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Housing and real estate projects have been worse off due to the downturn. But slow demand and the weakening economic environment seem to have bypassed the leading paints brand in the country.
Asian Paints has belied fast-sobering consumer sentiments with its financial results.
Considered to be a discretionary expenditure and hence, prone to trade-offs by customers, paints have seen a decline in volumes.
The volume growth of decorative paints, which brings in most of Asian Paints' revenue, has come down to 8-9 per cent in April-June, 2013. However, Asian Paints bucked the trend and grew at 10 per cent. In fact, it went up from its average growth last fiscal of 7.5 per cent.
In contrast to industrial paints, decorative paints comprises interior and exterior wall finishes, enamel paints and wood finishes, and enjoy higher margins. They account for 75 per cent of the overall paints market in India. Asian Paints and Berger Paints get 80 per cent of their revenue from the segment, while Kansai Nerolac and Akzo Nobel derive about 53-55 per cent.
The national branded players such as Berger Paints, Kansai Nerolac and Akzo Nobel have stepped up efforts in the decoratives segment, especially the premium end, to shore up earnings. Asian Paints has had a clear headstart over its peers.
The company's strong brand equity, robust distribution network of over 30,000 dealers (double of that of Berger's 15,000) and operational efficiencies are the key differentiators that protect its position.
With a market share of 52-53 per cent, Asian Paints remains the undisputed leader. While market share gains appear to be difficult from here on, analysts believe, the company will not face difficulty in maintaining its position.
The gap between Asian Paints and the next competitor, Berger Paints (with an estimated market share of 17 per cent), is large enough to not be bridged anytime soon.
"We expect Berger to wrest market share in the mid-tier products (priced at Rs 100-150 per litre) segment from Kansai Nerolac and Akzo Nobel. But it is unlikely to dent that of Asian Paints in premium products for at least the next 12 months. Asian Paints' premium product offerings and consistent innovations in supply chain for efficiencies are its key strengths", says Rakshit Ranjan, an analyst at Ambit Capital.
Asian Paints has been marketing its premium-end decorative paints, such as Royale Play and stenciled wall-painting, for a few years now, ahead of competition.
Berger Paints with brands such as Silk, Rangoli, Illusions, Weather Coat and Jadoo Enamel, has stepped up its brand-building and premiumisation in the past year to catch up.
"We have increased ad spends marginally this year and will maintain the same at an above-industry average for another couple of years. Our dealers have grown substantially and we expect their additions to outpace the industry's growth rate", says Srijit Dasgupta, director and chief financial officer,Berger Paints in a recent conference call. The company grew at less than 10 per cent in volume for the June-2013 quarter.
Berger has a lot of ground to cover before catching up with Asian Paints.
Abneesh Roy, associate director, institutional equities, research, Edelweiss Securities says, "Asian Paints is almost generic to the paints category. The key differentiator is advertising. Asian Paints is three-four times its peers' size and can increase advertising heavily whenever required, unlike any of its peers."
Roy says that roping in Katrina Kaif has helped the Berger Paints improve recall on its brand and the company should do well at the premium end. "We believe Berger is likely to expand the market size rather than take away share from Asian Paints," he adds. Kansai Nerolac too has the actor ShahRukh Khan as its brand ambassador.
Asian Paints has also flanked its premium-end paints with volume churners through continuous investment in new products and branding. Its recent campaign for its Tractor Emulsions is a case in point and there plans to launch a premium emulsion soon.
Harish Bijoor, CEO, Harish Bijoor Consults, says, "Asian Paints understands the Indian consumers well and its investments will allow it to stay at the forefront. The company has converted the paint product into a service (via its Colour Worlds, Colour consultancy at homes and its website) to fuel further growth."
Bijoor notes that despite the tough macro, Asian Paints and Berger are the only two players who can actually pass on price hikes. Even then, a price is unlikely in the face of decreased demand.
A good monsoon will provide a filip to paint brands as it will spur consumer demand in rural areas. Demand generating by repainting (75 per cent of the decoratives demand) will also be keenly watched as it moves in tandem with economic growth and is keeping the demand for paints alive.
Says Bijoor, "About 22 per cent of Indian homes paint their homes once in 15 years. A likely shortening of the cycle of painting homes will drive growth going forward. As far as innovations are concerned, eco-friendly, health-friendly and mosquito-repellant paints could be worth exploring."
While lower crude oil prices have eased pressures on input cost, a weaker rupee could hurt Asian Paints margins given that crude derivatives (titanium oxide) are its key inputs.
