Page 133 - CW E-Magazine (18-3-2025)

Point of View

New entrants depress margins for incumbents in paints,

but long-term outlook remains bright

In these times of uncertainty, it is hard to look beyond the immediate challenges several industrial sectors, face. The paints and coatings
industry is one such. The industry, which was hit hard by the Covid pandemic on both fronts – industrial and decorative – has now come under
pressure in large measure due to aggressive posturing by new entrants to the business, which is depressing margins. But given India’s population,
economic growth, urbanisation, and the emphasis of government on industrial development and housing across all economic classes, it is hard
not be positive of growth prospects for the industry over the medium- to long-term.

The size of the Indian paints and coatings market is estimated at $9.60-bn in 2024, and per capita consumption is a piffling 3.5-kg,
much lower than the global average of 10-kg. In the first half of this fiscal, the industry grew by just 3-4% in volume, and just 1-2% in value.
While the industry should put this behind in the medium-term and see volume growth of the order of 7-8% CAGR through to the end of the
decade, value growth should also recover to around ~10% CAGR, driven by some strong underlying trends.

Growing home ownership & industrialisation
Demand for decorative paint, accounting for 70-75% of total paint demand, is primarily driven by new construction (20%) and repainting
(80%). The fundamentals on both these are still sound. For one, just a tad over a half of homes in India are currently paintable, but this
proportion is rising at a faster clip – about 3.7% CAGR – than population. Government incentives to boost housing may have abated somewhat
but is still significant, and efforts will continue to ameliorate the housing shortage across the country, currently estimated at about 20%. ‘Housing
for all’ is a mantra every government has chanted and that is unlikely to change.

In urban India, repainting cycles are shortening, and this trend is expected to continue. Nomura, a global financial services company, estimates
that the repainting cycle time could shorten from 6.9 years in 2019 to 5.6 years in 2031, driven by heightened awareness of hygiene, more rented
homes and availability of virtual painting tools and mechanised painting services that make things easier for customers.

Industrial paints represent the remaining 25-30% of total paint demand, mainly coming from the automotive industry, as well as sectors
like oil & gas, aerospace, marine, and electronics.
Growing share of organised sector
The other trend expected to continue is the growing dominance of the organised sector. India is probably amongst the very few countries
that have a large number of small paint companies, mostly offering undifferentiated products, and catering to local, or, at best, regional
markets. This segment has been severely challenged in the last decade, both by the muscle of larger players, as also increasing customer
expectations. The inability of the smaller lot to lure customers through enticing marketing campaigns, and by offering a broad portfolio
of products, have caused them to lose market share to the larger, organised sector. While the latter accounted for about 65% of the total
volume of decorative paints sold in 2019, this figure is expected to rise to 80% in 2031. In the industrial segment, the dominance of the
organised sector is and will likely be even greater, given the higher technical capabilities demanded in end-use segments.

Challenge of new entrants
The entry of three large-scale producers into the decorative paints business – Birla, JSW, and Pidilite Industries – in the last two years,
scaling up of operations by mid-sized producers, and transformation of a number of small-scale producers into mid-sized ones is changing the
composition and pecking order of the industry. The three big newcomers are directly challenging established players such as Asian Paints,
Nippon, Berger Paints, and Kansai, who have dominated the market for decades. With substantial investments, integrated operations (including
captive resin manufacturing) and innovative marketing approaches, the new entrants are reshaping industry dynamics.

The immediate impact has been on margins across the board. According to an analysis by CareEdge Ratings, a ratings agency, after
showcasing strong revenue growth in FY22 and FY23 (following the pandemic), the growth rate of the long-entrenched players moderated to
mid-single digits in FY24 and slipped into a negative zone in H1FY25. However, revenue in H2FY25 is expected to witness a rebound on y-o-y
basis on the back of benefits arising from the price hike taken in July-August 2024.

The new market dynamics have even led Dutch paint producer AkzoNobel to announce an exit from India. The company’s Dulux brand in
the architectural segment is a very well recognized brand, going back to its ICI days, while in the industrial segment also the company has

Chemical Weekly March 18, 2025 133

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