of advertising on consumers.
  3. To know the loyalty of consumers about particular brands.
  4. To know their satisfaction level.

WHAT IS PAINT?

DEFINITION:

“Paint can be defining as florid material which, when spread over surface in the form of thin layer, will form a solid, adherent and cohesive film.”

“Paints are surface coatings that are designed to fulfill a protective and/or decorative function for any substrate.”

“Paint is a generic term for a range of chemical substances that help protect surface and keep them looking good.”

Though there are different type of paints for different surfaces, all paints are mixtures of four elements- solvent which give it its flow and enable it to be brushed on the surface, binder for cohesion as well as adhesion to the surface, pigment for color and opacity, and additive which give paints certain special characteristics such as resistance to fungus, algae, and rust.

MARKET SEGMENTATION:

The paint market is broadly classified as industrial and decorative paints.

  1. INDUSTRIAL PAINTS:

This market can be further divided into the following four sub-segments depending on the end use profile:

  • Automotive paints
  • Marine paints
  • Powder coatings
  • High performance coatings
  • Other general industrial finishes

  1. DECORATIVE /ARCHITECTURAL FINISH PAINTS:

This market can be further segmented on the basis of the following:

  • Customer types: Industrial/retail or domestic use
  • Product feature/categories: Distemper/Enamels/Emulsions etc.
  • Price: Premium/Medium/ Economic etc.

PAINTS - PRODUCTS

Products:


The products of the paint industry can be classified into two major segments decorative (architectural) paints and industrial paints.


Decorative paints: 

The decorative paint segment can be classified into interior paints and exterior or cement paints. 80% of the decorative paints account for interior paints, which consists of premium, medium and economy categories. The premium category consists of plastic emulsions, the medium-priced category consists of synthetic enamels and the economy category consists of distempers.

                 *Source: equitymaster.com

The products under the decorative finishes can be limestone coatings, primers, distempers, cement paints, matt/lustre finishes, enamels, emulsions (first quality), and premium emulsions.

Consumption of paints is skewed towards decorative paints, which account for 70% of paints sold in India. This is in a sharp contrast to the trend in developed countries, where the ratio is skewed towards the industrial segment

This segment is marked by the presence of a large number of players from the organized as well as unorganized sector. Competition is high and margins tend to be low in this segment. Products of this segment are relatively price sensitive.


Demand for decorative paints is seasonal with bulk of sales taking place during the festival seasons from September to December. Besides sales remain slack during the monsoon months from June to August.

Entry barriers in term of technological and funds requirements are relatively lower in the paints sector. It is estimated that a plant of 1 m tpa will cost around Rs 120 m. However decorative paints are marketing-savvy products and backed by large advertisement campaigns and dealership networks. These serve as high cost entry barriers for new companies in this business. The huge investments required in setting up a vast marketing and dealership network, to advertise and develop a brand over a period of time can only be afforded by companies in the organized sector. It is for this reason that smaller company and small-scale sector units are slowly losing market share to the organized sector.

                     *Source: equitymaster.com

Industrial Paints:


Industrial paints comprising 30% of the market include automotive paints, high performance coatings, coil coatings, powder coatings, marine paints and general industrial coatings. The automotive segment is further bifurcated into OEMs and auto refinishes. The automotive and general industrial coatings occupy top slot in terms of production.

Demand for these paints is relatively price inelastic, but is prone to business cycles and depends on industrial and economic growth. Major end user industries include shipping, capital goods, white goods and heavy industries.



HISTORY OF A PAINT

In the days when homes were caves and men akin to apes, more than 4,000 years ago, paint was made of natural ingredients. Earth offered reds, browns, and ochres. Pounded rock supplied jewel blues and shining greens. Plants provided oranges and yellows; soot from fire gave a rich velvety black. These were blended with resins, water, marrow or urine to create a colorful and useful medium, paint; applied with either the fingers or a brush made with a bunch of fur tied to a twig, rags or split fibres made of rotted reeds.

Some tribes believed paint to be magic. They painted pictures of animals on cave walls in the hope of ensuring a successful hunt. The Lascaux Caves in France, painted by Cromagnon man, are a wonderful example.

Paint has never lacked utility. Cast your mind back to the 1st century BC when Julius Caesar’s soldiers had to contend with fierce warring tribes who colored their bodies extravagantly in violent blue. Their purpose – to terrify and repel their enemies. Their medium – paint.

As man grew more sophisticated he put paint to more and more uses – to color the idols he made, to write and draw pictures to educate his children and give religious instruction. Among ancient Hindu scriptures, for instance, one finds beautifully illuminated palm leaf manuscripts. The cave walls at Ajanta and Ellora tell wonderful stories from the Jataka – all in pictures. Their medium of expression – paints made from vegetable and mineral ingredients.

As man’s social customs became more complex and elaborate, so did his use of paint and colour. For disposing of the dead he created tombs and death masks. The pyramid of Tutenkhamen bears witness to the Egyptians’ liberal use of paint. Believing that the spirit would return to the body, they decorated the tomb walls and made death masks of the deceased with great solicitude, to welcome the spirit on its return.
Household goods too were painted to make them attractive. Glazing was developed in the field of pottery. The Greeks painted their urns; the Etruscans their utensils. The Chinese developed exquisite lacquer work to paint wooden and papier mache boxes and screens. Men and women began to decorate their eyes and mouth. Cosmetics became fashionable.

New techniques of paint making were developed to fill the needs of a society whose demands had increased far beyond the basic ones of eating and procreating. The Middle Ages in Europe saw the appearance of Lakes or brilliant pigments made from the scum of animal and vegetable dyes or coal tar. Especially popular in this category was a bright red pigment prepared from lac or cochineal by combining it with a metallic compound.

In the 1300s, the Italians developed materials and techniques to create smooth working surfaces for painters decorating large and rough stonewalls. Known as Gesso and Stucco, these were essentially ground spreads with a mixture of gypsum or plaster of Paris and glue, and were ideal for painting frescoes and murals. Later, in the 18th century, British architects used these preparations in their own right as wall finishes.

The technique of paint making remained comparatively simple till recent times. Even at the time of the Renaissance, paints were made out of materials immediately at hand. Most of the time, painters mixed their own Tempera colors – so called because the base was originally ‘tempered’ with egg white or oil. Rocks and stones were ground to obtain pigments. There was a range of about 15 colors on the palette.

By 1686, the palette had grown considerably as is evident from the first published color chart. Complied by R.Waller, it bore the comprehensive title ‘A Catalogue of Simple and Mixed Colors with a Specimen of Each Color Prefixed to its Proper Name’. It contained samples of twenty-one simple colors (essentially pigments used for mixing), seventy-one named, and forty-eight unnamed colors.

Always exploring, always innovating, and experimenting, man began to discover new ways of making paint. He discovered chemicals, which in turn helped, increase the range of colors and to invest them with a greater degree of durability. Vermilion, though originally prepared by the Chinese from cinnabar many centuries ago was artificially manufactured later and developed into an industry by Atkinson in England.

In 1704, a Berlin color-maker created what has come to be known as Prussian Blue by calcining blood with an alkali. Lewis Berger in the 1760s and other early pioneers experimented with and developed the first synthetic colors – the base of the modern paint industry.

PAINT INDUSTRY: WORLD SCENARIO

Paint industry has been growing very fast in last few decades. The global demand for paint is estimated at over 21 metric tones per annum. It is valued at 60 billion. The industry is expected to grow at 3% over next few years.

The high growth regions are the developing countries of South-East Asia and Latin America while the mature markets of North America and Western Europe are likely to witness very low growth.

The paint industry can be divided into two segments namely industrial paint segment and decorative paints segment. The share of an industrial paint is nearly 70% and the rest is accounted for by decorative segment that is 30%. Also, the leading players control almost 60% of the world market. The largest player is ICI of U.K.  with a share of around 10% followed by Akzo Nobel (Netherlands), PPG (US), Nippon (JAPAN), BASE (GERMANY) and Kansai (JAPAN).

Over the past few years, the industry has been consolidating with an objective to strengthen product lines and distribution chains. These have led to a series of mergers and acquisitions.

As every industry has its own association, paint industry worldwide too has an association called – IPPIC (International Paint and Printing Ink Industry Council) in 1992 to protect and enhance the interest of paint and printing ink producers.

Following the international association, Asian paint producers formed    – APIC (ASIAN PAINT INDUSTRY COUNCIL) in 1995 to provide a forum for trade association representing the paint and coatings industry to meet and communicate on broad matters affecting industry development in Asia. APIC  is also a member of IPPIC.

INDIAN PAINT INDUSTRY

  • INTRODUCTION
  • INDUSTRY  CHARACTERISTICS
  • INDUSTRY STRUCTURE
  • DEMAND AND SUPPLY  SCENARIO
  • RAW MATERIALS
  • EMERGING TRENDS AND OPPORTUNITIES
  • FIVE FORCE ANALYSIS OF INDIAN PAINT INDUSTRY
  • IMPACT OF BUDGET 2003-04 ON INDIAN PAINT INDUSTRY

INTRODUCTION

The Indian paints sector, estimated at Rs 50 bn (in value terms), is very fragmented. The current demand is estimated to be around 650,000 tonnes per annum. The per capita consumption of paints in India stands at 0.5 kg p.a. as compared to 1.6 kgs in China and 22 kgs in the developed economies. India's share in the world paint market is just 0.6%.

Manufacturers operating in the organized segment (70% of total market) have large-scale operations, unlike their counterparts in unorganized segment who operate on a smaller scale. There are over 2,000 units in this segment accounting for 30% of total market. Paint demand tends to be cyclical as it is influenced by the economy.

With the steady decline in excise duties (from 40% to 16% over five years), viability of small-scale units has been eroded considerably. Without the price advantage, these units have found it difficult to compete with their peers in the organized sector. The unorganized sector has been consistently losing market share to the organized sector. But the import duty on both the raw materials as well as finishes products is the same at 35%, which is an anomaly.

Demand for paints can be classified into two broad categories:

  Demand for decorative/architectural finishes

  Demand for industrial finishes

Decorative paints accounts for 70% of market and includes acrylic and oil-bound distempers, enamels, and plastic emulsions. Demand for decorative paints arises from household painting, architectural and other display purposes. Demand in the festive season (September-December) is significant, as compared to other periods. This segment is price sensitive.

Industrial paints comprising 30% of market, include automotive paints (60% of total market), coil coatings and power coatings. User industries for industrial paints include automobiles engineering and consumer durables. The industrial paints segment is far more technology intensive than the decorative segment. The concentration ratio is quite high with 83% of the total market being controlled by the top five companies (Goodlass Nerolac, Asian-PPG, Berger, ICI, Jenson & Nicholson).

In the industrial paint segment, demand from automobile sector accounts for as much as 60% of total market with others being marine paints, powder coatings, high performance coatings and industrial coatings.

The paints sector is raw material intensive, with over 300 raw materials (50% petro-based derivatives) involved in the manufacturing process. Since most of the raw materials are petroleum based, the industry benefits from a downturn in the petrochemicals industry.

The demand for paints has grown at a CAGR of 11% over the last five years. Growth in the early 90s was constrained by high excise duties. After the rationalization of the excise duty structure in 1992 and consequent pickup in industrial growth, the paints segment began posting increasing growth. The growth was volume driven, as companies had to keep prices down to ward off competition.

Four players namely Asian Paints, Goodlass Nerolac, Berger Paints and ICI India dominate the Indian paint sector, with the combined market share of almost 75% market share. Asian Paints is the market leader with 37% market share followed by Goodlass Nerolac with 16% share.

  • The paint industry is characterized by low fixed asset intensity (as essentially it is a mixing process) but high working capital intensity (as the number of shades is large and there is seasonality in demand). The main investments are in brand building and distribution infrastructure.
  • New trends are emerging in technology and marketing. Introduction of tinting machines at the dealer/ retailer level will bring down working capital costs. Also new technology is being used for increasing the utility and lifespan of paints. Indian industry will have to keep pace with global technological changes to maintain their competitiveness. Already, a few alliances have been entered into and the number is likely to increase in the future.

The outlook for the industry is positive especially given the good prospect for automotive and white goods industry. Moreover, housing is expected to grow rapidly on the back of rising incomes and government incentives. The supply situation remains a cause for concern and will keep prices under check. The key to success will be innovative marketing. Thus, we prefer Asian Paints within the sector, which has a proven track record in innovation and is indomitable in the decorative segment. 

INDUSTRY CHARACTERISTICS

  • Working Capital intensive: The number of shades is very large and a sufficient stock of every shade has to be maintained at all levels of the distribution channel, the working capital cycle is very high. The extent can be gauged from the fact that Asian Paints has a 12000 strong dealer network selling more than 150 shades. Also, the number of raw materials required can stretch upto 300. As majority of these raw materials are either imported or sourced from small chemical manufacturers, a large stockpile needs to be maintained.
  • Low Fixed asset requirement: A plant for the manufacture of decorative paint can be set up with a small capital investment. However, the major investment is in setting up distribution channels and building up a brand.

  • Seasonal nature of demand: The demand peaks during festival season while is very lean during monsoons. Thus, a major part of the sales are achieved in the second half of the fiscal year.

INDUSTRY STRUCTURE

ORGANIZED SECTOR

The organized sector has a market share of 60% valued at Rs26bn. The share has increased from 55% three years back as the excise on paints was reduced. Asian Paints is the leader with a share of 37% in the organized segment followed by Goodlass Nerolac,Berger paitns and ICI respectively. Asian Paints and ICI are mainly decorative paint producers, Goodlass has major share in the industrial paints segment whereas Snowcem is almost a generic name for cement paints.

*Source:isspa.com

                 

UNORGANIZED SECTOR

There are estimated 2500 small-scale producers accounting for 40% of the market. The unorganized sector proliferated due to low capital investment required and fiscal concession by the government. The high excise duty of over 40% before 1992 created a large price differential. The steady decrease in excise to the present 18% has taken away the advantage. Moreover, the introduction of MODVAT has further reduced the incidence of excise. Over the long run, the share of the small scale is likely to come down further and would be restricted to low quality, low price paints.

Segment position in Indian paint industry :

Architectural / Decorative : 70%

Industrial : 30%

Architectural /Decorative sector composition:

Industrial sector composition:

DEMAND AND SUPPLY SCENARIO

Paint demand is intrinsically related to economic development. The demand for decorative paints in India mainly arises from two segments viz. Construction of new buildings and retail demand for refurbishment, while the demand for industrial paints comes from industries like automobiles, consumer durables, shipping, engineering, etc.

The demand for paints has grown at 10% for the last five years. After a sluggish growth in late 80s and early 90s, industry grew at a rapid pace of more than 12% from 1992-96. High excise duties and lackluster industrial growth resulted in low growth of 2-4% during 1987-92. After 1992, the industry picked up aided by improving economic conditions and rationalization of excise structure. Almost the entire growth can be attributed to volume increase as price realization has increased at less than 5% p.a. Over the last two years, demand has slowed down due to the economic slowdown.

According to Indian Paints Association, demand will rise from the current 0.6mn tonnes per annum to almost 1mn tpa by 2003. Demand for decorative paints will be led by the household construction industry which is expected to grow at almost 8% over the next five years considering the extreme shortage of housing and the government’s thrust on encouraging housing activity. The centers of housing activity are also likely to shift more towards rural areas. The industrial segment will grow faster due to the lower base and fast growth in major user industries like consumer durables and automobiles.

The paint industry is not capital intensive. However, it has high entry barriers in the form of distribution network and product branding. Thus, fresh capacity is likely to come from existing players only. In fact, low capital costs encourage manufacturers to increase capacity to cater to seasonal peaks (especially in decorative paints) rather than incur inventory carrying costs, during lean periods.

MAJOR RAW MATERIALS

  • Titanium Dioxide: This is the most important raw material and accounts for 50% of raw material cost. It is available in two grades- rutile and anatase. Rutile grade Titanium Dioxide, the more expensive of the two are used in high value decorative paints and industrial paints. In India, rutile grade TiO2 is manufactured by Kerala Minerals & Metals Ltd. (KMML) while anatase grade TiO2 is manufactured by three producers viz. Travancore Titanium products Ltd. (TTPL), Kolmak Chemicals Ltd. & Kilburn Chemicals Ltd. While the quality of Indian rutile grade is good, it is not the case for anatase grade. Moreover, the manufacturers face constraints of power supply and capital and are in poor financial condition. Thus, a large portion of Tio2 demand is met from imports.

  • Pthalic Anhydride: PAN, the other major raw material is now abundantly available in India. There are almost seven producers with a total capacity of over 280,000 tonnes. I G Petro and Thirumalai Chemicals are the major players accounting for nearly 80% of the capacity. The other major user industry of PAN is the PVC manufacturing industry.

  • Organic Pigments: The pigments consist of white or coloured particles, usually in the form of a powder, which give a paint its colour and opacity. Though the quantities used are small, their prices are very high. The major manufacturers are Sudarshan Chemicals (technology from Dai Nippon of Japan), Colour Chem and Clariant (both subsidiaries of Clariant AG).
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  • Pentaerythritol: It is used for the manufacture of synthetic resins. Availability of penta is not a problem as there are a few players including Asian Paints, which manufacture the product.

Production Process:

Paint production involves mixing of various raw materials in a balanced proportion. Based on a predetermined formula, pigments, extenders, resins and additives are ground together in a dispersion or grinding mill. The ground mixture is then dispersed in a medium, which could be based on oil or water depending on the paint produced. The final volume and shade are obtained ...

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ANALYSIS OF PAINT MARKET IN AHMEDABAD WITH SPECIAL FOCUS ON DECORATIVE PAINTS
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