Sri Lankan Paint Industry By Roshan Attanayake Attanayake
Industry Overview
Size of Sri Lankan paint market, - Rs. 15 bill billion ion in in value value - 30-35 million million liters liters in volume. volume. Comprises of 60 manufacturers. 06 big players controlling 97% of the market. CIC
- Dulux / Akzo / Glidden
Lankem
- Robbialac
Asian Paints
- Royale / Permoglaze
Causeway Silicon Co Coatings Macsons Lanka
- Luxury / Kenlux - Nippolac - Multilac 1
Industry Overview
Size of Sri Lankan paint market, - Rs. 15 bill billion ion in in value value - 30-35 million million liters liters in volume. volume. Comprises of 60 manufacturers. 06 big players controlling 97% of the market. CIC
- Dulux / Akzo / Glidden
Lankem
- Robbialac
Asian Paints
- Royale / Permoglaze
Causeway Silicon Co Coatings Macsons Lanka
- Luxury / Kenlux - Nippolac - Multilac 1
Industry Overview
Decorative and industrial paint segments contribute 85% and 15% respectively to the total volume. Western province generates 50% revenue. Seasonal trend, Seasonal sales turn up on December & March. Volumes get doubled compared to an average month. Industry is growing in-line with the GDP growth rate unless special developments occur (eg: construction boom). Average price level has shown a 8%-10% year on year growth. 99% dependence on imported raw materials.
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Industry Overview
In 2007, 41 establishments # 1343 persons involved in the industry # Only 5 establishments had more that 25 employees
generated an output of Rs. 7,092,199,787 # 0.35 % of total manufacturing manufacturing sector sector output (Rs. 2,046,81 2,046,816,469 6,469,680 ,680) # 5 major players players accounted accounted for 99% (Rs. (Rs. 7,021,504, 7,021,504,787) 787)
with a value addition of Rs. 2,711,060,603. # 0.34 % of total manufacturing manufacturing sector sector value addition addition (Rs. 793,818,688,93 793,818,688,939) 9) # 5 major players accounted for 98% (Rs. (Rs. 2,655,812,453) Source - Department Department of Census Census & Statistic Statisticss
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Products & Services
Interior Premier emulsion - for interior walls Enamel & wood finishes Primers & wall fillers
Exterior Weather shield -for exterior walls Roofing paints
Industrial paints Automotive paints Epoxy – for industrial floors
Ancillaries - thinner, turpentine
After sales services – eg: 5 year warranty for weather shield
Interior
Decorative
Exterior Coatings Industrial
Ancillaries
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Target Market
House owners Other building owners Architects Building contractors Professional / non professional painters Engineers
5
Market Shares of Major Players Others 3%
Causeway 15%
Dulux 34% Multilac 10%
Nippolac 14 % Asian Paints 10%
Robbialac 14 %
6
Popular Brands
Emulsion
7
Enamel & Automotive
Demand Drivers of Paint
Quality - durability, final finish Price - affordability Colour range Free of hassle - ease of application Distribution - availability Services including after sales services Quality value perception (equilibrium between quality & price) is the utmost factor driving the demand for a particular brand. Seasonal impact is a critical demand driver for the industry as a whole.
8
Market Segmentation
Geographical Basis – based on hardware density
Based on income / buying power, Top tier – high income earners. generates a revenue of 40%. Mid tier – middle level income earners. accounts for highest volume & 40% revenue. Low tier– low income earners. generates 20% revenue. 9
Recent Drawback
In 2008 and 2009 volumes dropped by 32% and 18% respectively due to, - economic downturn - then ongoing war - oil price escalation.
Petroleum price, - directly affects the price of raw materials - indirectly affects other costs (fuel for machinery, transportation).
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Oil Price Vs Paint Price 700
100 90
600 80
l e r r a b l i O / $
500
70 60
400
50
300
40 30
200
20
100 10
0
0 2004
2005
2006
2007
2008
11
2009
2010
. r t l t n i a P / . s R
Oil Paint
Construction Index Average Producer Prices 2000 – 2009 Building Materials 1,000 Bricks
2000 (Rs.)
2001 (Rs.)
2002 (Rs.)
2003 (Rs.)
2004 (Rs.)
2005 (Rs.)
2006 (Rs.)
2007 (Rs.)
2008 (Rs.)
2009 (Rs.)
1,736
1,815
1,921
1,995
2,297
2,999
3,462
4,183
4,922
5,320
600
708
843
945
1,282
1,938
2,475
3,168
3,633
3,682
2,648
2,741
2,775
2,839
2,979
3,472
3,900
4,575
4,933
5,248
300
340
375
400
440
475
500
520
620
650
5%
6%
4%
15%
31%
15%
21%
18%
8%
Sand cube
18%
19%
12%
36%
51%
28%
28%
15%
1%
Metal 3/4” cube
4%
1%
2%
5%
17%
12%
17%
8%
6%
Paint 1Ltr.
13%
10%
7%
10%
8%
5%
4%
19%
5%
Sand cube Metal 3/4” cube
Paint 1Ltr.
1,000 Bricks
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Forecasts of a Favourable Future
Market is expected to grow at a rate of 15% - 20 % in 2010 based on the experience in the first 2 quarters. This will be helped by the growth in related industries. A construction boom is expected (large ongoing infrastructure projects such as ports, and north & east rebuilding). 10% market exist in north & east and is expected to double. Construction sector growth will surpass the expected growth in Goss Domestic Product of 7% - 8% over the next five years -NDB stock brokers. Over 700 billion rupees worth of construction-related projects are planned by the government during 2010-2012 - Ministry of Finance and Planning.
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Forecasts of a Favourable Future
Expected boom in tourism sector – need to build additional rooms and hotels and refurbish existing rooms. Sri Lanka's tourism industry has set a target of 2.5 million tourist arrivals by 2016, requiring the development of at least 15,000 new hotel rooms and major investment in large-scale resorts at new locations – USAID Total number of hotel rooms to grow from about 15,000 now to 22,000 in the next two years –SL Tourist Board.
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Growth in Tourism Tourist Arrivals
Source : Tourism Development Authority 15
Threats to the Industry
Use of harmful raw materials in manufacturing (methyl alcohol, lead, mercury, chromium, arsenic). These are prime toxic components that help speedy drying, increased durability, fresh appearance and resistance of moisture that cause corrosion. Can lead to irreversible lower IQ & coordination skill deficiencies of children (has affected 40m children around the world - Centre for Environmental Justice). No strict Health & Safety Standards in Sri Lanka. SLS voluntary standard permits 600ppm (parts per million) in enamel and zero ppm in emulsion. Respective standard in USA is only 90 & zero ppm.
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Threats to the Industry
Exchange rate fluctuations Uncertainty in petroleum price
affect raw material cost
Development & emergence of substitutes Tiles Cladding Glass curtains
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Raw Materials Solvents -
Resins -
Makes easier to apply
Additives
Pigments -
Helps to dry
- Serves desired
Gives colour
characteristics
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Raw Materials
Nearly 300 chemicals used in production - 99% imported. 30-35 per cent of the raw materials is crude oil based. Titanium dioxide is the commonly used pigment and preferred because of its concealing ability. It accounts for a 20% - 30% of the total raw material cost. Other raw materials, phthalic anhydride carbon soya bean oil iron dioxide castor oil metallic salt linseed oil coconut oil mineral turpentine calcium carbonate
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Tariff Structure – Titanium Dioxide As a % of CIF 140 13.8
120
3.5
122.3
5.0
22 %
100.0
Levy
%
80
PAL
5%
60
VAT
12%
SRL
1.5%
NBT
3%
100
40
20
0 CIF
PAL
VAT
NBT
Total
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Tariff Structure – Paint Imports As a % of CIF
60%
21
Levy
%
Customs Duty
28%
Surcharge
15%
PAL
5%
CESS
Rs. 85/Kg
VAT
12%
Exercise Duty
Rs. 16/Kg
SRL
1.5%
NBT
3%
Titanium Dioxide - Imports 2009 Lankem 19%
Qty. (Kg) CIC
808,000
Multilac
326,500
Lankem
426,000
Nippolac
286,000
Causeway
CIC 36% Nippolac 13%
Multilac 15%
400,000
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Causeway 18%
Titanium Dioxide - Imports 2009 Country
Qty. (Kg)
%
Value (Rs)
%
Avg. Price/Kg. (Rs)
China
299,100
10%
64,249,634
9%
215
Malaysia
221,200
7%
50,543,241
7%
228
Saudi Arabia
816,500
28%
207,734,777
28%
254
Singapore
429,788
15%
120,199,689
16%
280
Australia
440,000
15%
109,938,188
15%
250
Other
725,146
25%
187,214,226
25%
258
Total
2,931,734
739,879,755
23
252
Source : Sri Lanka Customs
Titanium Dioxide - Imports 3,000,000 2,500,000 China
2,000,000 ) g K ( . y t Q s t r o p m I
Malysia 1,500,000
Saudi Arabia Singapore
1,000,000
Australia Total
500,000 2005
2006
2007
2008
2009 Year
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Paint Manufacturing Process Forming primary paste - Mixing plant Pigments mixed with resin, solvents & additives
Dispersing the pigments – Sand mill Grind pigment particulars & blend them in to solvents
Filter to remove sand particulars
Thinning the paste Agitate with solvents for the type of paint desired
Transfer the paste to large kettles
Canning & Quality Controlling
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Quality Control Procedure
Finished paint is inspected for its density, fineness of grind, dispersion and viscosity. Colour
Hiding power
Fade Resistance
Gloss
•Checked by an expert observer •Matched with standard desired colour • Painting over a black & a white surfaces and compare the coverage ratio • 98% ratio – high quality
•Exposing a portion of painted surface to an arc light
•Determining the amount of light given off a painted surface.
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Cost of Production Per 1 Liter Category
Cost (Emulsion)
%
Cost (Enamel)
%
Raw material
182
70%
242
76%
Labour
16
6%
16
5%
Over heads
62
24%
62
19%
260
100%
320
100%
Total
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Distribution of Margins Margin Producer
30% - 40%
Wholesaler/Agent
25 %
Retailer
10% - 15%
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CIC – Chemical Industries Colombo
Market leader of paint for the last 26 years since its establishment.
Operates three main brands namely Dulux, Akzo & Glidden.
Premier brand Dulux is the most popular among Sri Lankans.
No. 01 after sales services provider with 700 authorized dealers around the island.
Differentiation through quality is their major concern.
Relatively higher price of products has lead to significant loss of market share from 55% to 34%.
Claimed to be the only player to conform international standards. 29
Lankem Paints
Operates Robbialac brand, the oldest in the local market.
Only manufacturer to be awarded with ISO 14001 Environmental Management Systems.
Offers the widest range of colours to the market.
Introduced ‘Colour Studio’ concept.
Joined hands with Akzo Nobel of Netherlands the largest auto refinishing producer to distribute their products in Sri Lanka.
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Asian Paints
Leading player in India.
Offers Royale and Permoglaze brands to the market.
Fast growing company through value added services.
Operates a strong distribution network of 300 authorized dealers around the country.
Enjoys a cost advantage because of Indian operations.
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Strategies used by Players
Introducing innovative products and features. eg: Water proofing products Washable paints Anti-bacterial protection Dulux Space & Light – a perfect solution for small dark rooms.
Asian paints providing free paint mixing facilities.
Brand variety eg: CIC introduced Glidden to compete in the rural & inferior markets.
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Strategies used by Players
Strategies to change the customer perception. Robbialac - Colour studio Multilac – Colour bank Asian Paints – Colour mixing centre
Tyr to imply that they are not just paint sellers but are providers of colour to life.
Strategies to win social attraction. Asian paints giving free training for painters. CSR projects such as providing free paint to Dhalanda Maligawa.
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Marketing Strategies
Both push & pull strategies are extensively used by the main players. Push strategies are aimed at authorized dealers and hardware shops. - Quantity discounts - Foreign trips - Annual parties
Pull strategies are aimed at attracting customers. - TV commercials - Colourful hoardings
These strategies become crucial when the season falls . 34
Price Comparison Brand
P rice/ 4 ltr. (Rs.)
Discount
P rice paid by the consumer (Rs.)
Dulux
2475
5% - 7%
2301
Robbialac
2410
15%
2048
Asian Paints
2275
10%
2047
Causeway
2320
20%
1856
Multilac
2275
12% - 15%
2002
Nippolac
2280
10% - 15%
1938
Other
2092
20%
1673
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Cost of Painting A normal sized home with 3 bed rooms . Total construction cost (including painting)
Ground area * cost/sqft. 624 * 2,500 = Rs. 1,560,000
Cost of painting
Wall area * painting cost/sqft. 4200 * 35 = Rs. 147,000 For doors & windows 200 * 45 = Rs. 9,000 For the ceiling 480 * 40 = Rs. 19,200 Total = Rs. 175,200
Cost of labour included in the total cost of painting = Rs. 60,000
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11% of the total construction cost 34% of the total cost of painting
Cost of Painting - Enamel Cost/ sqft (Rs.)
Furniture Furniture, Timber ceiling, Wooden doors
Preservative Exterior
10.00
Top coat
32.00
Total cost/sqft.
42.00
Sealer clear
W ooden floors
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50.00
Cost of Painting – Distemper / Samara For 100 sqfts. – 2 coats Samara
10 Kgs @ Rs. 50
Rs. 500
Lime
25 Kgs @ Rs. 20
Rs. 500
Salt
1 Kg @ Rs . 15
Rs. 15
Labour
Painter 0.75 days @ Rs. 750
Rs. 562
Helper 0.75 days @ Rs. 650
Rs. 487
Scaffolding
Total Cost
Rs. 150
Rs. 2,314
Rs. 23.14/sqft.
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Porter’s 5 Forces Analysis
Threat of new entrants – low - Dominated by strong international & local players - Strong distribution network - Specialized technology & labour - Unutilized capacity (40%) of existing players - Brand name strength
How ever the number of small players growing rapidly as a lot of niche segments not catered by organized players are available.
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Porter’s 5 Forces Analysis
Threat of substitutes – low - Low availability of substitutes - Potential substitutes are expensive eg: cladding & glass curtain
Bargaining power of customers – low - High switching cost to customer
Bargaining power of suppliers - low - Low switching cost
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