The declining numbers of new housing starts, raw material price hikes and increasingly stringent regulations on volatile organic compounds have not done much to dampen the growth prospects of the North American paints and coatings market. A surge in demand following the housing boom of 2001-2005 expects to drive the market even during critical periods.
New analysis from Frost & Sullivan, North American Paints & Coatings Market – Investment Analysis and Growth Opportunities, reveals this market earned $21.43 billion in 2005 and estimates this to reach $25.45 billion in 2009.
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Since houses need repainting every four or five years, the houses that were built in the boom period will offer exceptional growth prospects for paint and coating manufacturers from 2006 to 2009. Though the building permits are declining, market participants may witness stable demand during 2006 to 2008 on account of lag time between the construction orders and paint orders.
“Nearly 75 percent of the architectural business serves the repainting market, while only 25 percent of sales are obtained from new houses construction,” says Frost & Sullivan Financial Analyst Shrikanth S. “The refurbishment market constitutes nearly 37.5 percent of the entire paints and coatings market and hence, the decline in housing starts may cause only a minor impact on the market.”
Meanwhile, the reduction of profit margin due to increasing prices of raw material and cost of compliance to regulations is overcome by focusing on developing energy-efficient technology, complying with environmental regulations and passing the increase in raw material price to the customers.
Paints and coatings companies can also have higher margins by acquiring regional and international companies, forward integrating distribution companies, and diversifying into high-growth segments. Branching into lucrative niche segments such as intumescent, elastomeric, anti-microbial and powder coatings also expects to stabilize the market revenues.
“However, the pure play companies outshone the diversified companies except for a brief phase in 2003, after which the year–on-year sales growth was 760 and 920 basis points above diversified companies, “ notes Shrikanth. “They achieved this by transferring costs to customers, healthier product mix, select acquisitions and strong volume growth.”
The gross margin of the pure play companies had decreased gradually from 41.3 percent in 2003 to 39.2 percent in 2005, mainly due to raw material price hike. Nevertheless, their operating profit margins were stable at 9.5 percent from 2003 to 2005 due to improved customer pricing and manufacturing efficiencies.
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