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By DK Aggarwal
Indian paint industry, which is largely dominated by organised players, has been witnessing steady growth in volume this year on a low base, owing to double-digit growth in the decorative segment.
A reduction in GST rates from 28 per cent to 18 per cent, too, has helped the industry gain traction from small consumers.
With a rise in crude prices, weakness in local currency and a general correction in the broader market, paint sector stocks fell amid concerns over margin pressure and the companies’ inability to pass on higher raw material costs to industrial consumers.
To note, the decorative segment comprises nearly 75 per cent of volume and value of the paint companies.
Over the years, it has been seen that the companies have been able to pass on any surge in input costs in the decorative segment.
This financial year too, companies have managed to partially pass on the price hike and are in the process of initiating further price hike in the decorative segment.
India has some of the best ingredients for the development of the paint and coatings industry.
As most of the raw materials are petroleum based, the industry is also set to benefit from softening crude prices.
Titanium dioxide and other crude oil derivatives such as phthalic anhydride and penraerythritol account for nearly 50 per cent of the input costs and, thus, profits of the industry players swing with the material cost.
If crude oil prices stay in the current range, they will have a positive impact on paint companies, as falling prices of oil and its derivatives, including material titanium dioxide, would help improve margins and returns.
Besides solvent-based paints, there is an increasing preference for water-based paints.
Along with the slide in crude oil prices, the increasing preference for water-base paints will augur well for the industry in terms of profitability as the water-based paints are of high margins compared with the solvent-based ones.
In order to tap the growth, paint companies have largely focused on product portfolios, distribution network and brand building for growth.
They are now focusing on new growth drivers, such as skill development of painters to improve customer experience, automated tools and increased attention on the service aspect besides embracing digital advertising, branding and promotions.
Despite the current low per capita consumption, Indian paint and coatings industry holds great promise for domestic and international paint manufacturers operating in the country.
With the economy poised to grow at around 7.5 per cent, consumer spending will get a huge boost, resulting in higher demand for paints.
Besides, repainting, which constitutes about 70 per cent of the total paint demand in the country, is expected to boost demand, as the repainting cycle has shortened from about 6-8 years earlier to about 3-3.5 years.
Of the total industrial paint demand, about two-thirds come from the automotive sector.
As the sector moves upward gradually and the economy grows, there will be rapid demand growth for industrial paints.
Companies such as Kansai Nerolac and Asian Paints are likely to benefit from domestic and global auto majors, which have long-term plans for the Indian market.
Investors can go look at stocks like Asian Paints, Kansai Nerolac Paints, Berger Paints India, Shalimar Paints and Akzo Nobel India to ride this wave.
