During the last few years, the paint industry has witnessed a gradual disruption and innovation, led by Asian Paints , the market leader, according to Ambit Asset Management. Asian Paints has led the way by focussing on the under-developed decorative paints segment (when industrial paints were the norm) or investing in supercomputers for advanced data analytics when many had not even seen a computer, the Ambit study said.
Shares of Asian Paints gave enormous return to investors. Over 10 years, it produced a return of 970 per cent, as against the BSE Sensex's 134 per cent. In the last one-year period, Asian Paints has jumped almost 50 per cent vs the Sensex's 16.5 per cent.
However, it is
The power of disruption
A disruptive technology/innovation is one that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network (over a few years or decades), displacing conventional wisdom or technology.
In a study: ‘Disruption Series (Volume 1)’, Ambit said the three major areas of focus for Asian Paints for progression in FY19 are: Technology/Innovation paints, diversification into the home improvement business and environmental sensitivity and innovations.
FY 2018-19 witnessed the launch of 23 new products in the architectural paints segment and 15 in the industrial paints segment. Notable FY-19 launches included paints with 15 years of waterproofing warranty, a damp proof range of paints with 10-year waterproofing warranty, anti-graffiti self-cleaning paints and anti-dust paints for the fan industry, the Ambit study revealed.
Besides, its investments in sleek modular kitchens and Ess Ess bath fittings (chrome-plated fittings) did exceptionally well in FY19, while growing at more than 20 per cent.
Key Challenges
However, Ambit also identified six key factors such as regulations, change in preferences, an aggregator-based model, removal of inhibitors in the process, change in the buying process and change in building patterns that can lead the paint industry from progression to disruption.
Regulations
In India, regulations have protected incumbents thus far and stringent norms have created entry barriers in the organised paints segment in the country, while environmental requirements have been behind some developed economies. A deregulation of these norms can lead to removal of the barriers and make competition more prevalent in paints, the investment advisor said.
Substitutes such as tiles, wallpaper and better quality may drastically reduce the demand for paints.
Do it Yourself
Similarly, the ‘Do It Yourself’ (DIY) concept has not touched India so far due to availability of cheap labour. As labour costs for painting become a larger portion of the expense, DIY painting can prove disruptive in India. In time, if this picks up, it can significantly change the way business is done right from distribution, purchase, price and product mix, Ambit said.
Likewise, while parts of the world go through a ‘DIY’ wave, some developed markets are going through a ‘Do it for me’ wave, whereby they are willing to pay for a professional to come and do the painting on their behalf.
While DIY can gain momentum in India, the concept is, however, fading in developed markets. But ‘Do it for me’ is gaining momentum in developed nations.
Aggregator-based model
Taking a leaf out of the books of players such as Uber, Urban Clap and the like, Berger Paints has tried an aggregator model of its own by creating a huge inventory of painting contractors. If a homeowner contacts the company, it will arrange a painter from the vicinity.
Change in sandpapering processes
Berger Paints also launched an Express Painting initiative a few years ago, based on customer insights.
“Most people put off repainting their homes, troubled by the thought of dust flying about when manual sandpapering is done prior to painting.” Sandpapering done by a machine can reduce the time taken by up to 40 per cent and also employs an inbuilt vacuum that does away with the dust problem. As these technologies and services become more affordable, it will lead to a huge disruption with maximum benefit going to the first to enter and scale up, said Ambit.
New building pattern/process
Manufacture of buildings on a larger scale (starting with smaller structures) might change the way we build things (process, product, appearance and consumption) and might require 3D printer-friendly raw materials, paints and colours that eliminate the need for factory production or traditional painting, says the report.
Similarly, homes of the future could make use of digital surfaces or LED surfaces, which might not need painting and the preference for non-painted/rustic looks can also lead to lower demand for paints.