Sector Analysis Indian Paint Companies Comparative Analysis

Indian Paint Companies
 Comparative Analysis

Sector Analysis

Disclaimer
▪ These videos are just for educational purpose.
▪ This presentation is solely to showcase our business
  analysis and is not a BUY or SELL recommendation
  of the said companies.
▪ Kindly consult your investment advisor before
  acting on the idea presented.

Indian Decorative Paints Industry : Market Share Analysis
▪ Oligopolistic market with strong entry barriers led by brands and
  distribution network.
▪ The Indian paints market has been dominated by the decorative
  market contributing approximately 74% of the total paints
  market.
▪ Asian Paints is the market leader in the decorative paints industry
  and accounts for 42% of the total market. The decorative paint
  segment accounts for 95% to 97% of Asian Paints’ revenue.
▪ Berger Paints is in second position follows Asian Paints.
▪ Kansai Nerolac third in decorative paint with over 45% to 50% of
  its revenue being derived from industrial paints.

One of the key factors that helped Indigo Paints garner a high growth
rate is the company’s prominence in product innovation and smaller
revenue base.

Read Yourself
Unique Products disrupting market to create a New Category
(first company to launch these products) –

▪ Metallic Emulsion (Walls) – Indigo Paints pioneered the Metallic Emulsion
  segment, which gives a designer finish with glossy metallic texture effect.
  This has been used to glam up spaces suitable for interior and exterior walls
  of homes and offices, and is available in shades of Gold, Silver, and Copper.

▪ Tile Coat Emulsion (Roof Tiles) – The Tile Coat Paint is a special paint for
  external roof tiles that provides unmatched gloss and sheen with excellent
  protection against algae and fungus.

▪ Bright Ceiling Coat (Interior Ceilings) – Indigo Paints created a new category for
  Ceiling Paints with the introduction of the Bright Ceiling Coat which offers
  unmatched brightness to the ceilings with a smooth matt finish to enhance the
  brightness of the room.

▪ Floor Coat Emulsion (Driveways) – This is India's first Floor Coat Paint that
  offers a glossy finish while also protecting the terrace floor, driveways, walkways
  and cement surfaces.

Capacity

Capacity Utilization

Distribution Network -

▪ Paint companies are required to spend significant resources to
  develop their distribution network to increase the visibility and
  reach of their products through direct distribution to dealers.

▪ The dealers are typically multi-brand

Tinting Machine -

Company-wise growth in tinting machines (in thousands)

Terms of Trade
                                                      As for Asian Paints, it
                                                      prefers exclusivity wherein
                                                      the dealers are expected to
                                                      mainly distribute Asian
                                                      Paints.

▪ The companies mainly focus on dealer margins with Asian Paints
  offering the lowest margins.
▪ Berger Paints provides the highest margins among the top four
  with almost 10% to 15% and up to 18% for specific dealers.

While most parts of
India are largely
dominated by Asian
Paints, Asian Paints has
a larger presence in
Metro and Tier 1 Cities
of these regions.

Financial Comparison

Gross Margin -
Gross Margin is calculated as revenue from operations less Material
Costs.

Due to strategically located manufacturing facility near raw material
hub indigo Paints has highest gross margin.

Despite industry’s highest gross margin Indigo Paint’s has lower
EBITDA because of high spend on marketing and branding, high
freight cost.

▪ The material cost (excluding the freight cost) as a percentage
  of operating revenue is the lowest for Indigo Paints as the
  company is closely located to the source of raw materials.
▪ However, this leads to Indigo Paints spending greater amounts
  on outward freight charges to deliver the products to the
  consumption centers.

The outward freight charges for Indigo Paint’s peers are
comparatively lower as their manufacturing facilities are located close
to the consumption centers.

Adjusted Material Cost

Adjusted Material Cost is calculated as cost of raw material and
components consumed plus purchase of traded goods, decrease/
(increase) in inventories of finished goods and traded goods, excise duty
on sale of goods, and freight and forwarding charges.

Marketing and Advertisement Campaigns

In Percent of Revenue

Ratio Comparison

PE Ratio (Q4 Fy 2020-2021) -
     Company           PE Ratio
    Asian Paints          90
    Berger Paints        108
    Indigo Paints        171
   Kansai Nerolac         60
    Akzo Nobel            50

Inventory Turnover Ratio (Q4 Fy 2020-2021) -
       Company                       Ratio
      Asian Paints                    7.14
     Berger Paints                    5.07
     Indigo Paints                    8.50
    Kansai Nerolac                    5.50
      Akzo Nobel                      6.50
▪ Ratio showing how many times a company has sold and
  replaced inventory during a given period.
▪ Higher is better.

Cash Conversion Cycle (Q4 Fy 2020-2021) -
        Company                      CCC (Days)
       Asian Paints                       29.50
       Berger Paints                      50.25
       Indigo Paints                      12.25
     Kansai Nerolac                       59.30
       Akzo Nobel                         12.90

Time (in days) it takes for a company to convert its investments
in inventory and other resources into cash from sales.

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