The paint industry in India was largely impacted by the Demonetization drive of the BJP led NDA Government at the Centre, in the month of November 2016 and as soon as recovery was seen after some months, the implementation of GST again impacted the sales and volume growth for the industry (particularly in the month of June 2017).
According to paint industry dealers, volumes fell 25-30% in June 2017 over May 2017, the sharpest drop this year. Some dealers in the north observed decline in sales of as much as 50% of the monthly average in July. Asian Paints’s decorative business registered low single-digit volume growth in the June 2017 quarter. Total volume growth slipped to around 2%.
GST is expected to result in some cost savings in logistics and transportation due to consolidation of warehouses, thereby boosting the margins. As the implementation of the GST is favourable for the organized players in the overall industry the sales and volume growth would eventually recover in the near future. The volume and sales growth for the organized paint industry is also expected to recover on the same lines as it is on a structural growth path driven by rising incomes, rapid urbanization and changing consumer preferences for aesthetics of paints.
The per capita consumption of paint in India has increased from 1.3 kg per year to 3.34 kg per year but still remains low compared with 5.5 kg in the South East Asian nations and 22 kg in developed countries, with the global average being around 15 kg. This gives an idea about the potential for growth in sales and volume of paints going forward.
The size of the Indian paint market is expected to reach Rs.708.75 billion by the Financial year 2019-2020 from around Rs.403 billion in FY 2014-15, according to an estimate by industry body Indian Paint Association (IPA) in January 2017. The decorative paint market size was Rs.303.85 billion and that of industrial paint was Rs.99.15 billion in FY 2014-15. The split of the decorative paint market to industrial market is around 75-25. Exterior and interior emulsions in the decorative paints category and auto refinish and powder coatings in the industrial paints category have witnessed high growth.
Repainting constitutes about 70% of the total paint demand in the country. The shortening of the repainting cycle from 6-8 years earlier to 3-3.5 years now will drive the demand for decorative paints going forward. Decorative paints include higher-end acrylic exterior and interior emulsions, medium-range exterior and interior paints, low-end distempers, wood coatings, cement paints, primers, thinners and putties, accounting for over 70% of the paint market in India. The segment is growing at a faster pace than industrial paints.
These paints are either water or solvent-based. Water-based paints are increasingly preferred by customers because of superior aesthetics, durability and environmental reasons and constitute the fastest growing segment. Industrial paints essentially comprise general industrial, automotive, protective and powder coatings. Currently, premium products account for a fifth of the country’s organized decorative paint market and are expanding at a fast clip of 28-30% annually in the last four years. In comparison, the economy segment is growing at 10-15%. As premium products have higher margins to the extent of 10-15%, players are increasingly focused on this products segment with more product offerings.
The retail demand for paints is higher during the months preceding major festivals such as Diwali, Pongal/Makar Sankranti, Onam and Christmas as most of the repainting is done around this period. Moreover, industrial demand, too, gains with the festival demand push for automobiles, houses and white goods. Given this fact that most of major festivals of the country fall in the second half of a fiscal, the major demand period for decorative paints and, to some extent, industrial paints is between September and March.
Given the growth expected in the industry, paint manufacturers would have inherent demand for their products for a long time to come. The only question which begs an answer now is which is the best company to invest into at the moment?