Pest Analysis of Paint Industry in India Essay

PEST ANALYSIS The pest analysis refers to four main factors: POLITICAL ECONOMICAL SOCIAL TECHNOLOGICAL The analysis will focus towards the industry that how the political stability, rules and regulation, and the legal system of the country affecting the overall industry. The economic condition, liberalization, policy toward foreign investment, and growth rate of the economy as a whole also help to analyze the overall industry attractiveness and potential for the growth.

The social aspects like people are more involved in the painting process, trend of nuclear family; low interest rate of housing loan, increase of urbanization and change in thinking of the people all this is helpful for the industry consideration, also the change in technology, production process, distribution channel and more use of tinting machine that help for better shading of color.

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POLITICAL ENVIRONMENT The analysis of the political and legal environment will consider the following aspect: Largest Democracy. Taxation policy i. e. reduction in excise duty and custom duty on raw material and final products.

Fair amount of political stability. Political consensus on economic reforms and higher target of growth of the economy. Sound legal system – a factor contributing large foreign direct investment. Growth in the early nineties was constrained by high excise duties. After the rationalization of the excise duty structure in 1992 and consequent pick up in industrial growth, the paints segment began posting increasing growth. Over the last ten years, the industry has grown at a compounded annual growth rate (CAGR) of 12-13% and in the next five years, it is expected to grow at a CAGR of 11-12%.

The industry has apositive correlation with the country’s gross domestic product (GDP) as both have the same growth drivers. http://www. thefreelibrary. com/Encouraging+growth+potential+for+the+Indian+paint+industry:+the… -a0206850849? The finance minister announced that customs duty on titanium dioxide and pigments and preparations based on titanium dioxide will be cut from the current 12. 5 per cent to 10 per cent, paint companies were among the largest beneficiaries. Titanium dioxide is a key input in the paint industry and makes up 12-15 per cent of the total raw material costs. ttp://www. business-standard. com/india/news/paint-sector-upbeatraw-material-duty-cut/276344/ Budget Measures •Excise duty reduced on buses and their chassis, small cars, two wheelers and three wheelers from 16% to 12% and on hybrid cars from 24% to 14%. •Customs duty exemption to be withdrawn on naphtha for use in the manufacture of polymers in order to correct price distortions and revenue losses. Naphtha for use in the manufacture of polymers will be subjected to normal rate of 5%. •Increased emphasis on Bharat Nirman and improving infrastructure.

Budget Impact •Reduction in excise duty on small cars, two wheelers and three wheelers will benefit paint companies, as the prices of cars will decline thereby boosting volumes. •Increased emphasis on bolstering infrastructure in the country is a positive for companies, as it will enhance the performance of powder and protective coatings. Company Impact •Reduction in excise duty on small cars, two wheelers and three wheelers will benefit Kansai Nerolac and Asian Paints given their strong presence in the automotive paints segment. Emphasis on improving infrastructure such as roads, capital goods and power will be beneficial to Asian Paints, which has been witnessing strong growth in its powder and protective coatings businesses. INDUSTRY’S DEMANDS FROM THE UNION BUDGET • To give boost to the construction of residential units, the service tax on construction should be removed. • Tax relief on housing should increase. • Home loan interest rate should be cut. • The excise duty bracket of 16% for paints to change to 12%, considering the protective aspect of paint rather than taxing it as a luxury item. Excise on protective coatings should certainly be reduced, as the products in this category are used for protecting valuable assets from corrosion. In India we lose thousands of crores, annually on account of corrosion – a national waste, which can be avoided by encouraging use of ‘paint for protection’. • Interest rates to be cut in the case of loans for automobiles as this will help industry to come out of the present phase of low demand, particularly for the two wheelers. Encourage improvement in infrastructure by giving incentives in this sector, critical for the overall development in the country. This will help in improving paint consumption as well, both in the architectural and automotive industrial coatings. BUDGET IMPACT One of the big positives for the paint industry is the reduction in customs duty. Titanium dioxide prices, which account for 50% of raw material cost for paint companies, will fall significantly. Operating margins as a result, might increase notably thus enabling the companies to post better profits.

However lowering of customs duty will also results in higher imports in the coming years. Housing demand might increase in the coming fiscal as a result of lower interest rate. This will benefit paint companies in a large way. As their prospects are closely linked with housing demand. WHAT CAN GOVERNMENT DO TO PROMOTE THIS INDUSTRY Government must continue to encourage investment in housing sector through tax concessions. The excise tariff should be brought in line with essential goods understanding the value of paint from asset protection point of view.

There should be a legislation to paint the exterior of all the building once in 3 or 5 years so that the urban India wears a new modern look. Some of these measures will not only support the industry, but also have recurring losses. ECONOMICAL ENVIRONMENT The market size of the Indian paints sector has been pegged at Rs 170 bn in value terms and is very fragmented. While in value terms, the industry grew by 17% to 18% in FY09, in volume terms, the growth stood at 9% YoY, the lowest in the last five years Financial Year 2009 was a tough year for the paints industry as the economic slowdown took its toll.

Since the paint sector tracks the overall GDP growth, because the latter was lower than the strong growth recorded in the past, the growth in topline for the top three players was not as strong as in the previous years. The market for paints in India is expected to grow at 1. 5 times to 2 times GDP growth rate in the next five years. With GDP growth expected to be over and above 7% levels, the top three players are likely to clock above industry growth rates, especially given the fact that protection that was available to unorganised players has come down significantly

For instance, while Asian Paints did well on the topline front during the first half of 2009, things took a turn for the worse in the third quarter wherein sales and profits were severely impacted as the global financial crisis worsened. For the year however, Asian Paints managed to log in a strong growth in topline as demand picked up in the fourth quarter. Kansai Nerolac on the other hand did not do too well and the industrial paints especially the automotive paints business of the company was impacted as the demand for automobiles waned.

There was a sharp contrast in the movement of raw material prices as well. The first half of the year saw crude prices escalating sharply thereby denting the profit margins of paint companies. For instance, Asian Paints was compelled to raise the prices of its solvent based products 6 times. While prices considerably softened in the last quarter of the year, the fall was not enough to offset the crude price hike during the first half of the year. As a result, paint companies had to make do with falling margins. The paint Perspective: The Question that arises at this is, what about the paint Industry?

In the rapidly changing economic scenario how our own industry is fairing? The demand for paints is dependent on the general economic conditions such as goods overall economic growth, agricultural growth, the performance of related industries likes steel, cement and construction. In advance economics, the growth rate of Indian coating market mimics the GDP growth rate. In developing countries like India, increasing urbanizing and the increase of standard housing are major drivers of growth. Therefore the growth of the coating industry is 1. 5 to 2 times the rate of growth of GDP.

Nearly, 70% of paints are health of construction industry is important. As the market develops, customers are demanding products superior to the traditional low cost coating, branded products and greater choice. This has led to a huge increase in demand for economy finishes. At the same time, opportunities have increased for sophisticated and niches comparable to the best available anywhere in the world. Within all categories, customers demand greater choice in shade and effect. The rapid increase in the market for good quality exterior finished is a part of this overall trend.

SOCIAL ENVIRONMENT Making home is the important matter for Indian common man. It has also connected the belief and value for the decoration of the home. So, socially paint is highly connected with people because time to time they decorate their home with paints in the occasion like Diwali, Marriage. The Diwali is the most occasions when the paint is used. The most of the demand of the decorative paint is in the Diwali and Marriage Season. So, socially paint is highly connected to the consumer. In the different occasion Indian uses different color.

Every color has its socially acceptance. The increase in the middle class also helps to boost the demand of the paint. For different need of the different consumer for this company introducing more color in cars, bikes, e. g. LML introduce the ‘Freedom’ with 15 colors. The following are the characteristics of the Indian social environment: ?Large middle class ?Increase the awareness regarding paint as the protection not luxury. ?Major changes in life style. ?Major increase in urbanization. ?Both parent working ?Nuclear families ?Leisure activities Environment Consideration

Every society has responsibility to so operate that it leaves a healthy and clean environment for posterity and the Paint Industry is committed towards its obligations in this respect. Research and Development is being directed more and more towards water based and water thinnable products with lower consumption of petroleum solvent, thus serving a dual purpose of providing environment ally friendly products and also conserving scarce petroleum based solvents. There is need to encourage this and Government should consider giving substantial benefits for expenditure on this account and dditional benefits by reducing levies on sales of such paints. Indian paints Association is also Co-operating effectively with the Bureau of Indian standards in the matter of Standards for Eco-friendly paints. TECHNOLOGICAL ENVIRONMENT The technological environment refer to the how the change in the technology will affect the working of the industry. In the paint industry technological development, in production process is not much but in distribution channel connection and making of shades is the main change in the technology.

In the Decorative paint segment, technology has not impact in the production process but in the connection of the leader technology help to have efficient operation of the business. The development of the tinting machine is revolution in the filed of technological development. The tinting machine helps to have perfect shade as per the customer requirement. The introduction of tinting machine helps to reduce to introduction period of the new product. Before this introduction of new product will require about six months compare to one month nowadays. Distribution reach of Paint Majors

Size of Dealer NetworkNo. Of Tinting Machine Asian Paints14,0002,800 Goodlass Nerolac11,5002,000 Berger Paints12,0001,500 In the industrial paint segment, technological collaboration helps to have good business. In this segment technology factor comes in to the mind. The manufacturing of the industrial paint will require efficient and reliable technology that will help to produce high quality paint, which can be used for the industrial purpose. The present company that is manufacturing industrial paint having collaboration with the foreign firm with regards to the technological aspects

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