June 26, 2003	Thursday	Rabi-us-Sani 25,1424

KARACHI, June 25: Paint makers in the informal sector have captured 80 per cent of the market share in the last few years owing to shift of consumers’ demand towards low price products.

Dealers prefer the customers buying low cost paint as the informal sector paint makers offer lucrative discount on cash sales to the dealers. It seems that painters have joined hands with dealers to force consumers to buy low cost cheaper quality paints. They offer commission to dealers for bringing in more customers.

A random market survey reveals that shops are flooded with paints of various names, thus elbowing out high quality decorative and household paints. Even dealers have given prominent displays to the low cost paints just to attract customers.

Organized sector paint makers have been making hectic efforts to recapture their market share by offering lucrative incentives to the dealers at cash sales but their efforts have not yet produced any desired results and customers are still opting for low quality and cheaper paints. However, quality conscious buyers are still buying quality paints.

Paint makers blame the 10 per cent excise duty on paints for giving crippling blow to the organised sector units besides forcing many well established players to either pack up their business or suspend production due to intense competition with low priced paints.

Evershine, Kausarlac, Indigo, and Globe in the organised sectors are some of the victims of the 10 per cent excise duty as well as severe market competition, while Ismailsons and Imperial Paints are hardly producing any quantity.

“Informal sector has captured 80 per cent market share because more than 60-70 per cent of paint makers evade excise duty and other taxes,” the chairman, Pakistan Paint Manufacturers Association (PPMA), Sami Ahmed Shaikh told Dawn.

For instance, a paint bucket carries Rs400 tag but the manufacturer of informal sector has provided it to its dealers at Rs 300 only, thus giving open hand to the dealers to make handsome returns, which the organised sectors cannot afford as they are paying every taxes and duties.

He said that tax evasion by un-organised sector paint makers could be gauged from the fact that producers in Punjab area are throwing away their products in Karachi at cheaper rates. It means that they have still got ample profit margins to bear the cost of transportation and other expenses. There has been a mushroom growth in un-organized paint makers and nobody knows the actual number of producers in the country.

Managing Director, Buxly Paints, Yousuf Babar Khan said that the three leading players in formal sector contributed 88 per cent share in the total collection of excise duty last year despite the fact that the informal sector had millions of tons of production every year. Total demand and production of paints in Pakistan is estimated at 80 million litres per annum.

He said the fixed sales tax and excise duty system in the 1990 had encouraged many people to set up unit in the informal sector. Under the system, these producers made huge productions and paid nominal taxes. The system, however, was discontinued by the government a few years back but by that time it was too late and a large number of people had set up units in various parts of the country. They were paying taxes and duties but it did not match with the actual production and sales.

“The informal sector has captured 65 per cent market share in overall sectors of paints including industrial,” he said adding in decorative and household side, their market share is around 80 per cent.

Some three years back, changes have emerged in the Buxly Paint as family sponsors of Buxly had disinvested its shares and Berger Paints is now looking after its affairs.

When an official in Berger Paints was contacted, he said, “owner of Buxly is the owner of Berger, that’s it,” he said without giving any further details.

Yousuf Babar said that the 10 per cent excise duty, stiff competition from the mushroom growth of informal sectors had been the main reasons of disinvestment of Buxly.

Despite intense competition with informal sectors, ICI and Berger had managed to perform quite well in overall paint segments. In 2002, ICI’s operating profit in paint segment surged by 24 per cent to Rs297.2 million as compared to 2001.

Production and sales volumes of paint recorded at 15.8 million litres in 2002 as compared to 15.6 million litres. In January- March 2003, operating profit soared by 38 per cent to Rs90.3 million as compared to same period of last fiscal. The main reasons for the overall improvement was improved product margins driven by the rupee appreciation against the dollar and lower raw material prices, exports to Afghanistan, growth in industrial segments particularly in auto sector and various construction projects, model shop schemes for dealers to increase their brand visibility at shops and aggressive sales strategy by offering lucrative discounts to dealers to encourage sales.

Aggregate production of Berger Paints in 2001-2002 stood at 8.184 million litres as compared to 7.405 million litres, showing a rise of 11 per cent. In July-March 2002-2003, aggregate sales stood at 6.24 million litres as compared to 5.2 million litres in the same period of 2001-2002.

PPMA chief, Sami Ahmed Shaikh said that the increase in overall paint sales chart of these leading companies is due to diversification of sales in other sectors, otherwise their profitability in decorative segment has been affected due to intense competition from the informal sector.

He said that the government has not abolished the 10 per cent excise duty on paint in the 2003-2004 budget despite repeated representations. Besides, the industry is paying 20-25 per cent import duty on raw materials while the 25 per cent duty is applicable on the import of finished paint.

Titanium dioxide is the main raw material for the paint industry as 70-75 per cent of all the paint produced is either white or shades based on white. Import duty on titanium dioxide is 10 per cent whereas duty on titanium oxide which is not used in the paint industry has been reduced to five per cent to 10 per cent, thus leading to misdeclaration of titanium dioxide as titanium oxide by the importers to avoid import duty, he said.

He urged the government to withdraw the excise duty on paint and reduce the import duty on titanium dioxide to five per cent.