ASIAN PAINTS

An Economic Perspective

Under the guidance of

Professor Tirthatanmoy Das

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Section F | Group 1
1811376 | Sruthi A
1811377 | Maitresh Agarwal
1811380 | Irshad Ahmad
1811382 | Rohit Bamb
1811418 | Riya Meena
1. Executive Summary
After a steady growth for numerous years (12.9%), the Indian Paint & Coatings industry showed
lacklustre performance in the last couple of years (8%) because of decreased liquidity due to
demonetization, increased cost of credit due to stressed assets and frauds of the banking sector, de-
stocking due to poor implementation of GST1. The industry started bouncing back during the latter
half of the last year because of good monsoon, stabilising effects of GST, and government’s growing
focus on infrastructure.

Despite challenges in regulatory and economic environment, Asian Paints have continued to
slightly outperform the industry, maintaining double-digit growth. This was backed by careful
product portfolio enhancements, manufacturing capacity expansions (Mysuru, Vishakhapatnam),
increase in distributor network, and launch of new delivery models.

2. Industry Overview
The Indian Paints industry is expected to rise from ₹470B in 2016-17 to ₹709B, with decorative and
industrial paint market segments set to grow at a CAGR of 12.7% and 9.5% respectively2. Though
the outlook for demand appears positive, volatility in crude oil prices and currency exchange and
regulatory uncertainty could be of concern.
Annexure 1: Value of Paint Industry (in billion rupees)
800
700
600
500
400
300
200
100
-
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

Source: Industry and CARE Ratings

2.1. Industry Structure

The industry is oligopolistic with four organized players accounting for 65% of the market. Rest
35% is unorganized and fragmented within 2,000+ small and medium-sized paint plants 2.
Annexure 2: Market share of key players in organized sector - 2016-17

Source: Ace Equity and CARE Ratings

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2.2. Industry Segments

Demand for paints and coating arises from two broad segments:

o Decorative (75% of the Indian market, Market Leader: Asian Paints): Includes water-based
emulsions (premium range), solvent-based enamels (medium range), distempers (economy
range)3.
o Industrial (25% of the Indian market, Market Leader: Nerolac): Includes powder & protective
coatings for automotive and other industries 3.
2.3. Industry Inputs

The paint industry is raw material intensive with more than 300 raw materials required for
manufacturing. Most of the raw materials are derived from petrochemicals, with Titanium Dioxide
(TiO2) being the largest one. Any movement in the prices of crude oil and TiO2 can significantly
impact the business. On an average, a 10% dip in crude oil prices can boost gross margin by 2%-
3%.
2.4. Industry Analysis: Porter’s Five Forces

3. Company Overview
Founded in 1942, Asian Paints has emerged to be the leading paints and coatings manufacturer in
India. With 7,500+ employees and 25 manufacturing locations globally, the Company operates in
16 countries servicing consumers in 60+ countries across Asia, Africa, Middle East, and South
Pacific 4.

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3.1. Business Segments

Decorative Paints Industrial Paints Kitchen Solutions Bath Fittings

Market Size (current)2,4 ₹352B ₹118B ₹65B ₹80B
% Organized Market 65% 65% 40% 60%
Constituents Wall paints, wood Coatings: automotive, Hardware shutters, Chrome-plated fittings
finishes, enamel, primers, marine, packaging, cabinets, accessories,
putties powder, protective appliances
Industry Trends: Economic housing Gov.t focus on Increased disposable Increased disposable
Positive scheme infrastructure income and consumer income and consumer
Search for ‘professional ‘Make in India’ aspirations aspirations
integrator Entry of internet-based Demand for branded
Personalized solutions start-ups fitting in small cities
Water-saving technology
Swatch Bharat Initiative
Industry Trends: Destocking (GST) Slowdown in Highly fragmented & Intense competition
Negative Stagnating real estate Manufacturing and unorganized sector Stagnating real estate
prices exports (GST) prices
Cash shortage Lack of new infra Cash shortage
(Demonetisation) (Demonetisation) (Demonetisation)
Rising labor cost Govt. delay in infra
project allocation
Outlook Positive Slight Revival Opportunistic Sustainable Growth

3.2. Financial Performance

Annexure 3: Asian Paints: Historical Financials

Source: Annual Report 2018, Asian Paints

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4. Consumer Behaviour & Choice
4.1. Methodology
A survey method was used to analyze the consumer preferences for paints. The following are the
details about the survey conducted. (Survey attached in Appendix.2)
Total respondents: 120
Demographics of respondents:

Assumptions: Based on the respondents, we identified the target consumer for this product to be
predominantly non-professionals. We considered a B2C scenario for this analysis. We have
assumed that the quantity consumed may be constant across consumers. Hence the no. of
customers is used as a proxy for quantity. Similarly, a percentage approach is taken as proxy for
prices since the actual prices fluctuate across product lines. In the income levels analysis, the
different levels are taken as blocks as proxy for exact incomes.

4.2. Elasticity Analysis

Price Elasticity of demand

To understand the consumer behavior due to changes in price, we asked our respondents what
their willingness is to pay for the product as the price increases in different percentages. On the
basis of the respondents who were willing to pay at say 2x, we assumed he would be ready to pay
at x as well. Similarly aggregating the data from the survey, the below shown graph was obtained.

The fit equation for the plot was obtained as

Trend Equation: Q= -0.27P+ 1.33

Sample Price Elasticity of demand = ΔQ/ΔP = -0.27

The insights from the elasticity curve are as follows:

• The product has low elasticity with respect to price. This trend is in line with the industry
as well.
• The possible explanation being, paint especially in the decor segment is considered a classy
product, the consumers of this segment may not respond to price changes very quickly.
Moreover, being a durable, its long run elasticity will be lower than the short run elasticity.

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Income Elasticity of demand
The sample had a diverse income distribution. In order to understand the consumer behavior
across different income segments, we asked our respondents what their paint preferences were.
The Asian paints decor segment is considered superior by many. Our observations reflected the
same as there was marginal improvement in preferences across the higher income levels.
Aggregating the data from the survey, the below shown graph was obtained.

The fit equation for the plot was obtained as

Trend Equation: Q = 0.031P + 0.81

Sample Income Elasticity = ΔQ/ΔP = 0.031

The insights from the elasticity curve are as follows:

• The product has very income low elasticity however, the marginal increase in no. of
consumers was observed as income levels increased.
• The possible explanation is decor being a premium segment, the product is preferred for
luxury/aesthetics. Hence, income has a very meagre impact on the choice.

Based on the analysis of elasticities, we understood the consumer preferences in decor paints
segment. The impact of price and income was observed by applying the concepts of elasticity of
demand.

4.3. Factors influencing consumer buying behaviour for paints

Durability of Paint

It is one of the most important parameter for consumers while choosing a particular paint brand.
As per our survey results, 51% respondents chose this as a strongly likely parameter which was
further backed by 44% people responding to their frequency of re-painting homes as ‘greater than
4 years’. These two results strongly indicate that painting/re-painting is a cost and effort intensive
task which makes consumers chose quality over price.

Colour Combination

People stay in their houses for close to 20 years and spend almost 50% of their daily time in their
homes. This makes aesthetics again a very important aspect which further translates into colour

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varieties and combination a paint brand can offer and hence colour combination becomes the
deciding factor while purchasing a paint. In our survey, 53% respondents marked strongly likely
for this parameter.

Price

Only 17% respondents indicated price as a driving factor while considering the purchase of a paint
brand. Although the paint industry is price elastic but not intensely price competitive, hence
consumers do not compare prices within brands rather they look for quality and life of the paint.
Also, better quality paint ensures that initial price might be higher but overall cost of ownership is
reduced to lower maintenance cost.

Paint Thickness

Paint thickness ensures better finish which further adds to the aesthetics aspect and also helps in
maintaining the room temperature as compared to the external temperature. Using a thicker paint
also improves the durability further and curbs the water-leak issues. 36% of our survey
respondents considered this as the one of factors they would consider while making a purchase.

Ease of Cleaning

What do you prefer, a easy to maintain or a difficult to maintain product? The answer is simple-
“The easy one, right?” So did our 35% of the respondents thought because ease of cleaning
drastically reduces the overall ownership cost and reduces out efforts for maintaining the paint for
the initial couple of years.

INFLUENCING FACTORS
80% 74%
70% 64%
58% 56%
60% 53%
51%
50% 45% 45%
40% 36% 35%
28%
30%
20% 17%
9% 9% 8%
10% 4% 6%
2%
0%
Durability of Paint Color combination Price Paint Thickness Ease of clean ing Eco Friendliness

Not Likely Likely St rongly Likely

From the above insights, we were able to draw the following conclusions
• The above factors except for price reduces the overall ownership cost owing to lower
maintenance cost
• Consumers look at house as a social status and good paint enhances its aesthetics
• Re-Paint requires a lot of efforts and costs hence consumers look at it as long-term
investment and prefer quality over price

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4.2. Asian paints being consumer obsessed

Asian paints have been at the fore front while listening and providing convenient solutions for its
customers. This approach has led to Asian paints being the market leader for past decade. The have
setup experience stores for consumers and provide personalised service such as paint/colour
consulting and offer customisable colour combinations to suit their home interiors. They do spend
on traditional marketing as well, In FY 2017-18 as per their annual report there was a 662 crores
advertisement expense accounting for 24% of their non-operational expenses. These trends were
visible in our survey as well.

78% 80% 85% VR

Preferred Brand Brand Recall Willing to spend 10-20% Biggest Consumer Ask
of total house cost
As a recommendation, Asian paints should take the consumer experience to another level by
providing them virtual reality option while choosing the kind and colour of the paint in their house.

5. Strategic Behaviour
Asian Paint is the leading paint company in oligopoly market where the industry must work
strategically to earn a competitive advantage over other company. The company has been so far
able to grab the significant market share of the Paint Industry by using three key strategies.

5.1. Supply Chain Management

Asian Paint has the most reliable supply chain management in the paint industry, they have team
of 1200 sales representatives connects with a network of more than 35,000 dealers which spread
across 3500 towns with 20000+ distributors. The company is also broadening its manufacturing
capabilities to increase the efficiencies into the existing channel, and with the help of technology,
Asian paint has enhanced its supply chain network. Furthermore, Asian Paint is nowadays trying
to grab the market share of the industry segment by introducing industrial tinting system which is
purchased by dealers. This machine provides the customer with the facility of customizing color
according to their need. This system will not only increase the broader range of selection but also
give relief with inventories

5.2. Packaging

Initially company was in B2B distribution where they usually used to sell in bulk but with the
increasing demand in consumer market, company has started moving towards B2C distribution
where they are focusing on offering different products bundling according to need to customer,
they have begun using recyclable and reusable packs which help them to reduce cost in packaging.
Moreover, Asian paint has started re-engineering their product and packaging by providing its
color in small packs of 200ml, 100ml, 150ml, etc. without compromising the quality. Changes have

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been done mainly to attract rural customers who are very smart in judging the quality of the
product.

5.3. Advertisement

Asian Paint succeeded in creating an emotional connection with the customer by dominating the
television advertisement. Over the year the company has launched a variety of ad campaign
moving from product specific to color specific. Moreover, the company is also emerging in digital
marketing as they have recently started two web series “Har Ghar Kuch Khta Hai” & “Where the
Heart is” in which each episode has a celebrity as the protagonist from a different stream of work
to primarily targeting online consumer.

5.4. Game Theory

It is the study of a mathematical model of strategy relation between two players. In this strategy,
the decision was taken by each player concerning other players actions and responses. The primary
objective of game theory is to establish an optimal strategy for each player. In this strategy is a rule
for playing the game. There is two type of game that firms can play. Cooperative and Non-
Cooperative Game. Mainly firm from the paint industry play the non-cooperative game in which
negotiation and enforcement of binding contract are not possible. We are applying Game Theory
only on one strategy of Asian Paints that is Advertising.

Assumptions-For applying game theory in paint Industry there are few assumptions we need to
make:
• Players are rational
• Players will strive to maximize their payoff in the game
• Player decide their option simultaneously and independent from one another
• The payoff is meant to be directional
• Payoff values are assume based on firms’ performance in the paint industry.
• We are assuming that there are only two players in the Paint Industry which are Asian
Paint and Kansai Nerolac Paint

Matrix has shown two strategies for each firm whether to increase investment in an advertisement
or to same/reduce investment in the ad. The above four column shows different payoff at a
different strategy. Below are the four situations in which both firms are receiving a different payoff.
• Investment in the advertisement is increased by both the firm: Asian Paint will get the
payoff of 100 and Nerolac will get the payoff of 70

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 • Investment in the ad is same/reduce by both the firm: Asian Paint will get the payoff of 70
and Nerolac will get the payoff of 40
• Investment in the advertisement is increased by one and decrease/same by another firm:
• If Asian Paints is increasing investment in ads, then the payoff for them will be 120, and the
pay-off of Nerolac will be 50
• If Nerolac is increasing investment in ads, then the payoff for them will be 80, and the pay-
off of Asian Paint will be 100

From the above analysis, we can see that both companies’ dominant strategy is to increase
investment in ads. Therefore, they will be in equilibrium when their payoff is (100,70). The higher
payoff of the Asian paint in every situation is attributed to the substantial brand equity that the
company enjoys.

6. References
1. “Paints Industry”, Industry Research, 27 Oct 2017, CARE Ratings
2. Indian Paint Association (Sourced from Business Standard)
3. The Astute Investor
4. Annual Report: 2018, Asian Paints
5. https://www.slideshare.net/ShaneelPatodi/distribution-channel-of-asian-paint
6. https://brandequity.economictimes.indiatimes.com/news/advertising/asian-paints-new-ad-campaign-
shows-you-where-the-heart-is-of-your-favorite-celebrities/58308648

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7. Appendix
7.1. Survey form used for gathering the Consumer Behaviour data points

Q1: What is your age?

1. Less than 20 years

2. 21 to 25 years
3. 26 to 35 years
4. 31 to 40 years
5. Greater than 40 years

Q2: What is your occupation?

1. Builder
2. Interior Designer/Architect
3. Others

Q3: What is your approximate annual Income?

1. Less than 1 lac

2. 1 lac to 5 lacs
3. 6 lacs to 10 lacs
4. Greater than 10 lacs

Q4: Name the brand of paint used/preferred for your house?

1. Asian paints
2. Nerolac
3. Shalimar
4. Dulux
5. Berger
6. Others

Q5: From where did you get to know about Asian Paints?

1. Offline/Banners/Stores
2. Newspaper
3. Television
4. Friends and Family

Q6: Indicate the level of importance each parameter plays while buying a paint?

Parameter Strongly Likely Likely Not Likely

Durability of Paint Yes/No Yes/No Yes/No

Colour Combination Yes/No Yes/No Yes/No

Price Yes/No Yes/No Yes/No

Paint Thickness Yes/No Yes/No Yes/No

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 Ease of Cleaning Yes/No Yes/No Yes/No

Q7: If Asian paints is not available, then would you like to purchase any other brand?

1. Yes
2. No

Q8: If you get more discounts on any other brand, would you go for that?

1. Yes
2. No

Q9: If price of Asian paints increases by given levels? Will you still purchase them?

1. 1.1X
2. 1.2X
3. 1.3X
4. 1.5X
5. Any price, I will only buy Asian Paints

Q10: What percentage of amount will you spend on paint while building house?

1. 10%
2. 20%
3. 30%

Q11: How frequently you re-paint the house?

1. Every year
2. Every 2 years
3. Every 3 years
4. Every 4 years
5. Greater than 4 years

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