Page 134 - CW E-Magazine (18-3-2025)

Point of View

several reputed brands with global recognition. The sale process is ongoing and has attracted the attention of several industry players,
as well as financial investors.

Premiumisation of products
India’s paint companies have traditionally offered a range of systems to cater to different price points. From low value rudimentary
cement paints to high performance water-based systems based on synthetic polymers, the portfolio is expansive. It includes (in order
of price): distempers (Rs. 60 per litre), economy emulsions (Rs. 120), premium emulsions (Rs. 230), luxury emulsions (Rs. 425) and
super-luxury emulsions (Rs. 600). The demand pattern in each tier of the economic pyramid has not been static in time, and a slow but
perceptible shift to premium products can be seen. Most large companies now have a portfolio that provides paints for each of the price
points, including the bottom of the pyramid.

The shift to premium products is also expected to be driven by the rather peculiar nature of the business. After all, what matters to
consumers is not the cost of the paint, but that of the painting, as a whole. While the cost of the paint nearly doubles as one transitions
from one level of the price point pyramid to the next higher level, the cost of painting only goes up by a third. This is due the fact that labour
costs now account for about two-thirds of the total cost of a paint job, and that of the paint is just in the range of 10-18%. This was not
the case just five years ago, when the two costs were roughly similar in proportion to overall costs. This change is driving customers to
choose a better-quality paint, as the overall incremental cost is not as high as apparent from the cost of the paint. Companies offering a
package of a product (paint) and a service (painting), can tap into two revenue streams, and most major paint companies are leveraging
this dual opportunity.

The government’s focus on infrastructure development and aiding manufacturing investments is further expected to bolster demand,
including in the industrial paints segment catering to sectors like automotive and marine.
Dealer networks
The importance of the dealer networks to the paints business cannot be overstated, and every major seeks to enhance it. Asian Paints, the
undisputed market leader for many years, is estimated to have 160,000 retail points spread across the country, and this was considered a deep
and broad moat that protected the company from the competition. But that has changed with the entry of the deep-pocketed new entrants.
Birla’s market entry into paints piggybacked on its sizeable distributor network for white cement, while Pidilite is leveraging a widespread retail
presence in construction chemicals and furniture adhesives.
The new entrants, notably Birla Opus, are also said to be deploying an aggressive dealer acquisition strategy, including higher margins,
discounts, and free tinting machines, forcing incumbents to review their dealer engagement models.

Relief on raw materials
In the medium-term at least paint companies are expected to benefit from substantial cost savings on several raw materials. Many
specialty chemicals, solvents and resins are of petrochemical origin and, given the oversupply in most and the soft outlook for crude oil, they
will trend cheaper.

Pigment costs are crucial, and none more so than titanium dioxide (TiO ) – the white pigment ubiquitous in most formulations. Here too
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the price outlook is soft, and in addition paint companies have developed a few tricks to cope with any unexpected cost escalations. Several
blend higher levels of cheaper Chinese TiO into their formulations, while others have looked to technical solutions including use of speciality
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polymers that enable the same coverage of paint at a lower dosage of TiO .
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Hunkering down till prospects improve
Despite recent challenges, the Indian paint industry remains a promising sector with modest growth potential for FY25 and stronger growth
beyond. A key factor will be revival of demand in rural markets, which will be dependent on improved agricultural incomes, government spending
on rural infrastructure, and job opportunities under schemes like MGNREGA. Paint companies that cater to these markets with economy and
mid-tier products stand to gain.

The future of the industry looks promising, but in the near term – at the very least the next two quarters – sales, margins and profitability will
continue be under pressure. In these challenging times, the emphasis will be on cost curtailment and optimisation, as companies huddle down for
the better times – hopefully before the festive season in the third quarter of this fiscal!
Ravi Raghavan

134 Chemical Weekly March 18, 2025

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