PAINT INDUSTRY CHARACTERISTICS:
Raw material shortage:
Till sometime ago, the bete-noire of the Indian paint industry was the high excise duty. When the government was finally convinced that paints were a necessity and not a luxury, excise duty was slashed across the board from high of 60% excise duty reduced to around 20%of the benefits were passed on to the customers and there was a temporary surge in demand. But all this stopped when raw material prices took an upward sprint.
Pthalic anhydride (PAN) prices all over the world started increasing. This has resulted in high input cost. The other raw material in short supply in titanium dioxide. This has prompted many large players to integrate backward to hedge uncertainty of raw material costs.
Working capital intensive:
The number of shades is very large and a sufficient stock of every shades has to be matained at all levels of the distribution channel, the working capital cycle is very high. The extent can be gauged from the fact that has a 12000 stronger dealer network selling more than 1500 shades through ‘Dealer Tinting Systems’.
Also, the number of raw materials required can stretch upto 300, as majority of these raw material are either imported or sourced from small chemical manufacturers. A large stock pile needs to be maintained.
Low fixed asset requirement:
A plant for manufacture of decorative paint can be set up with small capital investment. However major investment is in setting up distribution channels and building up a brand.
Seasonal Nature of demand:
The demand peak during festival season is very high especially for decorative paints, while is very lean during monsoons. Thus, a major part of the sales are achieved in the second half of the fiscal year
Entry Barriers:
• Huge investments are required for capacity creation and also to maintain the strong distribution network which is a critical success factor.
• With the reduction in excise duties, the price advantage of unorganized sector is being eroded. This has meant the reduction in the market share of unorganized sector.
• The reputed paint companies have invariably collaborated with foreign companies for technology support. For example, Asian Paints with Devoe marine (USA) and Nippon (JAPAN) Berger paints with Valspan Corporation (USA), Goodlass Nerolac with Kansai paints (JAPAN).
Raw material shortage:
Till sometime ago, the bete-noire of the Indian paint industry was the high excise duty. When the government was finally convinced that paints were a necessity and not a luxury, excise duty was slashed across the board from high of 60% excise duty reduced to around 20%of the benefits were passed on to the customers and there was a temporary surge in demand. But all this stopped when raw material prices took an upward sprint.
Pthalic anhydride (PAN) prices all over the world started increasing. This has resulted in high input cost. The other raw material in short supply in titanium dioxide. This has prompted many large players to integrate backward to hedge uncertainty of raw material costs.
Working capital intensive:
The number of shades is very large and a sufficient stock of every shades has to be matained at all levels of the distribution channel, the working capital cycle is very high. The extent can be gauged from the fact that has a 12000 stronger dealer network selling more than 1500 shades through ‘Dealer Tinting Systems’.
Also, the number of raw materials required can stretch upto 300, as majority of these raw material are either imported or sourced from small chemical manufacturers. A large stock pile needs to be maintained.
Low fixed asset requirement:
A plant for manufacture of decorative paint can be set up with small capital investment. However major investment is in setting up distribution channels and building up a brand.
Seasonal Nature of demand:
The demand peak during festival season is very high especially for decorative paints, while is very lean during monsoons. Thus, a major part of the sales are achieved in the second half of the fiscal year
Entry Barriers:
• Huge investments are required for capacity creation and also to maintain the strong distribution network which is a critical success factor.
• With the reduction in excise duties, the price advantage of unorganized sector is being eroded. This has meant the reduction in the market share of unorganized sector.
• The reputed paint companies have invariably collaborated with foreign companies for technology support. For example, Asian Paints with Devoe marine (USA) and Nippon (JAPAN) Berger paints with Valspan Corporation (USA), Goodlass Nerolac with Kansai paints (JAPAN).