Decorative biz spurs paint makers to expand capacity

India's top paint makers are expanding capacity to tap growing demand in decorative and automotive segments, but rising input costs and an uncertain monsoon may cap the growth, officials and analysts said.

Asian Paints, India's top paints maker, is spending Rs 3 billion in 2009/10 to set up a plant at Rohtak in Haryana to cater to the decorative paints market. It has also finalised land for a decorative paint plant in Maharashtra.

Kansai Nerolac Paints, the second largest paints maker, is raising capacity by 15% by December by setting up a new facility in Bangalore.

"In the case of developing countries normally 1.5 to 2 times the growth of GDP would be the growth of paints industry. So on a lower base with these fundamentals we see a bright future for decorative paints," said H.M. Bharuka, MD, Kansai Nerolac.

India's top four players account for 60% of the market-valued at Rs 150 billion -and the decorative paints segment account for about three-fourths of the market.

"Consumer paints is driven by the interest rate scenario, the housing sector developments and the income at consumer levels. More than half (of demand) comes from service sectors, who are urban based...housing demand is growing, from that perspective decorative paints is primed to do well," Bharuka said.

Lower interest rates and easy liquidity has boosted consumer sentiment, enabling consumer goods makers, including paint firms, to boost sales and expand production.

"Slowdown hit the Indian economy in the last quarter of 2008. But things started to pick up in the second quarter of 2009. Recovery was led by repainting (part of decorative) segment," said Aparna Sopory, marketing manager at ICI India, India's third largest paints firm.

Demand was also seen in the new painting segment, but recovery has been a little slow, Sopory said.

Asian Paints' sales rose nearly 17% to Rs 17.2 billion in July-Sept, driven by higher volumes in the decoratives segment, but industrial segment growth is yet to pick up.

"Retail demand has been good but not uniform across the country," Asian Paints said in a presentation earlier this month.

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