Last year, Asian Paints entered a 50:50 joint venture with its technical collaborator, the $2.9 billion PPG Industries of USA, to form Asian PPG Pvt Ltd in order to manufacture automotive paints. Late last year, paints major Goodlass Nerolac too entered into a technical tie-up with US-based DuPont. The motive: to grab a share of the automotive paints market, especially the business for Fords Escort and Fiesta, to which DuPont supplies in the US.
Automotive paints account for over 50 per cent of the industrial paints market. And as industrial activity in the country picks up, the Rs 36 billion paints industry hopes to change its business mix and overcome the current skew in favour of decorative paints. The world over, industrial and decorative paints command an equal 50:50 share of the market. In India, however, the ratio is 70:30 with the decoratives segment accounting for a chunk of the market.
But the industry now expects a gradual change in favour of industrial paints over the next few years. Against the poor performance of the decorative paints segment, which grew by just about eight to nine per cent last year, industrial paints grew by 18 per cent. However, since industrial growth is yet to gather full speed, it will be some time before there is a visible change in the industrial-decoratives segment ratio.
Apart from automotive paints, which has generated the greatest excitement because of the high volumes involved, the industrial paints segment includes high performance coatings, especially applicable in industries like nuclear power, chemicals and fertilisers as they use corrosive materials. This accounts for around 16 per cent of the industrial paints market. Then there are powder coatings for white goods, which have a 10 per cent share of the industrial paints segment, marine paints, which account for eight per cent, and other special purpose paints, which have a roughly 16 per cent share.
Unlike the decoratives segment, most of the industrial paints segments are technology-intensive. This not only acts as an entry barrier to the unorganised sector but it also makes it imperative for Indian companies to have technical collaborations with global paint majors.
In fact, most major Indian companies in the industrial paints segments have technical or financial tie-ups with international companies. For instance, Goodlass Nerolac, which has cornered roughly 40 per cent of the industrial paints market, uses technology from Kansai Paints of Japan, the eighth largest paints company in the world. Kansai Paints has a 36 per cent holding in Goodlass Nerolac while the Tata group holds a lower 31 per cent.
Asian Paints, which has a 14 per cent share of the industrial paints market, has already formed a joint venture, Asian PPG Pvt Ltd, with its erstwhile technical collaborator. In fact, PPG originally wanted a stake in Asian Paints but since the Indian major was unwilling to take on a partner, the two decided to form a separate joint-venture company. The new company is targeting the original equipment manufacturer (OEM) segment of the automotive paints market. In 1996-97, the OEM segment accounted for around five per cent of Asian Paintss sales turnover.
The joint-venture will not directly contribute to Asian Paintss sales, however. Rather, the benefit to Asian Paints will be limited to income in the form of processing fees, royalty and dividends from the joint venture. It will get a two per cent royalty on its products sold while PPG will get a five per cent royalty. Asian Paints will also get a processing fee for using its plant facilities to manufacture OEM paints.
Automotive paints include both OEM supplies to automobile manufacturers as well as automotive refinishes for touch-ups or new paint jobs on old cars. Goodlass Nerolac dominates the OEM segment with a 70 per cent share of the passenger cars OEM market, a 40 per cent share of the two-wheeler and 20 per cent share of the commercial vehicles OEM markets.
International automobile companies that have entered the country also prefer to source their paint requirements from manufacturers who have a relationship with their international principal paint supplier. Thats why Goodlass has tied up with DuPont. Because of Kansai and DuPont collaborations, we stand a good chance of bagging contracts from SIEL-Honda and Hyundai, says G Dhananjayan, general manager, marketing, Goodlass Nerolac Paints Ltd.
Kansai is the OEM paint supplier to Suzuki, Japan. This ensures that the companys dominance at Maruti Udyog will continue. Goodlass currently supplies 90 per cent of Marutis OEM paint requirement. And Maruti alone accounts for 12 per cent of Goodlasss paints sales. Maruti currently sells 66 per cent of the passenger cars and multi-utility vehicles on Indian roads. Its huge volumes and economies of scale, say analysts, will help it weather any competition so that even by the year 2000 AD, it will account for 61 per cent of Indias cars, providing Goodlass with a stable business opportunity.
Apart from supplying to Maruti, Goodlass is a 100 per cent OEM supplier to Mahindra Ford as well as the principal supplier to Pal-Peugeot, Fiat Uno, Kinetic Honda, Bajaj Auto, Mahindra & Mahindra and Ashok Leyland. The company also supplies to Hero Honda, Telco, TVS-Suzuki and Escorts Yamaha. However, Telco sources only about 40 per cent of its requirements from Goodlass for its upper-end vehicles and LCVs though both are Tata group companies.
Asian Paints too has been able to cater to the automotive OEM market because of its international connections. It has got OEM orders from General Motorss Opel Astra and DCM Daewoos Cielo since PPG USA is the worldwide OEM supplier to General Motors and Daewoo. Asian Paints is the exclusive paints supplier to LML scooters as well -- again, the company is said to have bagged the contract because of the PPG link.
While automotive paints offer a high-volume business opportunity, not many players have been able to grab a slice of the pie as it entails a high level of technology. Take the case of the electro-deposition (ED) primer technology in the OEM segment, which is regarded as among the most sophisticated.
Unlike conventional primers, which are applied to a surface before applying the final topcoat, ED primers involve deposition of a coating by an electrical process. Electrically charged particles move towards either the anode (anodic ED technology) or the cathode (cathodic ED technology). Cathodic ED is preferred to anodic ED because of its superior stability, corrosion prevention, chipping resistance and directness of image properties.
Worldwide, most manufacturers are switching over from anodic ED to cathodic ED technology. In India, Goodlass consolidated its position by acquiring the technology from Kansai way back in 1983. The company is today the largest supplier of cathodic ED with a 90 per cent market share.
According to Bharat Puri, general manger, marketing, Asian Paints, his company was in the process of absorbing the same technology from PPG Industries when it received a setback when its Bhandup plant in Mumbai caught fire in January 1996.
Apart from the OEM business, companies are also keenly watching the automotive refinishes segment. This five-million-litre-a-year market is expected to grow at a rate of 25 per cent if the automobiles sector continues to maintain a 15 per cent growth rate over the next few years. Market leader ICI, with a 50 per cent share of this segment, was the first to exploit the opportunity here. It launched Cobra, a high-tech rapid-application refinishing paint. It set up an autocolour painting and demonstration centre in collaboration with Maruti Udyog Ltd at the latters flagship service centres, Sai Service in Mumbai and Unipro Multi-Tech in Chennai.
Asian PPG Pvt Ltd is also planning to focus on this segment. And Jenson & Nicholson, the Calcutta-based paints major, has tied up with Herberts GmbH of Germany for a 50:50 joint venture to manufacture automotive refinishes. Herberts is already in India as a collaborator of Berger Paints for manufacturing OEM coatings.
Indian paint majors are tying up with global players for other segments of the industrial paints market as well. In powder coatings, applicable on white goods, Goodlass is a leading player supplying to consumer durable companies like Godrej, Voltas and Whirlpool. Goodlass has formed a joint venture, Polycoat Powders Ltd, with Valspar Corporation of USA to manufacture powder coatings. In fact, the company has several collaborations to manufacture different industrial paints. For instance, it has tied up with Nihon Tokushu Toryo Co, Japan, to manufacture body seal and under seal coatings.
Similarly, Jenson & Nicholson has entered a joint venture agreement last year with Chogoku Marine Paints of Japan for manufacturing bio-friendly marine paints. The joint-venture company will specialise in manufacturing paints for use on offshore platforms, marine vessels and cargo containers. The market size for marine paints used for ocean-bound vessels alone is estimated at Rs 40 crore.
Jenson & Nicholson has chosen to tap this segment as most big players dont have a presence here. In fact, a considerable requirement of marine coatings and anti-corrosive metal coatings is met by the small-scale paints sector. A leading small-scale firm, Universal Surface Coatings, for instance, caters mostly to the marine and defence sector. And Industrial Coating Corpoartion, another SSI, deals mainly in anti-corrosive metal coatings.
According to the Central Electrochemical Research Institute at Karaikudi, in Kerala, Indian industry loses around Rs 40 billion every year because of corrosion. But this can be prevented by using protective paints. The opportunities for industrial paints, then, are tremendous. And paints companies are awakening to the fact.