Published on 27/10/2020 9:46:27 AM | Source: ICICI Securities Ltd

Consumer Goods Sector Update - Long-term opportunity for paint companies By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Consumer Goods Sector #Sector Report #ICICI Securities

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Deep Dive #2: Consumer Adhesives - Long-term opportunity for paint companies

Deep Dive is our new series in which we will explore long-term category opportunities. Our endeavor is to bring alive I-Sec Consumer team’s cumulative experience of >100 years.

In Deep Dive #1 we presented Waterproofing.

Consumer Adhesives category offers healthy growth potential (~12% p.a.) over 2020-2030 (and beyond). Pidilite, Asian Paints and 3M India are key players and have established strengths of (1) wide portfolio across sub-segments, (2) strong brand equity built over decades (important in a ‘problem solution’ / functional category) and (3) distribution networks. Historically, growth of adhesives was pegged to growth of furniture industry. However, we note new segments such as medicated tapes, safety markers have added a new dimension. Also, e-commerce and packaging of food provide another growth opportunity. While there are no pure-plays in adhesives, investors can play this via paint companies and Pidilite. Top picks: Asian Paints (ADD) and Pidilite (HOLD).


* Adhesives market in India: The adhesives market is growing at CAGR of ~12%. The market is divided between consumer (B2C) and institutional (B2B) players. The institutional market is nearly 2X the size of consumer adhesives. The share of organized consumer adhesive market is estimated to be ~60% and the key players are Pidilite, Asian Paints, 3M India and Kansai Nerolac. While historically growth of adhesives industry was linked to furniture industry, we note emergence of new growth avenues such as medicated tapes, safety markers, packaging of ready-toeat/cooked food and e-commerce.


* Sub-segments of consumer adhesives market: There are six sub-segments of consumer adhesives market, (1) To stick wood, (2) To stick plastic, rubber etc., (3) To stick paper, (4) For use on art materials, (5) To stick stones and (6) adhesive tapes (Electrical, medicated, safety markers and paper tapes). The adhesives used to stick wood is the largest sub-segment, however, it is growing slower than category. Adhesive tapes are the fastest growing sub-segment.


* Different approach of key players: Players such as Pidilite and Asian Paints have focused on selling the absolute adhesives (Fevicol, Trugrip etc.) whereas players such as 3M India sell adhesives with products (e.g. Post it, Nexcare medicated tapes, Safety markers). Also - Pidilite and Asian Paints provide adhesives with long lasting effects whereas 3M provides products which have long lasting effects (road safety markers) as well as limited shelf life (medicated tapes, Post it).


* Logical extension to paints: Paint companies are leveraging the logical extension of adhesives to offer better value to consumers. They benefit as (1) they can leverage the existing network of paint/hardware stores, (2) Adhesives are (more like) consumer staples whereas paints are consumer discretionary. As consumers use staples more and are (generally) more brand loyal to staples, we expect adhesives to create stronger branding in minds of consumers which will be useful for paints too.


* Stock Calls: Though there are no pure-play listed companies in adhesives segment, investors can get exposure to adhesives category through paint companies and Pidilite. Top picks are Asian Paints and Pidilite.


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