The domestic paint sector is valued at Rs 500 billion which saw 12 percent growth in its volume output in the year 2019-20. If we talk of total growth then the sector witnessed a growth of 15 percent. In India, the paint sector is segmented into industrial and decorative. Around 75 percent of market share is dominated by the decorative segment which comprise of interior and exterior wall paints, enamel and wood finishes along with ancillary products such as primers and putties.
Industrial segment of the paint sector is made up of automotive, powder and protective coatings. Just as the decorative segment is led by Asian Paints which boasts of 39% market share of the segment the industrial segment is dominated by Kansai Nerolac. Domestically, the sector has been witnessing a steady growth over several decades. Prospective outlook for the sector is positive but it is driven by several factors such as crude oil prices, disposable income and growth in real estate and automotive sectors.
History of Paint Sector in India
Paint industry has a long history going back over hundred years. Formally, the starting of the industry can be said to begin in 1902 with the establishment of Shalimar Paints in Kolkata. For a long time it was dominated by small domestic producers a couple of foreign companies. In 1920, Kansai Nerolac was incorporated and was headquartered in Mumbai. During Quit India Movement in 1942, India’s leading paint company, Asian Paints, was established in Bombay which was to color the country’s dreams in vibrant colors after Independence.
Most of the top ten paint companies in India were established in pre-Independent India. The 2nd largest paint company, Berger Paints, was established in the year 1923 in Kolkata. Over the years the company has established its trail in many countries across the globe. The sector has grown in tandem with the onward march of the country. Industrial development was taken forward by companies in every sector of the economy. The sector has been generating jobs, contributing to the national prosperity and paying generous dividends for the share holders.
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Market Leaders in the Paint Industry
Asian Paints is the largest paint company in India controlling around 39 percent market share in its segment. In the decorative segment, the market is completely dominated Asian Paints and Berger Paints garnering over 80 percent of the market. These companies attained the top position by dint of introducing innovative products and establishing strong distribution networks.
Other significant players include Akzo Nobel India, Indigo Paints and Shalimar Paints which have sizeable presence in the sector. The decorative sector is dominated by the two players because there is lack of technical know-how and lack of proper distribution networks in the industry. The companies are not able to come up with high quality products with competitive pricing.
Indian paint industry has registered impressive growth so much so it has become the second largest in the APAC region. It is one of the most regulated industries in the world. The Wholesale Price Index of paints and varnishes was valued at 112.7 in 2019, which was the highest value for the sector compared to the last five years. The trade value of the paint industry in India stood at over Rs. 57 trillion in 2019.
Unorganised Small Paint Manufacturers
Around 30 to 35 percent market is still catered to by the small paint manufacturers in the unorganised sector of the overall paint industry in India. These players cater to low price spectrum of the market both in industrial and decorative sector. It is a significant part of the industry the organised sector has been able to build any inroads. Competitively priced products might be able to find a way into the low price segment.
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Growth Prospects of Paint Industry
India’s paint sector is projected to grow at a CAGR of 8.7 percent from 2020 to 2025. The industry is heavily dependent on the increasing disposable income of middle class, urbanisation, growth and penetration of rural market and shorter repainting cycle.
Growth in the industry would be driven by significant increase in the sale of premium products. Indian middle class is going to increase substantially. As the economic recovery is underway, it is projected that industrial output of the country will go up in the near-to-mid term basis. In the long term also India story is bright as the government is pushing through reforms in every sector of the economy.
Snapshots of Top 10 Paint Companies
Asian Paints
The company was founded in 1942 and has grown to be the No. 1 company in India. It was set up as a partnership firm by four fiends. They had the vision to become the leading company of the sector displacing some of the best known businesses of their time. Now it is the largest company with annual turnover of over Rs 21,712.
Key Data
- Promoter Holding : 52.79%
- Market cap : Rs 285,054.40 crore
- Debt to equity : 0.03
- Net profit : Rs 3,178 crore
- ROE : 24.51
- BVPS : 137.92
Berger Paints India Ltd
The company was founded in 1923 and has grown to be the 2nd largest business in the decorative segment of the paint sector. Headquartered in Kolkata, the product range of the company includes paints, coatings, wallpapers, chemicals, construction, primers and putties. The business has established its presence in numerous countries including Russia, Nepal, Sri Lanka, etc. Leveraging its superior technical know-how and superb organization, the Kolkata based company has achieved stellar growth and now is positioned at second place.
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Key Data
- Revenue : Rs 6817 crore
- Promoter holding : 74.98%
- EPS : 7.41
- Market cap : 79,243
- Debt to equity : 0.11
- Net profit : Rs 725 crore
- ROE : 21.31 %
- BVPS : 34.84
Kansai Nerolac Paints Ltd
The company was established in 1920 and is headquartered in Mumbai, Maharashtra. It is engaged in the production of the paints for industrial segment of the paint industry. The product range of the company includes decorative paints, industrial finishing products, coatings, etc. It is the leading company in the industrial segment and is mostly dependent on the automotive sector, which drives 40-45% of the demand. The company is responsible for generating 45% of the revenue of the industrial segment.
Key Data
- Revenue : Rs 5,074 crore
- Promoter holding : 74.99%
- EPS : 9.83
- Market cap : Rs 33,695.96 crore
- Debt to equity : 0.04
- Net profit : Rs 525 crore
- ROE : 13.07%
- BVPS : 75.88
Akzo Nobel India Ltd
The company is also known as Dulux Paints and was established in the year 1993. Akzo Nobel is headquartered Amsterdam, Netherlands. It has rapidly gaining market share on the strength of its amazing range of products including chemicals, decorative paints, basic and industrial coatings and so on.
Key Data
- Revenue : Rs 2,421 crore
- Promoter holding : 74.99%
- EPS : 45.6
- Market cap : Rs 9,775crore
- Debt to equity : 0.00
- Net profit : Rs 207 crore
- ROE : 16.12%
- BVPS : 282.64
Indigo Paints Ltd.
The company was founded in the year 2000 and is headquartered in Pune. It is one of the fast emerging companies offering wide range of products including exterior and interior paints, emulsions, enamels, putties and primers. It started by offering low-end cement paints. From the modest beginning, the company has established pan India network. Now, it has become one of the leading paint companies in India with sizeable presence.
Key Data
- Revenue : Rs 723 crore
- Promoter holding : 54%
- EPS : 15.55%
- Market cap : Rs 11,521.21 crore
- Debt to equity : 0.00
- Net profit : Rs 70 crore
- ROE :12.57%
- BVPS : 118.46
Nippon Paint India
Nippon Paint India is a Japanese paint company offering wide range of high quality paint products. It is reputed as the 7th largest paint company in worldwide. It was established in 1881 by Jujiro Moteki and Komyosha known for making premium quality paints and coatings for industrial, automotive and decorative sectors. Its product range includes marine coatings, automotive coatings and numerous other items for industrial and home consumption.
Shalimar Paints Ltd
It was established by AC Turner and AC Wright in the year 1902 and is headquartered in Gurugram, Haryana. Being the oldest paint company in India, it offers a complete range of products ranging from decorative and industrial segments. Numerous buildings of national importance have been painted with Shalimar paint. First manufacturing unit of the company was established in Howrah in 1902 and the 2nd unit was set up in Nashik, Maharashtra in 1992. And the third manufacturing facility was set up in 2002 in Sikandrabad, U.P.
Key Data
- Revenue : Rs 325crore
- Promoter holding : 53.1%
- EPS : -10.86%
- Market cap : Rs 561 crore
- Debt to equity : 0.55
- Net profit : Rs -49 crore
- ROE : -22.35%
- BVPS : 41.08
Sheenlac Paints
Headquartered in Chennai, Sheenlac Paints was established in the year 1962 by John Peter. Soon after its establishment the company became one of the top paint companies in India. Product range of the company includes decorative paints, wood finishes and automotive coatings. It is known for introducing the first non-alcoholic wood polish. It also takes credit for introduction of packaging thinners in recyclable PET (Polyethylene terephthalate) bottles.
Snowcem Paints
With the establishment of Snowcem Paints in the year 1959, it started its operations under the leadership of George Lillington. It is headquartered in Mumbai, Maharashtra engaged in making of exterior cement based masonry paints in India. Product range of the company is concentrated on manufacturing coatings and exterior painting. With its innovative products and sensible pricing, the company has been able to carve a niche for itself in the industry.
British Paints
British Paints started its India operation in 1947 offering decorative and industrial coatings such as enamel, texture, and waterproofing solutions. The products being of high quality soon found favor with the customers. It has got a country-wide distribution network of 48 branches and hundreds of channels. Products including Glo, Expa Cool, Shingar, British, MasterBlaster, Acri Silk and numerous others have become popular with the customers.
Growth Prospects of Paint Industry
Indian paint industry is projected to grow at a CAGR of 8.6% during 2019-2024 on the strength of the growth in the industry. There is substantial potential in the sector with huge young people and growing middle class.
It is projected that by 1930 Indian middle class will grow to garner 17% of global consumption making India as the 2nd largest consumer market. It will significantly boost the paint industry riding on the increasing disposable income of middleclass.
In the last few years, there has been a markedly higher growth in smaller cities and towns as compared to metros and tier 1 cities. Next, the rural markets will drive the demand with rise in the disposable income, increase in consumption expenditure and greater pace of development.
Over all rising incomes will definitely boost the construction industry which will spur the demand in the paint industry as well. Moreover, India’s focus on infrastructure development will also spur growth in the paint industry.
Under the Make in India initiative, the Government of India set itself a target of increasing the share of manufacturing sector to 25% of the national gross domestic product (GDP) from 16%. It is projected that manufacturing sector could contribute up to USD 1trillion by 2025. These factors will go a long way in increasing the demand in the paint sector.
Growth in Waterproofing and Construction Chemicals
Many paint companies are venturing into water waterproofing and construction chemicals as there is huge potential in the sector. Indian waterproofing market is presently valued at USD 0.7 billion in comparison with USD 22 billion of the Chinese room. The market will see a great deal of growth in the next 15-20 years. The companies are also entering adhesive market which also looks promising.
When should You enter Paint Stock for Investment?
Paint stocks are stocks are cyclical in nature as they are dependent on the rhythm and movement of the economy. These stocks move in sync with economic boom and bust and so are riskier you do not get the rhythm right.
On the positive side, cyclical stocks tend to deliver high returns if the economy is going through an expansion. Ideal time for buying these stocks is at the start of the upturn in the economy. And, you must sell them when the economy starts to shrink.
How to Identify Paint Stocks for Investment?
Investing involves analysis of financial data in order to determine the intrinsic value of the stock or company. There are a couple of financial ratios that would help you to gauge the potential of growth and performance of the company some of which are described below:
Return on Capital Employed (ROCE)
It is a financial ratio which is used for determining the profitability and efficient use of capital for achieving future growth. A ROCE of 15% or above is regarded as excellent for companies that are going through decent growth.
Price to Earnings Ratio (P/E)
This ratio is used for comparing stock price of the company with its earnings per share (EPS).
Book Value Per Share (BVPS)
It is used by investors for determining whether a stock price is undervalued by comparing the firm’s market value per share. Higher value of BVPS indicates that stock price is undervalued. On the basis of ROCE , we can say that Asian Paints and Berger Paints are the top stocks.
