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C2FO Powers Early Payment Programs for the World’s Largest Companies.
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India has one of the world’s largest and fastest-growing paint and coatings markets. While the industry is on the rise with increasing demand across segments, it still has persistent challenges. Paint companies and their supply chains must tackle them to ensure long-term stability.
India’s paint and coatings industry has witnessed an accelerating shift in consumer preferences from traditional whitewash to high-quality products like emulsions and enamel paints, providing steady growth for the industry. Paint companies have seen immense growth over the past few years owing to the increasing demand from various end-use industries such as construction, automotive and consumer durables. The paint industry is expected to grow rapidly in the coming years due to India’s ever-increasing population and rising disposable incomes.
In addition, a reduction in the repainting cycle, which was approximately eight to ten years in 2010 to about four years now, and an increase in the share of pucca (paintable) houses are other growth drivers of the industry. Therefore, during the forecast period of 2021 to 2025, the paint market is expected to grow at a compound annual growth rate (CAGR) of 10%. Seventy-five percent of the overall paint market is constituted by decorative paints and includes segments like exterior wall paints, interior wall paints, wood finishes, enamels, primers and putties. The remaining 25% of the paint market comprises industrial paints and segments like automotive, marine, packaging, powder, protective and general industrial coatings.
The COVID-19 pandemic brought several short-term and long-term consequences for various industries, including a significant impact on the construction industry, which profoundly affected India’s paint and coatings market. Besides COVID-induced challenges, skyrocketing crude oil prices and global supply chain disruptions have made paint companies brace for inflationary pressures on raw materials, logistical issues, and falling gross and EBITDA margins. As a result, the input cost is on the rise, impacting the gross margins, and the paint industry has only been able to pass on the increasing cost to the end consumer through limited price hikes.
“I am very bullish on the Indian paint industry, as the outlook is very positive — around double digits growth in value terms. But, I wonder — how could this growth be fueled if the raw material cost keeps climbing? We need a sustainable strategy for our financing needs; growth needs working capital as a catalyst.”
According to some Indian paint manufacturers, there are issues in sourcing raw materials like tinplate used to make metal cans, which can cause a delay in deliveries. Shipments are also delayed due to the non-availability of containers and vessels, resulting in delayed production schedules. The industry is also grappling with slow real estate, lower construction, and a decline in automobile sales at one end and adverse foreign exchange movements on the other. As the paint industry imports a host of raw materials, rupee depreciation makes imports much more expensive, increasing input costs.
Another challenge comes from fluctuating prices of titanium dioxide (Ti02). Around 300 to 400 ingredients are required to make decorative paints. Out of this, TiO2 is the primary raw material, constituting about 12%-35%. Apart from TiO2, over 50% of the raw materials required by paint companies are extracted from crude oil. However, due to the ongoing Russia-Ukraine conflict, there has been a surge in crude oil prices, severely affecting paint stocks and contracting the margins of the paint companies.
Another critical challenge faced by the paint industry, in addition to sourcing raw materials, is freight costs. Freight expenses as the percentage of revenue for Asian Paints, one of the leading paint companies in India, was 5.6% in the financial year (FY) 2016, which has gone up to 6.6% in FY 2022. Due to such upward shifts in input costs and limited price hikes, the year-on-year (YoY) margin contraction can be seen across all paint companies.
The government has taken several initiatives to tackle the challenges facing the paint industry in India.
Besides these initiatives, India’s young population also presents a massive opportunity with a rapidly rising middle class and the overall population. This will eventually lead to more and more consumption, driving demand for the paint industry. In addition, increasing demand in smaller cities and towns with rising disposable income, enhancing consumption expenditure, and developing rural markets is also fuelling the industry’s growth.
Today, the rapid growth in the paint and coatings industry, coupled with changing consumer preferences and supply chain operations, is leading to higher working capital requirements in the paint industry supply chain. C2FO, being a global leader in working capital solutions, hosts a wide network of paint industry suppliers on its platform, supporting them with their cash flow needs. Leading players like Asian Paints, Berger Paints and Nerolac, among others, have suppliers on the platform. These early payment programs help thousands of paint suppliers manage their working capital by providing them with easy access to cash flow via a fully automated and digital platform.
“The paint and coatings market is growing, but our working capital requirements have gone through the roof due to increasing input costs. C2FO has been helping us access the working capital we need to fulfill large orders and grow in these tough times.”
C2FO’s experts have been analysing its supply chain network and providing the right support to companies in the paint industry supply chain to stabilise their liquidity flow. As a result, paint suppliers have made the most of the C2FO platform to get early payments. In 2022 alone, C2FO has enabled early payments for invoices worth $125 million to hundreds of paint suppliers. And on average, the suppliers get their money 38 days earlier using the platform.
It’s safe to say that India’s paint industry is booming. The country’s expanding middle class and growing economy are resulting in increased demand for home and commercial paints. Moreover, with the government investing heavily in infrastructure development, industrial paint demand is expected to surge even further.
The revenue growth in Q2 of the current financial year shows a YoY increase of more than 19% for Asian Paints and Nerolac, and 20% for Berger Paints. This bodes well for India’s paint industry and its supply chain’s future. However, to maintain the same momentum, the industry must address the current challenges and continue investing in capacity expansion and technological upgrades. With financing becoming cost-intensive, innovative and alternate working capital solutions like the Early Payment programs for suppliers, available at a low cost can ensure supply chain health and business growth.
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