Feasibility Analysis to launch a New Paint Brand

WASIM AKRAM

Introduction:

India is the fastest growing paint market in Asia Pacific

• India’s paint industry size is estimated to be €3.5bn.

• The following paints are available in the market: Acoustic Paints

Resin Paints (Alkyd)

Dripless Paints

Latex Paints

Single Coated Paints

Primary Rubber based Paints

Texture oriented Paints

• The decorative paints to industrial paints ratio is 70:30 both in value and volume terms.

• Almost half of the revenues earned by the Indian paint industry are through enamels.

• The demand in the paint industry is seasonal to some extent. While the demand dips in the monsoon

season, it is the maximum in the festive season.

Growth:

• Market has been growing on average 15% annually during the last five years and thus it is growing 1.5-2

times faster than GDP.

• The expected CAGR is 13-15 % for the period FY13-14.

• 30% 0f the main business is comprised of new construction projects.

The paint industry growth drivers are:

• Repainting demand fuelled by the real estate boom over the past few years

• Changing consumer preferences, from pure aesthetics to value added features

• Rising demand for industrial paints

• The organized section of the industry is growing faster than the organized sector.

Decorative Paints:

The key drivers of decorative paints are:

• Robust economic growth leading to higher disposable income.

• Continued growth in real state.

• Change in perception towards painting.

• Launch of affordable houses.

• Shift in demographic profile resulting in increase in number of households.

• Various innovations of market players.

Industrial Paints:The Industrial Paint Segment is dominated by organized sector.

• Automotive paint form approx. 45 % of industrial paints.

• Performance coating forms approx. 25 % of industrial paints.

• Consumer durables and auto ancillary products use power coating.

• Coil coating are used in industrial constructions, electric equipment and interiors of trains & buses.

Major Players

The unorganized sector with about 2,000 units having small and medium sized manufacturing plants controls

around 35 % of the paint market.

Out of the rest, most is controlled by the top 5 companies and they are:

• Asian Paints (Overall market leader due to leadership in decorative segment)

• Kansai Nerolac (Market leader in automobile industrial paint segment, also into decorative segment)

• Berger Paints (Major revenue from decorative segment, also into industrial paints)

• Akzo Nobel (Major revenue from decorative segment, also into automotive paints)

• Shalimar Paints (Mainly into decorative and non-automobile industrial coatings)

Opportunities:

Indian GDP is expected to grow 5.5-7.0 % annually the next few years.

Because of the high correlation between GDP and paint volume growth, decorative paints are expected to grow

on the back of strong economic momentum.

• Real estate boom in the past few years will lead to strong demand for repainting.

• At the moment the per capita consumption of paint in India is merely around 1 kg (20 kg in the developed

countries, global average 15 kg) so the absolute consumption of paint in India is expected to rise.

• The paint demand in tier II and tier III cities is growing at a faster rate than the tier I cities.

• Expected decrease in the use of distemper in future.

Key Challenges:

All the manufacturers have their own manufacturing units to maintain the quality.

• Paints have high volume-to-value ratio and require manufacturing near the market.

• Entry barrier is very high because the top five players have maintained market share despite of entry of new

foreign players.

• Outsourcing is limited and only for the low-end paints.

• The competition in the paint industry is becoming more intense with the entry of new foreign players like

Jotun, Nippon & Sherwin Williams.

• Crude prices have been in an upswing and this is raising the cost burden of the industry players.

Mechanism of Paints

Major InputsMajor

ProductsEnd User

Raw Materials (56%)

Selling & Administration

expenses (23%)

Employee Cost (12%)

Decorative Products: Paint

Emulsions, Enamels, Distempers, Wood

Finishes, Metal Finishes etc.

Industrial Products: Powder Coating, Floor Coating,

Surface Coating etc.

Households, Construction firms (70%)

AutomobilesConsumer GoodsMarine Industry

(30%)

Paint Industry Segmentation

INDIAN PAINT INDUSTRY

DECORATIVE SEGMENT (70%)

INDUSTRIAL SEGMENT (30%)

PREMIUM RANGE

(HIGH END ACRELYC

EMULSION)

MEDIUM RANGE

(ENAMEL PAINTS)

DISTEMPER RANGE

(LOW END PAINTS)

CONSUMER DURABLES,

MARINE PAINTS,

OTHER OEMs

AUTOMOTIVE SECTOR

(2/3 rd SHARE)

METROS AND

LARGE CITIES

SMALL

CITIES

SUB URBAN AND

RURAL AREAS

Market Segmentation:

Decorative: Major segments in decorative include exterior wall paints, interior wall paints, wood finishes and

enamel and ancillary products such as primers, putties etc.

Decorative paints account for over 70% of the overall paint market in India.

Demand for decorative paints arises from household painting, architectural and other display purposes.

Demand in the festive season (September-December) is significant, as compared to other periods.

Market Segmentation:

Industrial: Three main segments of the industrial sector include automotive coatings, powder coatings and

protective coatings.

User industries for industrial paints include automobiles engineering and consumer durables.

The industrial paints segment is far more technology intensive than the decorative segment.

Major Players in Indian Paint Industry:

Decorative Paints

Exterior PaintsInterior Paints

Wall-Emulsion-DistemperWallpaper

Metal-Enamel

Metal Gloss

WoodWood Finishes

Emulsion

Textured

Cement paints

Distemper

Enamel

Types of Decorative Paints

Asian Paints Royale luxury Emulsion

Interior Paints (Emulsion)

Dulux Velvet Touch

Silk

Interior Paints (Distemper)

Tractor Distemper Bison DistemperBeauty Distemper

Interior Paints Metal & Wood (Enamel)

Apcolite Premium Gloss Enamel

Synthetic Enamel

Luxol

Gloss Premium Enamel

Exterior Paints

Tartaruga (Textured) Snowcem Plus (Cement)

Weather Shield MAXApex Ultima

Price of Products (Interior)Segment Product Price (per lt.) Company

Walls (Emulsion) Royal Rs. 360-450 Asian PaintsWalls (Emulsion) Velvet Touch Rs. 360-450 ICI DuluxWalls (Emulsion) Impression Rs. 360-450 Nerolac PaintsWalls (Emulsion) Silk Rs. 360-450 Berger PaintsWalls (Emulsion) Premium Rs. 250-280 Asian PaintsWalls (Emulsion) Super Smooth Rs. 250-280 ICI DulaxWalls (Distemper) Tractor Rs. 60-80 (per

lt.)Asian Paints

Walls (Distemper) Bison Rs. 65-80(per lt.)

Berger Paints

Metal & Woods Dulax Gloss Premium Enamel

Rs. 200-230 ICI Dulux

Metal & Woods Synthetic Enamel Rs. 200-270 Nerolac PaintsMetal & Woods Luxol Rs. 200-270 Berger PaintsMetal & Woods Apcolite Premium

Gloss EnamelRs. 200-270 Asian Paints

Price of Products (Exterior)

Segment Product Price (per lt.) Company

Walls (Emulsion) Apex Ultima Rs. 350-400 Asian Paints

Walls (Emulsion) Dulux weather Shield Max

Rs. 350-400

ICI Dulux

Walls (Emulsion) Apex Rs. 250-300 Asian Paints

Walls (Emulsion) Dulux weather Shield

Rs. 250-300 ICI Dulux

Walls (Emulsion) Weather coat All Guard

Rs. 250-300 Berger Paints

Sales of Companies

Asian Paints Kansai Nerolac Berger Paints ICI Paints Shalimar Paints

Net Sales(FY2013) in Cr.

6607.2 2266.2 2096.2 1087.6 404.4

500

1500

2500

3500

4500

5500

6500

Net Sales(FY2013) in Cr.Q

uanti

ty

Market Shares of Companies (Contd.)

32%

11%11%6%5%

35%

Asian PaintsKansai NerolacBerger PaintsICI PaintsOthersUnorganised

Distribution Process of Paints

Paint Manufactures

Regional Warehouses

Company Dealer

Customers

Factors affecting Paint Industry

• Increasing level of income & education• Increasing urbanization• Increasing share of organized sector• Development of the Realty, Automobile and Infrastructure sector• Availability of financing options• Increasing Penetration in the Rural Markets

New concepts of Paints:

• Multi colored room concept.• Lead free color.

PORTER’S 5 FORCES

High raw material prices squeezing paint supplier's margins

Paint consumer looking to other alternatives to paint

Large companies becoming larger

Buyers becoming stronger

Threat of new

entrants

StrengthsIndian Paint Market has very strong potential in terms of market share in the organized sector

Comprehensive nation wide coverage of the market - urban, semi-urban and rural areas.

• Different segment required by different customer and industry has its own growth area and

market.

• A network of 25,000 dealers spread all over the country is available.

• The pricing strategy is oriented to middle/lower end consumers

• Paint Industry is quite strong in production-marketing coordination. Their policy Of offering

tailor-made products to suit customer need has resulted in an ever growing product range.

• In-house production, no outsourcing, high reliability in suppliers, superior in quality assurance.

Weaknesses• Widening product mix puts strain on production distribution, accounting and administration;

• Innovation in developing new products is inadequate;

• Ever expanding product mix throws some strain on inventory management;

• positioning for the premium brands meant for urban markets;

• Seasonal demand and hence in off seasons it can lead to cash flow problems;

Opportunities

• The automobile industry accounted for 50% of the industrial paint market.• Indian is the fastest growing paint market in Asia Pacific.• The paint industry growth drivers are:

– Repainting demand fuelled by the real estate boom over the past few years.– Changing consumer preferences, from pure aesthetics to value added features.– Raising demand for industrial paints.

Threats

• Domination of few foreign companies.

• Since both Goodlass Nerolac (43%) and Berger's (14%) have a higher market share than AP's

(14%), it is possible that in the future, they may capture the entire industrial paint market;

• Competitors have gone in for hi-tech with instacolour spot mixing. For example, J&N's

instacolour offers 626 shades;

• Automated paint blending in retail points already there. ICI's Touch Color and Berger's Color

Bank are indicative of this;

• Competition is catching up fast, hi-tech facilities gives abundant choices.

Statistical Analysis

Descriptive Analysis of the Market research Survey

HALF YEARLY

Strategies for Consumer

Strategies for Urban Consumer:• Providing innovative products & painting techniques.

E.g.: Reflective paints, Day night shade change, 3D texture, Radiance, Multiple tints, reflective color.

• Online marketing & online shopping for paints & paint related products.

• Online suggestions & makeover tips.

• Providing safe, odorless, low VOC, durable paints with all weather guard & high gloss attributes.

• Use of existing supplier network.

Strategies for Semi Urban & Rural Consumer:

• Paints with increased spreadability, more than of normal paints.

• High washability & durability of paints.

• Main focus on distemper & enamel paints.

• Use of hub & spoke supply chain to capture semi urban & rural market.

BRANDING

• Name of the Brand : Roshan Paints• Tag Line : “Roshan Bharat Ka Roshan Paints.”• Add Campaign : Celebrity endorsement with Hrithik Roshan.• Brand USP : High quality innovative ‘Desi’ Brand.• STP:

Segment: Decorative PaintsTarget : Households of Urban, Semi-Urban & Rural AreasPositioning : Colors of India

• The company would base its promotion & branding strategies on consumer ethnocentrism.

Brand Attitudes

Brand Equity

Brand Loyalty

Brand Preference

Brand position

Brand Image

Brand Personality

Brand Identity

Brand Familiarity Brand Associations

Brand Awareness

Identification of Opportunity for Branding:

Strategies for competitors:• Faster Service • Better quality & packaging than others.• Low cost solution to their clients.• Strong relationship with customer & suppliers. • Investmentent in R&D to create more varieties in products.• Introducing technological innovations maintaining CSR & sustainability.

Product Life Cycle:

MR, R&D,Preparation for launch, publicity Marketing Campaign

Ad campaign, awareness drive, Celebrity Endorsement

Tie ups, CSR, Capacity Expansion

Promo Offers, Innovation, Repositioning

Saturation: Conglomerate Diversification

New business Ideas

Future Strategies• Tie up with ASI for restoration & renovation works of heritage sites.• Entry into industrial paint segment.• Manufacturing of roof solution products.• Damp proof wall care products.• Production of tiles.

Cost:

Project cost Amount

Land & Site Development 2.00 cr

Building 6.00 cr

Plant & Machinery 10.00cr

Misc. Fixed Assets 50 lakhs

Contingency 86.35 lkh.

Pre-Operative Cost 27 lakhs

Total 19.62 cr.

Sr. No. Particulars   Unit Basis Unit cost (Rs.) Qty. Cost

1. LAND & SITE DEVELOPMENT              Land   Acres   15,00,000 10 1.5 cr.  Cost of Development              Land Development              Levelling & Fencing   Acres   200000 10 20,00,000  Entry Points & Guard rooms   Nos.   15,00,000 2.00 30,00,000  Sub Total           2.00 cr.2 BUILDING              Production Room 8 Sqft. 60x18x13 300 0 3.46 cr.  Colour Bank 1 Sqft. 40x9x12 300 0 14.4 lkh  Waste Yard 1 Sqft. 60x40x14 100 0 3.01 lkh  Pre-Production Area 1 Sqft. 40x20 50 0 5.33 lkh  Casing Chambers 1 Sqft. 12x10x10 250 0 4.00 lkh

  A/C Compressor Room / DG Set room 1 Sqft. 30x18x13 200 0 14.4 lkh

  Boiler Room 1 Sqft. 15x12x13 200 0 4.80 lkh  Canning Facility 1 Sqft. 60x18x13 250 0 36.01lkh  Can Store Room 1 Sqft. 30x18x13 250 0 18 lkh  Store / Tool Room / Canteen 1 Sqft. 15x12x13 250 0 6 lkh  Sorting Area 1 Sqft. 18x12x13 200 0 5.73 lkh  Packing Room 1 Sqft. 12x12x13 200 0 3.86 lkh  Service Room (Underground) 1 Sqft. 12x9x8 200 0 2.93 lkh  Corridor 1 Sqft. 108x15x13 50 0 10.8 lkh  Lab 3 Sqft. 18x15x12 450 0 48.69 lkh  Office Block 1 Sqft. 30x18x13 450 0 32.41 lkh  Architect Fee   %     2.5% 15,00,000  Sub Total           6.00 cr3 PLANT & MACHINERY              Casing Unit           2.00 cr.  Production Unit           7.00 cr.  Canning& Other Equipment           1.00 cr.  Sub Total           10.00 cr.4 MISCELLANEOUS FIXED ASSETS          Canteen Furniture           30.00 lkh.  Communication system           20.00 lkh.  Sub Total           50.00 lkh.5 PRE-OPERATIVE EXPENSES              Administrative Exp.           1.58 lkh.  Professional Charges           3.17 lkh.

  Interest During Construction Period           19.05 lkh.

  Start-up Expenses           3.17 lkh.  Sub Total           27 lkh.  TOTAL           18.77 cr.

Particulars Total % Firm Non Firm Total Total Cost

Land 1.5 cr. 0 1.5 cr. 0.00 0.00 1.5 cr.

Development / Building 6.5 cr. 5 - 6.5 cr. 32.5 lkh. 6.82 cr.

Plant & Machinery 10.00 cr. 5 - 10.00 cr. 50 lkh. 10.5 cr.

Miscellaneous Fixes Assets 50 lkh. 5 - 50 lkh. 2.5 lkh. 52.5 lkh.

Pre-Operative Expenses 27.00 lkh. 5 - 27.00 lkh. 1.35 lkh. 28.35 lkh

    

  Sub Total 86.35 lkh 22.

    

  Total   19.62 cr.

Profit Calculation:PARTICULARS Rs.

Sales 30 cr.

Total cost 19.62 cr.

Gross Profit 10.38 Cr.

Depreciation (@5% on 18.77Cr.) 9385000

Interest (@10% on 4.62 cr.) 4620000

PBT 89795000

Tax (@ 10%) 8979500

PAT 77815500

Production capacity =3000 TPAAvg. Selling Rate = Rs.100/Ltr.Loan = 4.62 Cr.

CSR Initiatives

• For the CSR activities the company would tie up with “Aravind eye hospital” and provide them with

financial assistance and help them in setting up eye check up camps in the remote areas.

• The philosophy behind this CSR activity is that ours being a paint company which helps in decorating

and bringing colors to peoples life we should also do something for those whose life just has the shades

of black and white.

References•

https://www.facebook.com/l.php?u=https%3A%2F%2Fwww.google.co.in%2Fsearch%3Fq%3Didentification%2Bof%2Bopportunity%2Bfor%2Bbranding%26biw%3D1517%26bih%3D692%26source%3Dlnms%26tbm%3Disch%26sa%3DX%26ei%3DjoKwUtPLGc2Ergfn9IGYDQ%26ved%3D0CAcQ_AUoAQ&h=YAQG-l8Kd

• http://www.uniassignment.com/essay-samples/marketing/strategic-analysis-of-indian-paint-industry.php

• http://www.studymode.com/essays/Supply-Chain-Management-Paint-Industry-198939.html

• https://www.google.co.in/search?q=product+life+cycle+images&tbm=isch&tbo=u&source=univ&sa=X&ei=OYOwUsXHCIi3rAfbvIDwCg&ved=0CCoQsAQ&biw=1517&bih=692&dpr=0.9#facrc=_&imgdii=_&imgrc=8Av669ZNSqeXCM%3A%3Bza8A-nRtF9uv4M%3Bhttps%253A%252F%252Ffigures.boundless.com%252F11565%252Flarge%252Fproduct-life-cycle.png%3Bhttps%253A%252F%252Fwww.boundless.com%252Fmarketing%252Fintegrated-marketing-communication%252Fselecting-the-promotion-mix-for-a-particular-product%252Fstages-in-the-product-lifecycle%252F%3B507%3B300

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