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14th October, 2010.

Paint Industry
TheIndianpaintindustryhasevolvedalotinrecenttimes,bothinterms of industry structure and product portfolio. Not long ago, paints were largely consideredtobealuxuryitem.Suchamindsethaschangedsignificantlyoflate due to the growing awareness on preventing corrosion through paints, by providing a massive fillip to the paint industry. Indian paints industry is Rs.15,000croremarket. Basedonthese11majoreconomies,theAsiaPacificpaintmarkethasbeen ratedatalmost13.9milliontonsin2009,andisforecasttogrowbyabout7.9%per yearintheperiodto2014. Country China India Japan SouthKorea Indonesia Thailand Vietnam Philippines Taiwan Singapore Malaysia Total MarketSizein2009(Tons) 7,566,300 1,813,500 1,418,400 867,000 636,700 406,300 280,800 277,700 256,800 219,000 140,000 13,882,500

China and India are the major growth drivers in the region with paint demandinthesetwocountrieslikelytocontinuegrowingatmorethan10%pain thecomingyears. www.ghallabhansali.com 1

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14th October, 2010. StructureofPaintIndustry

PaintIndustry
Product
Industrial 25% Decorative 75% Organized 65%

Sector
Unorganized 35%

CoilCoatings

Enamels

PowderCoatings

Distempers

AutomotivePaints

Emulsions

MarinePaints

ExteriorCoating

HighPerformance

WoodFinishes

Decorative paints contribute nearly 75% of the pie with Industrial paints accounting for the rest. Nearly 65% of the market is accounted by organised players. Structuralgrowthstorywithstronglinkagestoeconomy The Indian Paint Industry is a direct play on the growing India Consumption story. Analysis of the past data trends suggest strong correlation betweenpaintsvolumegrowthandIndiaGDPgrowth.

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14th October, 2010. A boom in the Indian housing sector, increasing urbanisation, easy availability of housing loans and a shift from semipermanent to permanent housing structures have been driving growth in the decorative paints segment, which accounts for nearly 6570% of the Indian paint industry. There is seasonality involved in the demand for decorative paints. Consumption peaks aroundfestivetime. MarketShareofOrganizedPlayers

11% 17%

55% 17% AsianPaints Nerolac Berger ICI

AsianPaintsenjoysleadershippositionintheIndianPaintsindustry,with nearly55%shareoftheorganizedsegment. GrowthdriversforIndianpaintsindustry Per capita consumption at 1.5kg is way below the developed (20kgs) as wellasthedevelopingmarketstandards.Usageoflimeextracts(chuna)inrural andsemiurbanmarketsaswellaslesserawarenessoftheprotectiveattributesof paintscanbeoneofthereasonsforlowerconsumptionlevels. With growing income levels, both in urban as well as rural India on the back of various government initiatives like NREGS, Farm loan waivers, pay commission led salary hikes etc, we expect the per capita consumption to improveinthemediumaswellaslongterm. o Risingincomelevels: According to McKinsey, proportion of low income groups is expected to declinefrom24%inFY05to10%inFY10e.Thiswill actasasignificantcatalyst fordemandgrowthindecorativepaints. www.ghallabhansali.com 3

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14th October, 2010. o Increasingmediaexposure: Withbetterawarenesslevels,weexpectagradualshiftfromunbrandedto branded segment as well as improvement in product mix for players like Asian Paintsasdemandforemulsionscontinuestooutpaceenamelsanddistempers. o Risingurbanisation: This will lead to creation of new homes, inturn, fuelling incremental demand. Currently,only28%ofIndianpopulationisurban. UrbanShareoftotalpopulation

o Increaseinnuclearfamilies: Thisisaconsequenceofyoungerdemographics(60%ofIndiaspopulation is below 30 years of age), with proportion of working population expected to increasefrom40%inFY05to48%inFY15e. %ofpopulationin1564agegroup

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14th October, 2010. Healthygrowthinconsumptionlevelsexpectedforboth,urbanandruralIndia

o GrowthinAutoSector With production of passenger cars expected to grow, demand for automotivepaintswillcontinuetoremainhealthyassalesareexpectedtogrow in doubledigits. And with realty majors launching new projects, construction activity is expected to gain momentum and generate demand for decorative paints. Globally, the industrial paints segment accounts for a major share, indicatingthatthissegmentoffersmanyopportunitiesforpaintmanufacturers. GrowthinAutoSegments(FY0610)

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14th October, 2010. Theemergingtrendsinthedecorativeindustryare: o Consumersareincreasinglyinvolvedinmakingpurchasedecisions. o Consumers expect better and more relevant functional benefits from paints. o Emulsionpaintsareoutgrowingtheindustrygrowthrate. o Trendofdarkshadescomplementinglightshadescontinues. o Tintingsystemsatstorelevelaretheorderoftheday. o Companiesaregettingmoreconsumercentricandalotofvalueadded servicesarebeingoffered,likeapplicationsupport,colourconsultancy etc. Conclusion: With the revival of the construction boom post recession also the resurgenceoftheautomotiveandconsumerdurableindustries,theIndianpaint industryisheadingforanexcitingphaseofgrowthandprofitability.Demandin case of industrial segment is also expected to increase going forward. Domestic andglobalautomajorshavelongtermplansfortheIndianmarket,whichaugur well for automotive paint manufacturers like Kansai Nerolac and AsianPPG. Increased industrial paint demand, especially powder coatings and high performance coatings will also propel topline growth of paint majors in the mediumterm. A better focus on supply chain or distribution mechanism backed by aggressive promotion will drive the fortunes of the Indian paint industry like neverbeforeovertheyearstocome. CompanyProspects: AsianPaintsLtd AsianPaintsenjoysleadershippositionintheIndianPaintsindustry,with nearly55%shareoftheorganizedsegment.Overthelast10 years,AsianPaints has gained a market share every year owing to its strong brand equity and innovativemarketingtactics,withcustomercentricitybeingthekeycornerstone ofeverystrategy. Asian Paints has the most comprehensive product portfolio across price points. It is a leader across all the segments of decorative paints e.g.Exterior Emulsions, Interior Emulsions (waterbased paints), Enamels (solventbased paints),WoodFinishesandDistempers. www.ghallabhansali.com 6

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14th October, 2010. Asian Paints has the largest distribution footprint, with nearly 23,000 dealers (more than 15,000 Colour World outlets) spread across the length and breadthofthecountry. April 2010 Asian Paints commissioned the first phase of its decorative plantatRhotakinHaryana,withaninitialcapacityof1.5lakhkilolitres(kl)per annumatestimatedcostofRs500crore. Particulars Sales OPM% PBDT PBT NP QuarterEnded Jun.2010 1491.14 20.16 316.07 293.53 200.96 YearEnded Mar.2009 %Var. 4270.05 13.14 610.93 553.78 362.36 20 50 87 95 114

Jun.2009 %Var. Mar.2010 1164.82 20.96 257.51 242.55 164.45 28 4 23 21 22 5125.08 19.71 1140.09 1079.35 774.5

KansaiNerolacPaintsLtd GoodlassNerolacPaintsLtd.(GNPL),theIndiansubsidiaryofJapanbased KansaiPaintCo.Ltd,isthesecondlargestpaintcompanyinIndiawithpresence in decorative paints as well as industrial paints & marine paints, enamels, varnishes, coatings,resinsetc. Itisthe secondlargest coatingcompanyinIndia. The company markets its products under the brand names Nerolac, Glossolite, Goody,Allscapes,Excel,indecoratives. KansaiNerolaccommissioneditsgreenfielddecorativepaintplantwitha capacityof1,500tonnespermonthatHosurinTamilNaduearlyFebruary2010. The full rampup of this decorative capacity will be achieved in FY 2011. The companyhasincreasedtheshareofrevenuefromdecorativepaints,constituting nearly50%ofthetotalrevenue.Ithasreceiveditsboardapprovalforbrownfield capacityexpansionoftheBawalunitinHaryana,withacapexofRs68crore.The estimatedspendoncapitalexpenditureisaroundRs300crorebyFY2013. Particulars Sales OPM% PBDT PBT NP QuarterEnded Jun.2010 525.08 15.38 85.68 74.46 51.92 Jun.2009 %Var. 412.91 14.5 68.06 58.45 42.3 27 6 26 27 23 1706.38 15.51 282.87 238.61 165.5 YearEnded Mar.2010 Mar.2009 %Var. 1374.52 11.53 177.8 140.19 98.59 24 34 59 70 68 7

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14th October, 2010. BergerPaints Ltd. Berger Paints India Ltd is the third largest paint manufacturer and the secondlargestdecorativepaintplayerinIndia.Theyareofferingtheircustomers avarietyofinnovativepaintingsolutions,decorativeorindustrial.Thecompany is headquartered in Calcutta and service the market through a distribution networkcomprisingof75stockpointsandabove12,000paintretailers.Theyare havingtheirmanufacturingfacilitiesinWestBengal,UttarPradesh,Pondicherry, Goa,andJammu&Kashmir. BergerPaintsplanstodoubleitsannualcapacityfrom2.5lakhklto5lakh kl over the next five years through green and brownfield expansions. The companyplanstosetupanewwaterbasedpaintplantwithcapacityof1.5lakh kl in Andhra Pradesh and an automotive and industrial paints plant with capacityof0.5lakhklinMaharashtra. Particulars Sales OPM% PBDT PBT NP QuarterEnded Jun.2010 490.91 11.12 59.84 52.7 37.02 371.52 11.65 45.9 39.78 28.38 32 5 30 32 30 1684.17 10.73 195.81 169.4 120.14 YearEnded Mar.2009 %Var. 1508.34 8.8 137.73 117.33 88.76 12 22 42 44 35

Jun.2009 %Var. Mar.2010

AkzoNobelIndiaLimited(ICILtd) I AkzoNobel India, formerly ICI India Ltd, manufactures and markets paints and speciality chemicals. Their manufacturing activities in India commenced in 1939 with the setting up of Alkali and Chemical Corporation of India Ltd inRishra, WestBengal.AkzoNobelsPaintsbusiness inIndia owesits successtoinnovativetechnologyandstrongbrandssuchasDuluxandDuco. AkzoNobelplanstosetupa50millionlitreplanteitherinTamilNaduor KarnatakaatRs100crore. Particulars Sales PBDT PBT NP QuarterEnded Jun.2010 282.65 64.64 59.41 43.94 YearEnded Mar.2009 %Var. 900.1 400 378.7 294.59 4.27 45 47 45 8

Jun.2009 %Var. Mar.2010 238.55 89.43 83.82 69.16 18 28 29 36 938.53 221.2 200 159.26

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14th October, 2010. MaheshBabaria maheshb@ghallabhansali.com MittalChheda mittald@ghallabhansali.com Disclaimer:
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