Sri Lankan Paint IndustryBy Roshan Attanayake

Industry Overview

Size of Sri Lankan paint market,- Rs. 15 billion in value- 30-35 million liters in volume.

Comprises of 60 manufacturers.06 big players controlling 97% of the market.

CIC - Dulux / Akzo / Glidden Lankem - RobbialacAsian Paints - Royale / PermoglazeCauseway - Luxury / KenluxSilicon Coatings - NippolacMacsons Lanka - 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.

2

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 sector output (Rs. 2,046,816,469,680) # 5 major players accounted for 99% (Rs. 7,021,504,787)

with a value addition of Rs. 2,711,060,603.# 0.34 % of total manufacturing sector value addition (Rs. 793,818,688,939)# 5 major players accounted for 98% (Rs. 2,655,812,453)

Source - Department of Census & Statistics

3

Products & Services

Coatings

Decorative

Interior

Exterior

Industrial

Ancillaries

InteriorPremier emulsion - for interior wallsEnamel & wood finishesPrimers & wall fillers

ExteriorWeather shield -for exterior wallsRoofing paints

Industrial paintsAutomotive paintsEpoxy – for industrial floors

Ancillaries - thinner, turpentine

After sales services – eg: 5 year warranty for weather shield

4

Target Market

House ownersOther building ownersArchitects Building contractorsProfessional / non professional paintersEngineers

5

Market Shares of Major Players

Dulux34%

Asian Paints10%

Robbialac14%

Nippolac14%

Multilac10%

Causeway15%

Others3%

6

Popular Brands

Emulsion Enamel & Automotive

7

Demand Drivers of Paint

Quality - durability, final finishPrice - affordabilityColour rangeFree of hassle - ease of applicationDistribution - availabilityServices 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

0

100

200

300

400

500

600

700

0

10

20

30

40

50

60

70

80

90

100

2004 2005 2006 2007 2008 2009 2010

Rs.

/ P

ain

t lt

r.

$/

Oil

barr

el

OilPaint

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Construction Index

Building Materials

2000(Rs.)

2001(Rs.)

2002(Rs.)

2003(Rs.)

2004(Rs.)

2005(Rs.)

2006(Rs.)

2007(Rs.)

2008(Rs.)

2009(Rs.)

1,000 Bricks 1,736  1,815  1,921  1,995  2,297  2,999  3,462  4,183  4,922  5,320 

Sand cube 600  708  843  945  1,282  1,938  2,475  3,168  3,633  3,682 Metal 3/4” cube

2,648  2,741  2,775  2,839  2,979  3,472  3,900  4,575  4,933  5,248 

Paint 1Ltr. 300  340  375  400  440  475  500  520  620  650 1,000 Bricks 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%

Average Producer Prices 2000 – 2009

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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 – USAIDTotal 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 TourismTourist Arrivals

Source : Tourism Development Authority15

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 fluctuationsUncertainty in petroleum price

Development & emergence of substitutesTilesCladdingGlass curtains

affect raw material cost

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Raw Materials

Pigments- Gives colour

Solvents- Makes easier to apply

Resins- Helps to dry

Additives- Serves desiredcharacteristics

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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 carbonsoya bean oil iron dioxidecastor oil metallic saltlinseed oil coconut oilmineral turpentine calcium carbonate

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Tariff Structure – Titanium Dioxide

100.05.0

13.83.5 122.3

0

20

40

60

80

100

120

140

CIF PAL VAT NBT Total

22 %

As a % of CIF

Levy %

PAL 5%

VAT 12%

SRL 1.5%

NBT 3%

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Tariff Structure – Paint Imports

60%

As a % of CIF

Levy %

Customs Duty

28%

Surcharge 15%

PAL 5%

CESS Rs. 85/Kg

VAT 12%

Exercise Duty

Rs. 16/Kg

SRL 1.5%

NBT 3%

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Titanium Dioxide - Imports

Qty. (Kg)

CIC 808,000

Multilac 326,500

Lankem 426,000

Nippolac 286,000

Causeway 400,000

CIC36%

Causeway18%

Multilac15%

Nippolac13%

Lankem19%

2009

Source : Sri Lanka Customs22

Titanium Dioxide - Imports

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 2,931,734 739,879,755 252

2009

Source : Sri Lanka Customs23

Titanium Dioxide - Imports

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2005 2006 2007 2008 2009

China

Malysia

Saudi Arabia

Singapore

Australia

Total

Source : Sri Lanka Customs

Year

Impo

rts Q

ty. (

Kg)

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Paint Manufacturing Process

Canning & Quality Controlling

Thinning the paste

Transfer the paste to large kettles Agitate with solvents for the type of paint desired

Dispersing the pigments – Sand mill

Grind pigment particulars & blend them in to solvents Filter to remove sand particulars

Forming primary paste - Mixing plant

Pigments mixed with resin, solvents & additives

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Quality Control Procedure

Finished paint is inspected for its density, fineness of grind, dispersion and viscosity.

•Checked by an expert observer•Matched with standard desired colour

Colour

• Painting over a black & a white surfaces and compare the coverage ratio

• 98% ratio – high quality Hiding power

•Exposing a portion of painted surface to an arc lightFade Resistance

•Determining the amount of light given off a painted surface.Gloss

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Cost of Production

Category Cost(Emulsion)

Raw material 182

Labour 16

Over heads 62

Total 260

% Cost(Enamel)

70% 242

6% 16

24% 62

100% 320

Per 1 Liter%

76%

5%

19%

100%

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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 conforminternational standards.

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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 paintsAnti-bacterial protection

Dulux Space & Light – a perfect solution for small dark rooms.Asian paints providing free paint mixing facilities.

Brand varietyeg: 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 studioMultilac – Colour bankAsian Paints – Colour mixing centre

Strategies to win social attraction.Asian paints giving free training for painters.CSR projects such as providing free paint to Dhalanda Maligawa.

Tyr to imply that they are not just paint sellers but are providers of colour to life.

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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.

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Price Comparison

Brand Price/4ltr.(Rs.)

Discount Price 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 & windows200 * 45 = Rs. 9,000

For the ceiling480 * 40 = Rs. 19,200

Total = Rs. 175,200 11% of the totalconstruction cost

Cost of labour included in the total cost of painting = Rs. 60,000

34% of the total cost of painting

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Cost of Painting - Enamel

Furniture Cost/sqft(Rs.)

Furniture, Timber ceiling, Wooden doors

Preservative Exterior

10.00

Top coat 32.00

Total cost/sqft. 42.00

Wooden floors Sealer clear 50.00

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Cost of Painting – Distemper / Samara

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 Rs. 150

Total Cost Rs. 2,314 Rs. 23.14/sqft.

For 100 sqfts. – 2 coats

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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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Porter’s 5 Forces Analysis

Rivalry – high- Very high competition among existing players

Overall attractiveness of the industry - moderate- Growth potential

Per capita paint consumption in Sri Lanka less than 2 L In Europe & USA 8 – 10 L

- Trend is to build big houses.

Yet, - Unutilized capacity (40%) of existing players- No government support- High labour cost compels customers to postpone their decisions

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