25 September 2014
Consumer - Paints
Expert Speak
Colorful long-term outlook; demand buoyancy to stay
Growth drivers: distribution, innovation I Challenges: raw material, currency
We hosted a conference call with Mr Krishnaswamy, President, Indian Paints Association (and
Managing Director, Akzo Nobel India) to understand the long-term growth opportunity as well
as challenges for the Indian Paints industry. Our key takeaways:
Mr Jayakumar
Krishnaswamy
Mr Jayakumar
Krishnaswamy is
responsible for steering
and overseeing the
entire AkzoNobel's
businesses in India.
Also, he is responsible
for developing new
markets for
AkzoNobel's
Decorative Paints
business across the
South-East & South-
Asia (SESA) region.
Mr Krishnaswamy is a
Mechanical Engineer
from the Delhi College
of Engineering and has
over 26 years
experience across the
automotive and
engineering sectors and
FMCG and cement
industries. During the
course of his career, he
developed an expertise
in integrated supply
chain management,
kick-starting start-ups
and transforming
organizations.
He joined AkzoNobel
India in 2011 as the
Director Supply Chain.
Prior to joining
AkzoNobel, he was
associated with
Hindustan Unilever for
over 15 years and
played a vital role in
shaping the supply
chain of the company.
He has also worked
with Lafarge, Brakes
India and Eicher
Tractors.
1
Industry could grow in mid-teens (1.5-2x GDP growth)
Post the decisive election mandate, consumer sentiment has improved. Domestic demand
environment for the Paints industry is healthy. Given the renewed optimism in the
economy, the demand environment should improve further.
The Paints industry has typically grown at 1.5-2x GDP growth. With macroeconomic
recovery, the industry should comfortably post double-digit volume growth in FY15.
Asian Paints had posted double-digit growth even in FY14, when macro conditions were
unfavorable.
The Industrials segment is likely to benefit, given the initial pick-up in demand in the
Automotive sector, and expected reforms in Infrastructure and allied sectors.
The government's intent to create 100 smart cities and thrust on affordable housing
bodes well for the Decorative segment. Rising disposable incomes, increasing propensity
to spend, and changing lifestyle and consumption patterns are long-term growth drivers.
Industry dynamics: Improving reach to augment penetration
The repainting cycle (5-7 years) gets delayed by a year during a downturn. However, as
purchasing power and disposable income rise again, the repainting cycle shrinks.
In the medium term, the Paints industry could benefit from increased reach in tier-2 and
tier-3 cities (currently, there are 35k dealers pan India). Increasing reach will drive
incremental volumes and penetration, and aid a shift towards branded products.
There are parts of India which have seen slowdown and some which have grown even in
a bad year like 2013. Rural markets are seeing a demand for the premium products and
are growing faster than urban. The companies are tapping these markets through
increasing distribution reach.
Innovation in product portfolio with eco-friendly offerings, new colors and shades, and
focus on value-added services can catalyze industry growth.
Correction in raw material prices (titanium-dioxide prices have corrected 4% QoQ and
5.6% YoY), stable currency, and softening crude prices augur well for the Paints industry.
The quantum of price cuts in paints will depend on demand dynamics and pricing
strategies of individual companies, Mr Krishnaswamy believes.
Import of raw materials and currency stability are key challenges. Huge capacity
expansion for the industry - so volume growth becomes critical to manage fixed cost.
The industry stands to benefit from GST implementation, and IPA will support the
government in the implementation of such initiatives.
Outlook
Given the low per capita consumption and favorable demographics, outlook for the Indian
Paints industry remains bright. Demand is likely to be strong in the medium to long term.
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); Tel: +9122 3982 5404
Manish Poddar
(Manish.Poddar@MotilalOswal.com); Tel: +9122 3027 8029
Investors are advised to refer through disclosures made at the end of the Research Report.

Expert Speak
Story in charts
APNT dominates with 55% market share
...with 65% of the industry being organized
Source: Industry, Company, MOSL
Industry dealer count stands at approx. 35k
With ~70% of dealers possessing tinting machines
Source: Industry, Company, MOSL
Tio2 prices have corrected 5.6% YoY and 4% QoQ
Industry growth has been in mid teens over the past decade
Source: Bloomberg, Company, MOSL
Note:
We have used Asian Paints, Kansai Nerolac, Berger and
Akzo Nobel to calculate industry data
25 September 2014
2

Expert Speak
Key metrics for Paint companies in India
FY04
Sales (INR m)
Asian Paints
Berger Paints
Kansai Nerolac
Akzo Nobel
Total Sales
Sales growth (%)
Gross Margin (%)
Asian Paints
Berger Paints
Kansai Nerolac
Akzo Nobel
EBITDA Margin (%)
Asian Paints
Berger Paints
Kansai Nerolac
Akzo Nobel
PAT Margin (%)
Asian Paints
Berger Paints
Kansai Nerolac
Akzo Nobel
RoE (%)
Asian Paints
Berger Paints
Kansai Nerolac
Akzo Nobel
Debtor Days
Asian Paints
Berger Paints
Kansai Nerolac
Akzo Nobel
Inventory Days
Asian Paints
Berger Paints
Kansai Nerolac
Akzo Nobel
Creditor Days
Asian Paints
Berger Paints
Kansai Nerolac
Akzo Nobel
22,179
6,706
7,605
6,851
43,341
FY05
25,605
8,246
8,723
7,543
50,117
15.6
41.8
44.7
46.3
38.7
13.1
10.4
14.9
12.3
7.1
6.3
10.5
8.1
32.1
25.4
28.4
8.9
42
37
44
60
65
74
48
63
72
72
113
154
FY06
30,210
9,788
10,096
8,762
58,856
17.4
40.7
44.9
47.0
38.4
13.0
11.8
15.6
13.9
7.3
7.2
13.7
7.0
34.2
30.6
34.1
9.1
42
41
52
47
59
74
64
51
67
111
103
135
FY07
36,700
11,599
12,224
8,882
69,405
17.9
40.1
43.7
43.4
40.0
13.0
11.2
14.0
18.6
7.8
7.2
8.8
8.0
36.8
30.1
21.0
51.6
42
45
58
68
59
79
54
54
74
84
78
151
FY08
44,072
13,393
13,198
9,387
80,050
15.3
41.5
43.7
43.6
41.2
15.0
11.2
14.1
14.3
9.5
6.9
9.1
8.4
42.5
26.4
20.2
7.9
38
43
59
41
59
73
48
48
81
80
82
167
FY09
54,639
15,108
13,745
9,001
92,493
15.5
38.3
42.6
42.6
43.4
12.3
10.1
11.5
22.6
7.3
5.9
7.2
10.6
33.4
20.9
15.1
30.3
38
44
56
31
51
64
45
41
60
71
113
133
FY10
66,809
16,842
17,064
9,386
110,101
19.0
43.8
44.7
45.0
48.6
18.4
11.9
15.5
23.7
12.5
7.1
9.7
17.0
48.8
19.2
21.4
16.1
30
44
50
31
52
65
53
38
70
87
118
159
FY11
77,223
21,071
21,412
10,876
130,582
18.6
42.1
45.5
42.4
46.9
17.2
12.0
13.6
21.3
10.9
7.0
9.6
15.2
38.5
20.5
22.5
16.2
27
41
44
24
62
70
60
51
89
82
97
142
FY12
95,983
26,621
26,006
19,425
168,035
28.7
39.8
43.9
40.4
35.1
15.4
11.6
13.0
14.8
10.3
6.7
8.3
10.4
36.0
21.0
20.3
14.0
30
42
50
42
61
70
64
63
FY13
108,744
30,242
28,566
21,797
189,349
12.7
41.0
45.6
39.0
41.7
15.3
12.1
11.8
15.0
10.2
6.9
10.2
10.0
32.9
21.3
22.7
19.8
33
39
54
42
61
70
68
53
FY14
125,816
33,848
31,544
23,717
214,925
13.5
41.7
46.8
39.4
40.7
14.8
12.4
11.5
10.5
9.8
6.9
6.5
6.3
30.4
20.7
14.5
17.7
32
41
53
47
60
67
75
50
43.8
45.5
47.1
41.5
13.4
11.7
13.5
12.1
6.7
6.6
7.6
4.7
28.1
23.4
21.9
21.0
44
38
54
57
52
61
51
66
80
58
113
158
82
82
87
82
81
103
63
86
87
121
137
128
Source: Industry, MOSL
25 September 2014
3

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