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A note on Indian Paint Industry 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.

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 worlds 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. 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. Growth Drivers for Paint Industry 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. 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. 3. 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. 4. 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. Is there anything to concern about? Cost of raw materials: The Cost of Raw materials are 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. MNCs 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? 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.

New Opportunities for International Paint Companies 1. International retailers had until January 2006 been able to operate in India only through franchise arrangements with local partners 2. The Indian Government passed a regulation in January 2006 allowing entry of foreign single retail brands without the need for franchise arrangement. 3. Starting February 2006, foreign single retail brands are allowed to: 4. Open their own stores in India, or 5. Own up to 51% of local joint ventures

Market Characteristics Two Major Classifications: Decorative Paints caters to the housing sector 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 Distribution Network is the key Nearly 20 per cent of all decorative paints sold in India are distempers

Industrial Paints include powder coatings, high performance coating and automotive and marine paints Two-thirds of the industrial paints produced in the country are automotive paints. Technological superiority and tie-up with automobile manufacturers

30% 70% Decorative Paints Industrial Paints

Industry Characteristics Four Major Players control 50% of the market share : Asian Paints, Nerolac, Berger, ICI paints 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

Porters five Forces Analysis Supply

o Supply exceeds demand in both the decorative as well as the industrial paints segments. Industry is fragmented. Demand o Demand for decorative paints depends on the housing sector and good monsoons. Industrial paint demand is linked to user industries like auto, engineering and consumer durables. Barriers to entry o Brand, distribution network, working capital efficiency and technology play a crucial role. Bargaining power of suppliers o Price increase constrained with the presence of the unorganised sector for the decorative segment. Sophisticated buyers of industrial paints also limit the bargaining power of suppliers. It is therefore that margins are better in the decorative segment. Bargaining power of customers o High due to availability of wide choice. Competition In both categories, companies in the organised sector focus on brand building. Higher pricing through product differentiation is also followed as a competitive strategy.

ASIAN PAINTS Asian Paints dominates the Indian paint industry with a market share of 53%. Also, its strong brand equity allows the company to have higher margins. The company has outpaced industry growth in last ten years. KANSAI NEROLAC

The company has around 18% market share. Around 45% of its revenue comes from the industry segment, mainly auto industry and it is the leader in this segment. Domestic passenger vehicle sales weakened in December 2011 quarter on a y-o-y basis, leading to rise in inventory at Kansai. BERGER PAINTS INDIA Berger is a mid and mass segment player with a 20% market share. Since a high proportion of its sales come from the decorative business in the mass segment, Berger's earnings were impacted the most in the December quarter because of the extended monsoon and earlier Diwali.

Forbes Global magazine USA ranked Asian Paints among the 200 Best Small Companies in the World for 2002 and 2003 and presented the 'Best under a Billion' award, to the company. Asian Paints is the only paint company in the world to receive this recognition. One of the country's leading business magazine "Business Today" in Feb 2001 ranked Asian Paints as the Ninth Best Employer.

Most of its revenue from outside India come from the Middle East

Gattu, the mascot Gattu, the mascot for Asian Paints was created by cartoonist R.K. Laxman. in 1954. Soon Gattu, with his "stock of black hair eternally dangling over his right eye", became popular and remained so for many decades, even featured in business quizzes. After over four decades, it was eventually phased out after 2002, when company's advertising agency Ogilvy & Mather (O&M) initiated a rebranding exercise

1. Asian Paints is India's largest paint company and Asia's third largest paint company, with a turnover of Rs 96.32 billion. 2. The group has an enviable reputation in the corporate world for professionalism, fast track growth, and building shareholder equity. 3. Asian Paints operates in 17 countries and has 24 paint manufacturing facilities in the world servicing consumers in over 65 countries. Besides Asian Paints, the group operates around the world through its subsidiaries Berger International Limited, Apco Coatings, SCIB Paints and Taubmans. 4. Driven by its strong consumer-focus and innovative spirit, the company has been the market leader in paints since 1968. 5. Asian Paints has always been ahead when it comes to providing consumer experience. It has set up a Signature Store in Mumbai & Delhi in India, where consumers are educated on colours and how it can change their homes.