Current size of Indian paint industry is around Rs 56,000 crore of which decorative paints account for around 75% of the overall paint market in India and the rest is accounted for by automotive and industrial paints. Major segments of Indian decorative paint industry consist of exterior wall paints, interior wall paints, wood finishes and enamel and ancillary products such as primers, putties, etc. The unorganised sector controls around 35% of the paint market, with the organised sector accounting for the balance.
Last year, that is FY 2017-18, growth of paint industry was little sluggish due to reasons beyond its control. For example, in the first quarter of last FY, the paint industry experienced de-stocking following the GST rollout. It took couple of quarters for the industry to recover from the GST effected disruption. In fact, pace of growth of the Paint industry was partially affected by the poor health of the real estate sector. The housing construction sector continued to under-perform due to various reasons like lack of investor interest after stagnating real estate prices; reduced availability of river sand, generic rise in ready reckoner rates across major markets; and diminished cash component subsequent to GST and demonetisation.
However, Financial Year 2018-19 has started on a positive note for the industry as the GST Council has reduced the GST for paints from 28% to 18%, thus, narrowing the price difference between products manufactured by organised and unorganised sector. All the leading paint manufacturers have passed on the lower GST rate benefits to the consumers fearing government action for profiteering. According to experts, this will speed up the process of market share shifting from unorganised sector to organised ones.
Rising raw material prices is one of the greatest concerns the industry is currently faced with and most of the industry players had passed on effect of increased raw material price to the consumers through price hike in April-May. However, the cost of raw material has continued to rise and the problems of the paint manufacturers has multiplied with the simultaneous rupee depreciation. Since most of the raw materials consumed by the paint industry is crude oil based, continued rise in the price of latter will have its impact on user industries like paints.
Most of the companies are going in for massive capacity expansion in decorative paints manufacturing. For example, market leader Asian Paints is in the midst of its largest manufacturing capacity expansion of two megaplants, with initial capacities of 3,00,000 KL per annum; each of waterbased paints would be commissioned at Mysuru and Visakhapatnam in FY 2018-19. Similarly, Kansai Nerolac Paints is setting up a Decorative Plant at Amritsar and work is progressing satisfactorily at the site. Another Greenfield plant at Vishakhapatnam which has been announced is being planned, and work for the same has started. Berger Paints is expanding capacities in Uttar Pradesh and Maharashtra plants and has outlined a capex of Rs. 280 cr which will be be spent over the next two years. Of this, Rs. 200 cr is earmarked for setting up a greenfield unit at Sandila, Uttar Pradesh to manufacture water & solvent decorative, industrial & protective coating, resins, emulsion and construction chemical. While the rest would be spent on second-phase of expansion at Jejuri plant in Maharashtra.
The per capita paint consumption in India is a little over 2.5 kgs to 3.5 kgs and is still very low as compared to the developed western nations. As more development takes place in the country, this figure is anticipated to increase. Further, increased farm income (remember the government aims to double the farmers income by 2022) will increase the demand for paints from rural India among other things. Increased push given to affordable housing will also add on to the demand for paint industry. Thus, short term blip notwithstanding, the industry is poised for a stronger growth in the medium to long term period. It is evident from the fact that all the leading players have gone for capacity expansion despite the current lullness in demand.