BE Presentation

Business Environment : 

Business Environment Paint sector Ashish Shelke Keshav Modi Parth Trivedi Russell Mascarenhas Sneha Kulkarni Wasif Khan Group 7

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The paint industry is an important part of everyday living. It confirms that no domestic or commercial arena remains unaffected. Paints includes all types of surface protection coatings used for decorative, industrial, marine and various special purpose finishes Significant changes in the paint and coatings industry - The succession of company consolidations and acquisitions – Stricter market demands in environmental requirements and the increasingly sophisticated nature of consumer demands. Global Paint Industry

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The Indian paints industry has been valued at Rs. 110 bn. with annual consumption of 0.6million tones Demand for paints is highly Price Elastic in India Big players contributes for 70% of total market, whereas 30 % is with small scale units Rapid industrialization & infrastructure facilities in India after 90’s gave boost to Indian Paint Industry Introduction to Paints in India

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Margins and Industry Attractiveness Asian Paints - 12.37% Jenson and Nicholson - 9.54% Goodlass Nerolac - 7.78% Berger Paints - 7.36% Industry Characteristics

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Growth Rate of the Industry

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The Paint industry can be classified into 3 different segments such as: End Use classification Solvent based classification Solid content Industry Segmentation

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Sectoral Size

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Distribution of Sale

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Industrial Segment

Decorative Segment : 

Decorative Segment

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For many years the Indian paint industry was content with manufacturing and supplying low technology products such as cement paints, oil bound distempers, general purpose enamels and low-build-low-solids protective and industrial coatings. But the picture has changed now The country’s per capita consumption of paints is 800-900 grams 15-25 kg in the some developed countries. While developed nations like USA, Japan etc. have per capita consumption in excess of 25 kg Current Scenario

Current Scenario : 

Current Scenario

Sensitivity Factors : 

Sensitivity Factors The industry is raw-material intensive. Nearly half are imported petroleum products The raw materials cost sums up to 70 per cent Any increase in the prices of these raw materials could adversely affect paint prices. Most of the paint majors have to import nearly 30 per cent of their raw material requirements The prices of packing materials such as HDPE, BOPP and tinplate have reduced considerably.

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Asian Paints has formed a JV with PPG Industries Inc to service the automotive OEMs. Berger has a series of tie-ups for various purposes. It has a technical tie-up with Herbets Gmbh of Germany in addition to its joint venture with Becker Industrifag. With the agreement with Herbets coming to an end in 2001, Berger has now allied with the Japanese major Nippon Paints. The company also has tie-ups with Valspar Corp and Teodur BV for manufacturing heavy duty and powder coatings. Interestingly, Du Pont, which is a leader in automotive coatings in the US, has a technical tie-up with Goodlass Nerolac for the manufacture of sophisticated coatings for the automotive sector. Goodlass also has technical collaborations with Ashland Chemcials Inc, USA, and a leader in the petrochemical industry, Nihon Tokushu Toryo Co and Oshima Kogyo Co Ltd, Japan. Technology Collaborations

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Asian Paints Kansai Nerolac Berger Paints ICI India Jenson & Nicholson Major Players

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Market Share

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Comparative Performance

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Growth in the Indian Automobile Industry, New Construction in the housing segment Improving Infrastructure throughout the country 30% of the paint business is comprised of new construction projects. Future predicts a CAGR of 8-9% for the next five years compared to last year's growth levels of 27.4% for cars and 8.9% for two wheelers. The Indian housing industry is likely to do well in the current year as well, recording a growth rate of 35% last year. Current Trends

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In the global market the share of industrial paints is 70% and that of decorative is 30% while for the Indian market it is the other way round. The global market is estimated at about $21 million tons per annum and valued at about $60 billion. The world market is growing at a rate of 3-4% a year, or slightly less than the world economy and is serviced by 7,000 paint makers. Global Trends

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Cost and price drivers The paint industry costs and prices are driven by raw material costs which constitute about 57% of the cost of sales, and government levies which constitute 38% of the cost of paints. There are more than 300 inputs going into the manufacture of paints and about 70% of them are based on petroleum.   Working capital management High raw material content; the number of finished products is also large with varying pack sizes. Sales in the decorative paints segment are seasonal with more than half the sales coming in the September-November festival season. Debtor levels also tend to be high in this industry. Critical Success Factors

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The government has passed a legislation that it is necessary for buildings to have an exterior paint every 5 years The Paint Industry gets some relief because import tariffs have been imposed at 35% which makes it very expensive to import Paint Anti-Dumping mechanisms are employed so that countries such as the USA do not dump large quantities of paints Government Policies

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Advertisement

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India's largest Paint Company Third largest Paint company in Asia with a turnover of Rs 30.2 billion. Enviable reputation in the corporate world for Professionalism, Fast Track Growth, and building Shareholder Equity Operates in 21 countries and has 29 paint manufacturing facilities in the world servicing consumers in over 65 countries. Asian Paints

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Asian Paints operates in 22 countries across the world It has manufacturing facilities in each of these countries and is the largest paint company in ten overseas markets It operates in five regions across the world through the different five corporate brands In ten markets, it operates through its subsidiary International Operations

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Key Drivers of Success

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SWOT Analysis

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Strengths Brand Image Market Leaders Comprehensive nation wide coverage of the market Widest product range Reputed Company Competitive Pricing Strategy Strong in inventory control In-house production

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Weakness Scarcity of Raw Materials Requirement of high working capital Innovation in developing new products is not adequate Seasonal demand and hence in off seasons it can lead to cash flow problems Ever expanding product mix throws some strain on inventory management Rural bias of logo “Gattu”. No Foreign tie-ups proves to be a weakness on the technology front.

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Opportunities AP has always encashed on opportunities Rise in Income Levels Heavy infrastructure spending Boom in Indian housing sector Rise in disposable Income Commodity to FMCG Fiscal incentives provided by Government

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Threats Foreign Companies entering as sole players and their domination GNPL and Berger might end up capturing the Industrial Market segment Instacolour spot mixing and Automated paint blending Competition from Hi-tech facilities Reduction in excise duties will destroy the unorganized sector Real Estate in a Depression Phase

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TOWS Matrix

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PESTLE Analysis

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Political The British units, though a few in number, were technically strong and financially sound and, with the active support and patronage of the Government, controlled a vastly higher share of the market. Rapid industrialization and improvements in the infrastructure such as transport, energy and communication during the last decade gave a further fillip to the growth of the paint industry. Aided by Government’s liberal policy of technology import, the automotive and consumer durable segments expanded phenomenally, with a flurry of foreign collaboration Many Fiscal Incentives are provided by the Government to boost the production process

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Economic The Indian paints industry is worth more than Rs 110 billion. The industrial paints segment accounts for 30% of the paint market while the decorative paint segment comprises of 70%. In developed countries the ratio of decorative vis-à-vis industrial is around 50:50. The industry offers lucrative scope for stable revenue streams to manufactures of both. The industry has witnessed increased activity in the industrial variety of paints with the entry of MNC’s in auto, consumer durables etc Increased demand for decorative, protective and functional coatings was a natural fall out, which brought, in its stride, a host of indigenous developments as well as the inject

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The Organized sector is dominated by six large players and in the unorganized sector there are about 2500 units manufacturing various categories of paints. The total volume of the market is about 717,000 MT and the industry is growing at 14% approximately. The decorative sector is largely dependent on the construction activity of the country as the industry deals with fresh coats on existing wall finishes. To gain a competitive advantage over its competitors, a company needs to be flexible and adaptable to the market demand.

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Social The countries worldwide are planning to reduce the no. of working hours of the workers working at the manufacturing line More and more people have started becoming conscious of the benefits of having paint in their houses rather than having simple wallpaper or leaving it untouched The employment in making industrial paints is expected to decline because of high automation in the production process of industrial paints

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Technological Numerous factories, wholly Indian in ownership and with rare exceptions in technology as well, was set up in Kolkata, Kanpur and Mumbai. The technology required for manufacturing of decorative paints is easily replicable and of a relatively low cost while the technology required for manufacturing of industrial paints is highly specialized. The technology for industrial paints is not easily replicable and also requires high capital investments. New techniques were developed which were more environmental friendly and gave better quality paint Asian Paints has had certain technological tie-ups with PPG of the USA and Nippon Paint Co, Japan for the manufacture of automotive paints, powder coatings, and coil coatings

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Legal In order to control the rising prices, the Government put forward the need to control the prices and stabilize the market

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Environmental The production regulations required the paint manufacturers to track their emissions more closely and invest in control equipment Users of paint and coatings were regulated to reduce the emissions resulting from the application process

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5 Forces Analysis

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Bargaining Power of Buyer HIGH Decorative paint Intermediaries Current scenario Industrial paint Few buyers Switching cost

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Bargaining Power of Supplier LOW Decorative paint Unorganized players Ultimate buyers Industrial paint Few suppliers

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LOW Threat of New Entrants Decorative paint Distribution channels Long time to establish Industrial paint Technology Switching cost is high for customers

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Threat of Substitutes MEDIUM Decorative paint Rural market Innovation Changing strategy Industrial paint Technology

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Rivalry Among Established Firms HIGH Few players Innovation Government policies Ultimate buyers

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Force Field Analysis

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Driving Forces Driving forces are those forces affecting a situation that are pushing in a particular direction; they tend to initiate a change and keep it going. Restraining Forces Restraining forces are forces acting to restrain or decrease the driving forces.

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Driving forces Restraining forces Scores are rated on the scale of 5 based on the impact of the forces. 5=Extremely strong 1=Extremely weak High GDP Growth – 3 Reputed Companies – 4 Heavy infrastructure spending - 4 Rise in Income - 4 Fiscal incentives by Government – 4 Automobile Industry – 5   TOTAL = 24 Scarcity of Raw Materials - 4 Requirement of high working capital -4 Real estate in a depression phase - 4 Seasonal demand - 4 Reduction in the market share of the unorganized sector – 3 Wide distribution network for most large companies – 3   TOTAL = 22

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Driving forces Restraining forces Scores are rated on the scale of 5 based on the impact of the forces. 5=Extremely strong 1=Extremely weak Importance of brand image - 4 Market Leaders - 5 Comprehensive Wide Coverage - 3 Good technology backup - 4 Pricing strategy is oriented to middle/lower end consumers - 3   TOTAL = 19

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Possible Future Changes Depending on international tie-ups, the transfer of technological competencies could happen in the direction of the Indian partner Other possible consequences could include: Break-up of the Joint Ventures No. of Acquisitions increasing Demand pattern will shift from Decorative to Industrial Paint looking at world wide trend The new advertising theme of "Paint for protection " is catching on since it is believed that the nation is losing crores of assets everyday due to corrosion. Such theme advertisements to educate consumers will gain momentum.

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Asian Paints is the undisputed leader in the paints industry The main aim of Asian Paints is to stick to the core values of the company Asian Paints has attained excellence in the execution of various initiatives The company has also been strengthening its already extensive network with over 15,000 dealers The future for Asian Paints is certainly bright Conclusion

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THANK YOU !