International Scenario & Implications for the Indian Paint Industry

Amit Jain, Akzo Nobel

The Indian Paint Association, Jan 29th 2011

Global Coatings Market Segment Growth

2Source : Global Paint and Coatings Industry Market Analysis (2009-2014) by International Paint & Printing Ink Council and Orr& Boss, Inc

•No one sub-segment of Industrial Coatings is more than 10% of total volume.

Volume of Coatings Segments (2004,2009) & CAGRVolume of Coatings Segments (2004,2009) & CAGR

Value of Coatings Segments (2004,2009) & CAGRValue of Coatings Segments (2004,2009) & CAGR

1.6%

2.1% 3.9% 8.1% 1.2% 3.6%

2.5% 4.3% 7.2% 2.1% 3.7%

2.9%

Volume 27bn LitresVolume 27bn Litres

Global Coatings Industry increasingly consolidated

3

Top global coatings companies based on 2009 sales ($bn)Top global coatings companies based on 2009 sales ($bn)

Source : AkzoNobel Internal Estimate

Top Decorative coatings companies based on 2009 sales ($bn)Top Decorative coatings companies based on 2009 sales ($bn)

Approximately 50% of the

total market by value held

by top 10 players

Approximately 50% of the

total market by value held

by top 10 players

Regional Players despite

challenges, enjoy market

shares

Regional Players despite

challenges, enjoy market

shares

Increasing Shift of Global players towards developing economies & Segments

4

AKZO NOBEL

NIPPON PAINTSPPG

JOTUN PAINTS

SHERWIN WILLIAMS

KANSAI PAINTS

ASIAN PAINTS

5

Asia Pacific – Largest Consuming Region

Source : Global Paint and Coatings Industry Market Analysis (2009-2014) by International Paint & Printing Ink Council and Orr& Boss, Inc

Decorative Coatings Demand and GDP Per Capita by Region (2009)Decorative Coatings Demand and GDP Per Capita by Region (2009)

GDP/Capita $ / Person

40000

35000

30000

25000

20000

15000

10000

5000

0

Dramatic shift in regional distribution in Decorative coatingsDramatic shift in regional distribution in Decorative coatings

6

Multiple Drivers for strong growth in Asia

. Construction & Infrastructure Development - China, India, Thailand, Vietnam,& Malaysia

Automotive Industry Development- China, India, Korea and Thailand.

Global Construction Spending by RegionGlobal Construction Spending by Region Index of Housing Activity (2004, 2009)Index of Housing Activity (2004, 2009)

Regional Distribution of Vehicle Production (2009)

Regional Distribution of Vehicle Production (2009)

North Europe Asia Latin ROWAmerica Pacific America

Ample growth opportunity in developing countries

7

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Australia

UK

US

NL

China Hong Kong

IndiaIndonesia

Japan

Korea

Malaysia Singapore

TaiwanSri Lanka

PakistanVietnam

Thailand

GDP per capita (USD)

Pai

nt

usa

ge

pe

r ca

pit

a (l

itre

s)Bubble Size = Market

volume (ML)

Indian Coatings – poised to double in 5 yrs

• The market doubled in 10 years …99 to 2009• Now poised to double in next 5 years

Market growth driversMarket growth drivers

Inherent growth in the construction industry

• Demographic changes• Greater prosperity

• Infrastructure investment

Shift to mid and premium tier as consumers trade up

• GDP/capita to increase 3.5x by 2020 touching same levels as

Brazil today• Faster internal repaint cycles

expected

Buoyant Economy• GDP growth rates – 8% +

CAGR 9%CAG

R 14%

13000 Rs.Cr

27000 Rs.Cr

70 % of Indian market potential in 2014 will be Deco

0Wood Finishes

&AdhesivesPowderIndustrialCar

RefinishesMarine & Protec-tive

Decorative

20000

Rs.Cr.

Performance coatingDecorative paints

Decorative Per Capita LitreDecorative Per Capita Litre

However, the growth story faces some challenges

However, the growth story faces some challenges

TiO2 + 40%, supply constraints likely

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1. Demand Supply Gap2. Environmental issues3. Growing Asia4. Complex capex and Gestation time ??

Decorative Paints | Price Increase Announcements - October 2010 11

Source : ICIS - Average of Mid Range Spot Price

Watch list 2 - MonomersMonomers have increased 120-200% in 18 months

Supply/Demand pressure producing dramatic impact……!

60

80

100

120

140

160

180

200

220

240

Raw Material price indices

2 - EHA BA MMA VAM

0.200

0.300

0.400

0.500

0.600

0.700

0.800

0.900

1.000

1.100

€ / Kg Propylene

0.400

0.500

0.600

0.700

0.800

0.900

1.000

€ / Kg Ethylene

0.100

0.200

0.300

0.400

0.500

0.600

0.700

0.800

0.900

€ / Kg Benzene

0.400

0.500

0.600

0.700

0.800

0.900

1.000

1.100

1.200

1.300

€ / Kg Styrene

Decorative Paints | Price Increase Announcements - October 2010 12

Source : ICIS - Average of Mid Range Contract Price. Euros.

Raw Material Precursors – Feedstock increases are massive!

83% increase 116% increase

291% increase 79% increase

13

SQUEEZE

Contractor

Painter

Chemical Polymer

& Paint

Producer

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Macro Trends & Implications for Indian Paints Industry

How global megatrends affect our industry

Exponential growth of the world population, from 6.5 billion to 9 billion

Business Unit | Title 16

Over 2.5 billion people will achieve middle income segment and spend accordingly

Resulting in significant growth opportunities

Global urbanization facts

This leads to significant challenges

Today 1.4

Earthcarrying capacity

(ECC)

The Earth cannot cope with our current levels of consumption and waste

We need 2 earths by 2050!!!

The Earth cannot cope with our current levels of consumption and waste

Sustainability is the essential element in the period of new growth

Addressing some of the challenges ahead

Urbanization leading to increased demand for sustainable housing

26

Transition driven by Environmental regulations & Customer preference

Decorative Coatings Volume by Coatings Type (2009, 2014f)Decorative Coatings Volume by Coatings Type (2009, 2014f)

Source: Orr & Boss, Inc. estimates

2009 2014f

Water – Borne 81% 84%

Conventional Solvent – Borne 14% 7%

High Solids Solvent – Borne 5% 9%

Where is the market going?

Question: where in the coatings supply chain is the most carbon emission?

A. Suppliers

B. Coatings industry

C. End users

Add arrows

The Key: Working upstream for True Sustainability

68% 27%5%

customer

Cradle to gate

Lifecycle: Cradle to grave

Carbon intensity in our own scope is low…but the pictures changes when we take supply chain view

Sustainability requires a holistic approach

AkzoNobel uses the 5 Pillar Framework effectively to retain a No.2 position on the Dow Jones Sustainability Index.

30

Customer Trends

31

Customers demanding Transparency & Accountability

Industry will need to be increasingly transparent about their activities, environmental impact, and performance

Should we label our packages for harmful contents ?

32

Convenience & Smart Solution Driven World

Lives & Work Complex and Time-pressured,

Convenience and Efficiency valued

Solutions to make spaces efficient, increase functionality, decrease energy need

Should we be considering DIY solutions for India ?

33

Rapidly Advancing Technologies

Nano technology, Memory Polymers – stretching the possibilities of what coatings can do

Mono functional to Multi functional RM

Should we opt for renewable RMs?

34

Changing Retail Environment

ExperientialInspirational Targeted Use of augmented reality

Should we invest in Retail evolution?

35

‘Professional’ consumer

Demanding, Discerning, Knowledgeable, Aware

Empowered by democratization of information through

internet

Expects more from the ‘experts’ & brands

Should we be selling solutions instead of products?

Sustainability - a must, not a choice anymore

Legislations / NGOs will become stricter

Should we adopt International Standards?

Our Suppliers contribute 68% of the Paint Industry Carbon foot-print

Should we invest in upgrading our vendors?

Should IPA invest in R&D of alternative RMs?

Corporate Transparency & Accountability

Should we adopt voluntary package labeling?

Should IPA take the lead on industry image?

Consolidation will continue.

Likely to be an increase in M&A activity over the next couple of

years

Should we be exploring collaborative partnerships?

Implications & some choices before us

This is an exciting industry

Colour

Growth

Innovation

Exciting Opportunity

Collaboration

Room for all of us to grow

THANK YOU

Business Unit | Title 38