Unlike telecoms or aviation, the Indian paint industry will not be fully organized. here’s why

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Consolidation has accelerated in the Indian paint industry, particularly after the coronavirus pandemic.

Large listed companies operating in the decorative paints segment such as Asian Paints Ltd and Berger Paints India Ltd continue to gain market share from smaller and regional paint manufacturers. It should be noted that the smaller / unorganized companies have a large presence in the decorative paints sector and have a negligible presence in the industrial paints segment. They mainly sell low value paints such as tempera, primers and putty.

Currently, the share of organized businesses is estimated at 75%. A sharp increase in input prices also accelerated the formalization of this sector.

However, analysts at ICICI Securities Ltd believe that despite the growth of large companies, small companies are very likely to continue to exist.

They point out the following reasons.

About 10% of the decorative paint industry will continue to use paints from smaller / unorganized players due to cost savings.

Resellers sell paints from small paint companies because they get a higher profit margin. The credit period offered by small paint companies to dealers is also longer than that of organized peers, which helps dealers save capital. Typically, most dealers have a relationship with the unorganized / smaller painting company.

The ICICI report adds that the major market players routinely drop some prices with reduced profitability. It provides opportunities for smaller / unorganized businesses. For example, most of the large paint companies have abandoned the 1 kilogram tempera inventory control unit.

Unorganized players have lower overheads and also lower investments in brand building activities. This allows them to operate with lower achievements / margins.

With the easing of trading conditions, the profitability of small paint companies could likely pick up, the national brokerage said.

As for listed companies in the industrial paints segment, such as Kansai Nerolac Ltd, they may not benefit much from consolidation. Analysts say due to lack of scale and relationships with large auto and white goods companies and durable companies, they have a lower share in industrial paints.

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