Coatings industry paints big picture with pick up in rural demand

This Diwali, if you are planning for a makeover of your home with a new paint, be ready to pay 10-12% more than what you would have paid at the start of the year. Festive seasons and vacations are the times when most houses go for painting. So what are the reasons for this hike? Couple of things are contributing to this rise – increasing cost of raw materials and depreciation of the Rupee against the Dollar. “The rupee has depreciated over 20% this year. With imported raw materials accounting to over 50%, the bottom lines are under tremendous pressure,” said Ramakanth Akula, President – Decoratives, Nippon Paint (India) Pvt Ltd.
 
For example, the cost of titanium dioxide (TiO2), a key raw material in paints, are set to rise again after being relative stable till September this year. This again will have repercussions on the paints industry. Akula said, “The international prices of TiO2 were stable till September but the prices in India were affected due to the depreciation of Rupee. TiO2 suppliers have announced price hikes of $50 to $100 per tonne, from October.”
 
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There may be another underlying reasons for this. Paints industry is broadly categorised into home/decorative and industrial segments. With the slowdown in the manufacturing sector (especially in the auto), paints manufacturers were reluctant to pass on the cost to customers fearing loss of market. On the other hand, they were able to increase the cost of decorative paints, hence sustaining the margin.
 
H M Bharuka, Managing Director, Kansai Nerolac Paints Ltd, informed, “The cost of production has gone up by 12-13% due to Rupee depreciation in last one year. In decorative, we have been able to pass on this increase in the market and, hence, decorative margins are maintained. In industrial, however, the degree of difficulty in passing the cost increase in high and limited which has a negative impact on profitability.”
 
Decorative and industrial: What is driving demand?
In India, contribution of decorative is about 75% of the total paints market, while industrial accounts for the remaining 25%. Both the segments have been showing robust growth in the last few years. Percy Jijina, Sales Director - Decorative, Jotun India Pvt Ltd, said, “Demands for decorative paints arise from household paintings, architectural and other display products. This demand increases during festive season/new year, as compared to other periods. An industrial coating or paint is typically used for its protective properties rather than its aesthetics.”
 
According to him, the Indian paint industry is approximately valued at Rs 24,500 crores with a growth potential of Rs 1 lakh crore in the next 10 years. Increasing urbanisation and nuclear way of life are also accelerating the demand for paints. “The paint market in India is very diverse. Not only does the diversity lie in choices and beliefs but also in geographical and climatic conditions. In order to understand the varied needs and wants of the masses, it is very important to have a base in the country in order to continuously & closely monitor the latest industry trends and also the consumer requirements,” added Jijina.
 
This year, experts, are apprehensive about the paints demand against the backdrop of the current economic situation. “The off take in volume terms is less with respect to last year,” said Bharuka when asked about the demand for paints in India in 2013 compared to 2012.
 
Rural market pushing demand
However, the better than expected monsoon showers could have a positive influence on the market with demand picking up in the rural areas thus negating the impact of economic slowdown. “The demand in 2013 could be the same as last year. With good monsoons, this year the rural demand will be robust in the coming quarters. The industry may hit a 10 to 12% growth in this fiscal,” opined Akula.
 
Even the auto industry is showing some signs of pickup with car sales in India rising for the first time in 10 months in August 2013. According to Society of Indian Automobile Manufacturers (SIAM) data, car-makers sold 133,486 cars in India in August this year, up 15.4% from a year ago. This should bring smiles on faces of the paint manufacturers.

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Bharuka elaborated, “The slowdown is affecting overall industrial paint segment due to the volatile conditions. In automotive, we are seeing a gradual revival. It is hoped that the better monsoons and resultant higher demand from rural India will help the industry see better growths in the short to medium term. In infrastructure, however, due to various bottlenecks and high interest rates, we are unlikely to see a revival in the short to medium term. The growth in infrastructure remains a challenge for the next 1-2 years.”
 
Niche is premium
Rise in awareness about environment and increase in disposable income are leading to demand for premium paints. “There is a demand for premium products in the last few years. The rising income levels and exposure to global trends have made consumers very aspiring especially when it comes to home. People are, also, becoming health conscious and using environmental friendly products,” observed Jijina.
 
Agreed Bharuka, “Yes, there is a rise in the sale of emulsion & other environment friendly products in the last few years due to awareness among people.”
 
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Thus, one can expect demand for low-VOC, water-based products to go up in come years. “Premiumisation is on the rise with increased disposable incomes, rising labour costs and the increased awareness and involvement of consumers in the painting process,” said Akula.
 
Painting a bright future
According to AC Nielsen, the per capita paint consumption in India is expected to touch 4 kg in 2016 from current 2.57 kg. “Considering the current economic situation in the country, it is safe to predict a 9-10% growth in the paint industry over the next 5 years. The paint industry is expected to be worth Rs 50,000 crore in the next five years which is a very positive development. Some of the major reasons for the rise in the paint industry are increased levels of income and education, increasing urbanisation, development of the rural market and various launches of many innovative products. Moreover, due to the low per capita consumption of paints in India, there is room for multi-fold growth,” said Jijina.
 
As a result, experts are optimist about the long-term growth prospects of the industry despite the current blip. Akula observed, “The growth in paint industry is still in double digits despite the economic slowdown. The per capita consumption of paint is still very low at 2.6 kg/person when compared to other Asian countries, this signifies the huge potential for paints in this country. Once the macro economic conditions improve, we can see the industry returning to a growth rate of 15 to 20%.”

Factsheet Indian paint industry valued at Rs 26,000 crore (in 2011-12) The market estimated to double to Rs 50,000 crore by 2016 Decorative paints accounted for 71%, remaining being industrial The size of the industry in volume terms is 3.1 million tonnes with decorative paints being 2.4 million tonnes and industrial paints being 0.7 million tonnes The per capita paint consumption estimated to be 2.57 kg, likely to go up to 4 kg in 2016 Source: AC Nielsen report on the coating industry for 2011-12, which was highlighted at the 26th Indian Paint Conference held in Mumbai in January 2013