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Consolidation has picked up pace in the Indian paints industry, especially post the coronavirus pandemic.

Large listed companies operating in the decorative paints segment, such as Asian Paints Ltd and Berger Paints India Ltd, continued to gain market share from regional paint makers.

Covid-led demand uncertainties left smaller paint manufacturers struggling to meet their working capital needs, leading to loss of market share. Currently, the share of organized companies in this sector is estimated to be around 75%.

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Despite the increase in formalization of the paints sector, analysts said smaller firms are unlikely to completely vanish.

ICICI Securities Ltd analysts said around 10% of the decorative paint industry will continue to use paints from small firms due to cost savings.

“Dealers sell paints of smaller paint companies as they get a higher trade margin. The credit period offered by smaller paint companies to the dealers is also higher than organized peers," said the ICICI Securities report dated 18 July.

It should be noted that small companies are largely present in the decorative paints segment and mostly sell low-value paints such as distempers, primers and putty.

“India’s low per capita consumption of paints indicates that there is significant opportunity for penetration. Awareness about using putty on plastered walls before painting them is increasing; besides, the rise in sales of economy paints points to growing demand at the lower end. So, there is a huge market and smaller companies, especially in rural areas, are unlikely to disappear," said an analyst with a domestic brokerage house, requesting anonymity.

India’s per capita consumption of paints and coatings is lower compared to global economies.

In 2019, the average consumption of paints and coatings for the Asia-Pacific region stood at 4.7kg, while that of India was at 4.1 kg.

In case of developed nations in the Asia-Pacific region, the average consumption was 9.7kg.

Market leaders also tend to vacate certain price points on a regular basis for products where they see a reduction in profitability. This gives opportunity to smaller paint makers.

“For instance, most leading paint companies have exited distemper 1kg stock-keeping units," added the ICICI report.

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