Small-scale units in the paint industry are fighting a losing battle with the big players. With capacity addition already being a hurdle for many, a 30 per cent increase in prices of raw material (including packaging material) in the last one year has further hurt their profit margins. Trade experts say that margins, once as high as 20 per cent, have fallen to 10-12 per cent. As a result, small paint companies are no longer able to use lower prices as their USP.
There are about 2,500 small paint units in the country, about 10 per cent of these are in Andhra Pradesh. An estimated 10,000 people depend on these units in the state for their livelihood, both directly and indirectly
The current price difference between branded paints and the products of small companies is 10 -15 per cent, and more people are shifting towards the organised players, according to Indian Small Scale Paint Association (AP Region) chairman Pravin Gupta.
The Indian paint market is estimated at $1,400 million (Rs 7,000 crore). The organised sector, dominated by half a dozen players, has a 55 per cent market share while the unorganised sector, with about 2,500 manufacturers, has a 45 per cent share. The rural areas are major markets for the small paint units. “Customers in rural areas are price sensitive and these products suit their preferences,” says Gupta.
The slowdown in the real estate sector has also hit small paint companies. The number of contractors who patronised small paint companies has come down due to the lull in construction activity.
On an average, a small paint unit has a capacity of 8,000-10,000 litres a month. But several companies in the last couple of months have reduced their capacities by 20-25 per cent due to a two-and-a-half-day power cut a week in the state for the summer season. This apart, unscheduled power cuts also affect the quality of the paint.
Says Shankar, a member of the ISSPA: “We cannot say that business is bad. But getting payments in time is becoming a problem.”
The paint industry thrives on the stocks of pigments, resins and solvents. Of these, the prices of solvents are dynamic and bigger companies absorb the change due to larger inventories. “The bigger companies do not increase product prices immediately when raw material prices increase. But we do not have that kind of cushion. So, the price difference between our products and the branded ones narrows down and we lose customers,” says Gupta, who has a 15,000 litres-a-month capacity plant, Sri Trapu Coating Private Limited, at IDA Balanagar.
The small paint sector lost its competitive edge after being brought under the VAT regime. Earlier, there were some tax subsidies but these have been withdrawn. Though the government says it will patronise products of small industries, this is not being implemented, points out a trader.
Small units lose out in terms of distribution, brand image, product range and lack of access to new technology. The cost of modifying products to widen the range is a barrier for them. There is also intense competition among small paint companies. The big six manufacturers have recently expanded capacity by 50 per cent to cater to peak demand and be able to reach out to rural markets. Though SMEs are eligible for loans up to Rs 30 lakh without collateral, many paint units say loans do not come easily.
