Leading paint manufacturers are eyeing a larger pie of unorganised market share of emulsion paints. The government has set stage almost open, first by introducing new indirect tax regime, GST, in the country and then reducing GST rate from 28% to 18% last year. Unorganised sector is mainly concentrating on lower end products like distemper and emulsions where they used to offer products attractively priced. However, GST has changed all that and now price gap between organised and unorganised sector has narrowed down considerably.
Organised segment in a combative mood
Largest decorative paints maker in India, Asian Paints, has gone one step further to capture the emulsions market through disruptive pricing. The company has launched economy emulsion brand, Tractor Sparc, by adopting disruptive pricing tactic to snatch away market share from unorganised sector. It launched Tractor Sparcat Rs 75 per litre to gain market share from the unorganized sector whose emulsion prices are in the range of Rs 70-75/litre. It should be noted that before the launch of Tractor Sparc, prices of Asian Paints’ emulsion products started from Rs 95-100 per litre. The company has reduced the starting price now by 25%.
An emulsion paint has acrylic resin, in an emulsion form, which acts as a binder or adhesive on the surface. Use of emulsions results in varying degrees of sheen – generally, the shinier the finish, the tougher the paint.
Asian Paints being the market leader, always carried premium over its rivals in all product segments. Rivals always charged 3-5% lower than the market leader. It is interesting to wait and watch the counter strategy of the market rivals including those in the unorganised sector.
Asian Paints had adopted almost similar strategy in case of distemper too. Asian Paints’ aggressive pricing strategy not only helped the company to gain a few percentage points of market share but also pushed up its volume growth at a time when market is struggling to retain its growth. Also, increased awareness among rural households about applying lower-coat (putty and primer) before applying final coat (distempers) has aided demand of low-end products.
Benign raw material price helping manufacturers
Softer raw material prices too helping the paint manufacturers in general and Asian Paints in particular to gain market share. It should be noted that Asian Paints has already cut prices by 0.4% in the first quarter of the current financial year, on a weighted average basis, mainly in enamels to pass on some benefits of softer raw material prices. However, dealers feel that further cut in the prices is ruled out until the festive/wedding season.
Decorative paints industry, in general, is a happier lot as decorative paints are yet to see any slowdown. Healthy volume growth seen in the first quarter has continued in July too which had remained healthy. Interestingly, decorative paints sector hasn’t much affected by the current slowdown in the real estate sector.
Surprising growth in volume
In fact, decorative paints segment has turned out surprising growth in the first quarter of the current financial year. According to industry experts, decorative coatings is seeing pickup in sales growth aided by market share gains on GST tax reduction, continued demand strength and concentrated push by players to gain shelf space. Different manufacturers are adopting different strategies to achieve higher growth. For example, Asian Paints increased incentives to dealers in view of intensifying competition and tight market conditions. On the other hand, Kansai Nerolac decided to cut down rebates offered to dealers as a result of which the company saw moderate growth in its sales volume. Berger Paints is giving greater push to Tier 2 & 3 cities to retain its growth. On the other hand, Akzo Nobel has seen a muted volume growth due to reduced focus on low margin products. The company will be focusing on margins over sales growth for the next 2-3 years.
According to leading paint manufacturers, fresh painting constitutes just 25% of total decorative paint demand in India. Further, painting (and quality of the paints) is the least debated material among the builders and majority of the builders in India apply low-quality distempers (mostly purchased from unorganized players) anticipating that home buyers will repaint using better-quality paints, mostly emulsions. As a result, the real-estate slowdown has not hurt organized decorative paint manufacturers to a material extent. Further, these players feel that with the price gap between organised and unorganised narrowing, builders slowly may switch over to branded paints manufactured by the players in the organised sector. Thus, branded paint companies are catching the tailwinds from both sides of the business – B2B (real-estate developers / institutional clients) and B2C (residential households).