Analysis of Paint Industry with respect to Godlass Nerolac

Submitted By:Submitted By:Sandesh MokalSandesh Mokal

PGDBM – MarketingPGDBM – Marketing

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Project Report On “Analysis of the Paint Industry”

SUBMITTED BY Sandesh Mokal

PGDBM MARKETING BATCH: 2007-09

Under the guidance of

PROF. R. Subramaniam

N.L.DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCHSHRISHTI, SECTOR 1, MIRA ROAD (E), MUMBAI 401104

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CERTIFICATE This is to certify that Mr. Sandesh Mokal, student of N.L. Dalmia Institute

of Management Studies and Research, has successfully carried out the

project titled “ANALYSIS OF THE PAINT INDUSTRY”, under my

supervision and guidance as partial fulfillment of the requirements of

PGDBM course, Mumbai University Batch 2007-2009

Prof. Subramaniam Prof. P.L. Arya Project Guide Director

Date: Place: MUMBAI

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ACKNOWLEDGEMENT

THE SUCCESS OF ANY PROJECT IS THE RESULT OF HARD WORK & ENDEAVOR OF NOT ONE BUT MANY PEOPLE AND THIS PROJECT IS NO DIFFERENT.

I TAKE THIS AS A PROSPECT TO AVOW THAT IT WAS AN ACHIEVEMENT TO HAVE SUCCEEDED IN MY FINAL PROJECT, WHICH WOULD NOT HAVE BEEN POSSIBLE WITHOUT THE GUIDANCE OF PROF. P. L. ARYA (DIRECTOR – N. L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH) AND MY PROJECT GUIDE PROF. SUBRAMANIAM AT NLDIMSR.

I ALSO EXPRESS MY APPRECIATION AND GRATITUDE TOWARDS ALL THE FACULTY MEMBERS AT N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH FOR MAKING THE PGDBM DEGREE AND THIS PROJECT A MEMORABLE LEARNING EXPERIENCE.

FINALLY I AM THANKFUL TO ALL MY FRIENDS, FACULTY MEMBERS AND STAFF WHO HAVE GIVEN THEIR FULL SUPPORT IN COLLECTING THE REQUIRED INFORMATION AND CONTINUOUS HELP DURING THE PREPARATION OF THE PROJECT.

SANDESH MOKAL PGDBM

MARKETING

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TABLE OF CONTENTS

SR. NO CONTENTS PAGE NO.

1. EXECUTIVE SUMMARY 6

2. PAINT INDUSTRY AT A GLANCE 7

3. PAINT INDUSTRY 10

4. INDUSTRY STRUCTURE 13

5. SECTOR SPECIFICS 15

6. EMERGING TRENDS AND OPPORTUNITIES 19

7. COMPETITOR ANALYSIS 23

8. COMPANY ANALYSIS 29

9. SWOT ANALYSIS 36

10. PRIMARY RESEARCH 37

11. RESEARCH PROBLEM 37

12. RESEARCH OBJECTIVE 37

13. RESEARCH DESIGN 37

14. CONSUMER SURVEY 39

15. CONCLUSIONS 47

16. RECOMMENDATIONS 48

17. APPENDIX 51

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EXECUTIVE SUMMARY

Goodlass Nerolac is one of India’s largest paints company second only to Asian Paints in the

decorative segment. Paints sector can be segmented application wise, as decorative paints

and industrial paints. Both the sectors are characterized by low capital costs and high

working capital. The intense working capital requires special technology. Capacities are

normally set up close to markets, so as to be able to offer a multitude of shades and colors

to customers. Brand building and dealer network act as effective entry barriers. Demand is

seasonal in nature - low during monsoon, high during festivals.

Domestic paints sector, dominated by decorative paints (70%), is expected to undergo a

structural shift towards industrial paints, as cross-border tie-ups in industrial paints are

becoming order of the day. Most organized sector players are established with well-

entrenched distribution network and established brands. Threat of global competition is

minimal. The underdeveloped industrial paints market holds maximum growth potential,

albeit on a lower base. In future the industry will witness brand competition, product

innovations and a fight for superior distribution network.

Focused on decorative paints segment, GNPL is set to gain the maximum amongst the peer

members from the up trend in the housing sector. The company is restructuring its

operations into three SBUs and has set target to be amongst the top ten decorative

manufacturers in the world. GNPL is investing heavily in dealer tinting machine and IT

technologies to keep ahead of competition. GNPL has set a target of earnings growth of

above 20% per annum. It also has set a vision to be among the top five paint companies

worldwide by 2005. On export front, the company is looking out for alliances/ takeover in

the emerging markets of Asia.

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PAINT INDUSTRY AT A GLANCE

The Indian paint industry is worth Rs49bn and can be divided into two main sectors

namely the organized sector and the unorganized sector. The Organised sector

comprises of 60% of the total paints market while the Unorganised sector comprises of

the remaining 40%.

Organized Sector can be divided into 2 distinct segments:

Industrial Segment growing at 15% (US$ 230 million).

Decorative Segment growing at 8% (US$ 500 million).

The Overall growth of the paint industry is 10 to 12%.

Basis of competition in decorative segment are:

1. Distribution

2. Brand Image

3. Range of Products

Basis of competition in Industrial Segment are:

1. Access to technology

2. Technical Servicing

3. Brand equity of present players

4. Distribution network

5. Cost of modification of products

The unorganized sector has historically been dominant due to the high excise structure.

Over the last five years, the excise rates have come down drastically from 40% to 18%

resulting in erosion of the unorganized sector's share.

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Working Capital intensive:

The number of shades is very large and a sufficient stock of every shade has to be

maintained at all levels of the distribution channel, the working capital cycle is very high.

The extent can be gauged from the fact that Asian Paints has a 12000 strong dealer

network selling more than 150 shades. Also, the number of raw materials required can

stretch upto 300. As majority of these raw materials are either imported or sourced from

small chemical manufacturers, a large stockpile needs to be maintained.

Low Fixed asset requirement:

A plant for the manufacture of decorative paint can be set up with a small capital

investment. However, the major investment is in setting up distribution channels and

building up a brand.

The demand for paints is relatively price-elastic but is linked to the industrial and

economical growth.

The per capita consumption of paints in India is very low at 0.5 kg per annum if

compared with 4 kgs in the South East Asian nations and 22 kgs in developed countries.

The global average per capita consumption is 15 kg.

In India the organised sector controls 70 percent of the total market with the remaining

30 percent being in the hands of nearly 2000 small-scale units.

In India the industrial paint segment accounts for 30 percent of the paint market while

the decorative paint segment accounts for 70 per cent of paints sold in India.

All the industry majors have a vast dealership network and are required to maintain high

inventory levels.

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Most of the paint leaders have technical tie-ups with global paint leaders.

Seasonal nature of demand:

The demand peaks during festival season while is very lean during monsoons. Thus, a

major part of the sales are achieved in the second half of the fiscal year.

The paint market is expected to grow at 8-10% p.a. over the next few years. The growth

could be higher if industrial activity picks up as the industrial paint segment is gaining

more importance.

New trends are emerging in technology and marketing. Introduction of tinting machines

at the dealer/ retailer level will bring down working capital costs. Also new technology is

being used for increasing the utility and lifespan of paints. Indian industry will have to

keep pace with global technological changes to maintain their competitiveness. Already,

a few alliances have been entered into and the number is likely to increase in the future.

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PAINT INDUSTRY

Decorative Industrial

Exteriors Coatings Interiors Automotive Paints

High performance

Powder coatings

Emulsions

Enamels Industrial coatings

Distempers

Wood finish

Others

Decorative

Sector Composition

Enamels 50%

Distemper 19%

Emulsions 17%

Exterior Coatings 12%

Wood Finishes 2%

(Table 1) (source: isspa)

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Decorative Sector Features

Enamels Steady growth

EmulsionsShift from distemper and enamels to emulsions. High

growth area

DistempersHigh growth in low priced low quality distempers as

consumers are upgrading from lime wash

ExteriorsExterior emulsion is the fastest growing segment in the

Indian Paint market.

(Table 2)

Industrial Sector Composition

(Table- 3) (source: isspa)

Automotive Paints 50%

High Performance Coating 30%

Powder Coating 10%

Coil Coating 5%

Marine Paints 5%

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Industrial sector features

Automotive Sector:

This segment is a high growth sector with a number of new entrants like Mercedes Benz,

Mitsubishi, Daewoo, Hyundai, Honda, Fiat, General Motors and Ford. However, recently

there is some slackness in Auto demands. Two wheeler markets are booming due to demand

from large Indian middle class.

Powder Coatings:

This segment is showing increasing growth due to increase in sale of white goods and auto

ancillaries.

High Performance Coatings:

This segment is registering steady growth due to the increase in investments in refinery

segment and power sectors, particularly Thermal and Nuclear.

INDUSTRY STRUCTURE

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Organized sector

The organized sector has a market share of 60% valued at Rs26bn. The share has increased

from 55% three years back as the excise on paints was reduced. Asian Paints is the leader

with a share of 41% in the organized segment followed by Goodlass Nerolac, and ICI

respectively. Asian Paints and ICI are mainly decorative paint producers, Goodlass has major

share in the industrial paints segment whereas Snowcem is almost a generic name for

cement paints.

Organized Sector Market Shares – Value

Company Market Share

Asian Paints 37%

Goodlass Nerolac 15.9%

ICI 11%

Berger Paints 15.9%

J&N 5.7%

Shalimar 4%

Others 12%

(Table: 4) (source:isspa)

Unorganized Sector

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There are estimated 2500 small-scale producers accounting for 40% of the market. The

unorganized sector proliferated due to low capital investment required and fiscal concession

by the government. The high excise duty of over 40% before 1992 created a large price

differential. The steady decrease in excise to the present 18% has taken away the advantage.

Moreover, the introduction of MODVAT has further reduced the incidence of excise. Over

the long run, the share of the small scale is likely to come down further and would be

restricted to low quality, low price paints.

SECTOR SPECIFICS

Decorative segment

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On product lines, paints can be differentiated into decorative and industrial paints. While the

former caters to the housing sector, the automotive segment is a major consumer of the

latter. Decorative paints can further be classified into premium, medium and distemper

segments. Premium decorative paints are acrylic emulsions used mostly in the metros. The

medium range consists of enamels, popular in smaller cities and towns. Distempers are

economy products demanded in the suburban and rural markets. Nearly 20 per cent of all

decorative paints sold in India are distempers and it is here that the unorganised sector has

dominance. The demand for decorative paints is highly price-sensitive and also cyclical.

Monsoon is a slack season while the peak business period is Diwali festival time, when most

people repaint their houses. In the decorative segment, it is the distribution network that

counts.

Demand for decorative paints arises from household painting, architectural and other

display purposes. Demand in the festive season (September-December) is significant, as

compared to other periods. This segment is price sensitive. The housing industry is likely to

grow at around 8% in the next five years considering the shortage of housing and

Government’s thrust to encourage housing activity. This is likely to favorably impact the

demand for the decorative paints.

APIL dominates the decorative segment with a 41 percent market share. The company has

more than 15,000 retail outlets and its brands Tractor, Apcolite, Utsav, Apex and Ace are

entrenched in the market. GNPL, the number-two in the decorative segment, with a 14

percent market share too, has now increased its distribution network to 10,700 outlets to

compete with APIL effectively. Berger and ICI have 9 per cent and 8 per cent shares

respectively in this segment followed by J&N and Shalimar with 1 and 6 per cent shares.

Industrial segment

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The share of industrial paints in the total paint consumption of the nation is very low

compared to global standards. It accounts for 30 per cent of the paint market with 70 per

cent of paints sold in India for decorative purposes. With the decorative segment bottoming

out, companies are increasingly focussing on industrial paints. The future for industrial

paints is bright. In the next few years, its share would go up to 50 per cent, in line with the

global trend.

The demand for industrial paints comes from industries like automobiles, consumer durable,

shipping, engineering, etc.

Industrial paints include powder coatings, high performance coating and automotive and

marine paints. But two-thirds of the industrial paints produced in the country are

automotive paints. The industrial paints segment, on the other hand, is a high volume-low

margin business. In the industrial segment the deciding factor are technological superiority

and tie-up with automobile manufacturers for assured business.

GNPL dominates the industrial paints segment with 41 per cent market share. It has a lion’s

share of 70 per cent in the OEM passenger car segment, 40 per cent share of two wheeler

OEM market and 20 per cent of commercial vehicle OEM market. It supplies 70 per cent of

the paint requirement of Maruti, India’s largest passenger car manufacturer, besides

supplying to other customers like Telco, Toyota, Hindustan Motors, Hero Honda, TVS-Suzuki,

Mahindra & Mahindra, Ashok Leyland, Ford India, PAL Peugeot and Bajaj Auto. GNPL also

controls 20 per cent of the consumer durables segment with clients like Whirlpool and

Godrej GE. The company is also venturing into new areas like painting of plastic, coil coatings

and cans. APIL, the leader in decorative paints, ranks a poor second after Goodlass Nerolac in

the industrial segment with a 15 per cent market share. But with its joint venture Asian-PPG

Industries, the company is aggressively targeting the automobile sector. It has now emerged

as a 100 per cent OEM supplier to Daewoo, Hyundai, Ford and General Motors and is all set

to ride on the automobile boom. Berger and ICI are the other players in the sector with 10

per cent and 9 per cent shares respectively. Shalimar too, has an 8 per cent share.

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Price sensitivity factors

Various factors that have influenced the pricing of paints are summarised below:

The industry is raw-material intensive. Of the 300 odd raw materials, nearly half of

them are imported petroleum products. Thus, any deficit in global oil reserves affects

the bottomline of the players.

The major raw materials Titanium Dioxide, Phthalic Anhydride and Peutarithrithol

constitute 50 per cent of the total cost. Besides, this, there are other raw materials

such as castor, linseed and soybean oils, turpentine. The raw materials cost sums up

to a whopping 70 per cent. Any increase in the prices of these raw materials could

adversely affect paint prices.

Most of the paint majors have to import nearly 30 per cent of their raw material

requirements thus changes in import policies can affect the industry.

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Overseas expansion

If the global Goliaths are foraying into the Indian paints market aggressively, the Indian paint

companies are also spreading their wings. Asian Paint exports its paints to over 15 countries.

It also has joint ventures in Fiji, Tonga, Nepal, Vanuatu, Solomon Islands, Australia, Oman

and Mauritius. In October 1999 it acquired 76 per cent equity stake in Delmege Gorsyth & Co

(Paints) Ltd, the second largest paint company in Sri Lanka with a 12 per cent market share in

Sri Lanka’s Paint Industry. Within a short span of just five years, the company has emerged

as the number one player in these markets.

Technology collaboration

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All the paint majors have tie-ups with global paint leaders for technical know-how. Asian

Paints has formed a JV with PPG Industries Inc to service the automotive OEMs.

Berger has a series of tie-ups for various purposes. It has a technical tie-up with Herbets

Gmbh of Germany in addition to its joint venture with Becker Industrifag. With the

agreement with Herbets coming to an end in 2001, Berger has now allied with the Japanese

major Nippon Paints to boost its OEM turnover since the Indian roads are being flooded with

Japanese automobiles. It also has an agreement with Orica Australia Pvt. Ltd. to produce

new generation protective coatings. The company also has tie-ups with Valspar Corp and

Teodur BV for manufacturing heavy duty and powder coatings.

Incidentally, ICI makes paints with the technical support of Herbets, which has been recently

acquired by by E I Du Pont de Nemours of the US. Interestingly, Du Pont, which is a leader in

automotive coatings in the US, has a technical tie-up with Goodlass Nerolac for the

manufacture of sophisticated coatings for the automotive sector. Goodlass also has technical

collaborations with Ashland Chemcials Inc, USA, a leader in the petrochemical industry,

Nihon Tokushu Toryo Co and Oshima Kogyo Co Ltd, Japan.

EMERGING TRENDS AND OPPORTUNITIES

Technology:

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The introduction of tinting machine has significantly changed marketing technology. These

machines each costing approximately Rs 60mn are installed at dealer outlets and enable the

customer to choose between any of several hundred shades. These are then generated by

mixing dyes with the base paint, and delivered almost instantly.

The two major implications of this machine are:

Differentiation on color range is reduced: Prior to this technology, a major

competitive advantage of a company was the range of colors it offered. For instance,

Asian Paints offered almost 150 shades in its synthetic enamel range, unmatched in

the industry. This now stands changed as almost 2000 shades can be created in seven

minutes through these machines.

Simplified logistics management: With the machines generating shades instantly,

dealers can now stock only the base material and thus save almost 20-25% in the

working capital cycle.

Expansion of Product Profile:

The lowering of excise has opened the high volume but low value market in the semi urban

and rural areas, which is currently dominated by the unorganized sector.

Increased Thrust on Brand Creation And Distribution:

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The increased share of organized sector implies that brand awareness will be a thrust area.

Also, strong brands are emerging as the most important entry barrier. The opening up of

rural markets has also necessitated the expansion of distribution reach.

Dealer Network Nos.

Asian Paints 14500

Goodlass 7000

Berger 5500

ICI 4500

(Table – 5)

(source: indiainfoline)

Industry Consolidation:

The small-scale industry is expected to witness a shake out as the share of organized sector

increases. Also, outsourcing requirements are likely to be reduced as new capacities go on

stream in the organized sector.

New Segments Opening Up:

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With increased industrialization, new segments like auto refinishing market are likely to

expand rapidly. Already companies like ICI have launched specialized brands for this

segment.

Outlook:

The industry is expected to grow at 10% CAGR for the next five years driven by increasing

industrialization and increasing disposable incomes. According to Indian Paints Association,

demand will rise from the current 0.6mn tonnes per annum to almost 1mn tpa by 2003.

Demand for decorative paints will be led by the household construction industry which is

expected to grow at almost 8% over the next five years considering the extreme shortage of

housing and the government’s thrust on encouraging housing activity. The centers of

housing activity are also likely to shift more towards rural areas. The industrial segment will

grow faster due to the lower base and fast growth in major user industries like consumer

durables and automobiles.

The emerging trends in technology and marketing imply that the industry is likely to

consolidate over the next few years with the marginal players being wiped out and industry

leaders gaining market share. Thus, critical success factors will shift from manufacturing to

marketing and distribution.

Large international players are likely to either enter India or enhance their presence in India

in view of the growing market. Thus joint ventures and strategic alliances will be the order of

the day. Indian companies will also need to tie up with international majors to have access to

the latest technology.

Growth Areas for the Indian Paint Industry:

Automatic Tinting System

Indian Rural Market

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Auto OEM Finish

Auto Refinish

Exterior Coatings

COMPETITOR ANALYSIS

ASIAN PAINTS

APIL, India’s largest Paints Company, is the market leader in decorative paints. Asian Paints

India Ltd. (APIL) has the distinction of being the market leader in the paints industry and

commands a market share of 37 per cent. It commands 38% in the decorative paints

segment and 15% share in the industrial paints segment It has remained focussed on core

business and has consistently improved operating efficiencies. The company has registered a

net profit of Rs 1064mn in FY01 as compared to Rs 973mn in the previous year.

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Focussed on decorative paints segment, APIL is set to gain the maximum amongst the peer

members from the uptrend in the housing sector. The company is restructuring its

operations into three SBUs and has set target to be amongst the top ten decorative

manufacturers in the world by 2003. APIL is investing heavily in dealer tinting machine

"Colour World" and IT technologies to keep ahead of competition. APIL has set a target of

Gross sales of Rs21bn by 2003 and earnings growth of above 20%. It also has set a vision to

be among the top five paint companies worldwide by 2005. On export front, the company is

looking out for alliances/ takeover in the emerging markets of Asia.

"Utsav" brand enamel was launched in FY01 to provide a complete painting solution for rural

customers at moderate prices. The company has launched a number of wood finishes in

recent years. Asian Paints has installed around 2000 dealer tinting systems under the

"Colourworld" programmes. It is proposed to further install around 500 to 600 tinting

systems in FY02. The company has acquired the powder coatings business of Mumbai based

Hawcoplast Chemicals Ltd for a consideration of Rs 160mn.

Financial Analysis

The net profit of the company increased by 9% to Rs 1064mn in FY01 as compared to Rs

973mn in the previous year.

The operating profit rose by 10% to Rs 2096mn. The operating margin declined to 16% from

17% last year. The lower growth in profits is due to depressed market conditions for paints

and increase in operating expenditure.

Net sales grew by 12% to Rs 11965mn while other income rose by 36% to Rs 185mn.

Total expenditure of the company increased by 13% to Rs 10054mn. Staff cost increased by

25% to Rs 730mn while raw material expenditure rose by 10% to Rs 6958mn.

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Interest cost rose by 9% while depreciation charges grew by 14%. The debt of the company

rose by 30% to Rs 2268mn. The debt equity ratio stood at 0.6:1 while Return on Net Worth

was 26%.

Distribution channel

The critical success factors in the decorative paints business are availability of wide range of

shades and extensive distribution network. The company has 4 manufacturing facilities and

more than 2800 stock keeping units (SKUs). These are supported by 6 regional distribution

centers, which cater to 55 depots. Each depot has a branch manager for supervision of

several salespersons who cater to more than 14,500 dealers in the more than 3,500 big and

small cities all over the country. Moreover, APIL has consistently improved its IT systems

over the years. It has already linked all of its factories and 55 depots through V –SAT

terminals, which in turn has given benefits in streamlining the distribution channel.

BERGER

BPIL has become third largest paints company with 16% market share in the decorative

paints market after merging Rajdoot Paints in itself. It is predominantly engaged in the

decorative paints segment, which is responsible for two-thirds of its sales, remaining

earnings come from the industrial paints segment. The company is increasing its presence in

the industrial paints segment through technical tie-ups and joint venture with multinational

companies.

Merger of Rajdoot Paints with BPIL will benefit the later in terms of increasing the market

share in highly competitive decorative paints segment, expanding the product portfolio and

reduction in the overheads.

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BPIL is aggressively expanding the market reach in the decorative paints market through

Colourbanks (Colour tinting machine). In automotive paints segment BPIL has tied up

technical alliance with Nippon Paints Co to cater to OEM segment. In overseas market BPIL is

contemplating plans to setup green field projects in African countries. The company enjoys

the benefits of technical tie-ups with Valspar Coatings, USA and Herberts, Germany for

heavy-duty coatings and automotive coatings respectively.

Financial Analysis

Net sales and profit has registered a CAGR of 15.3% and 33.9% in the past 4 years. In FY99,

net sales jumped by 22% yoy primarily on account of the incremental sales from the

amalgamation of Rajdoot Paints wef 1st Oct 98. However growth in net profit was not

proportionate with sales growth primarily due to decline at the operating level. Operating

profit margin has declined below 10% in the past 4 years primarily due to intense

competition at the market place. Selling expenses as % of net sales as also increased in the

past 4 years. Effective tax rate has declined substantially in FY99 as the company has enjoyed

tax benefit from the amalgamation of Rajdoot Paints.

Return on networth has declined consistently from 24% in FY96 to 20% in FY99 mainly due

to lower asset utilization and squeeze on the margins. Return on capital employed has also

followed the similar trends. In the past 4 years the fixed assets have registered a CAGR of

46.9% both on account of organic and inorganic growth. The company has expanded its own

manufacturing besides acquiring Rajdoot Paints in the past 4 years. In FY99 working capital

requirement increased by more than Rs490mn mainly due to amalgamation of two

companies. The real benefits of the amalgamation are expected to come in the next two

years.

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ICI

ICI India Ltd. (ICIIL) is a part of the Imperial Chemicals Industries (ICI), UK which is a world

leader in paints. The company has diversified interests and is not purely a paints company.

Backed by a market share of 13 per cent, ICIIL is recognised as the fourth largest paints

manufacturing company. The company, which was a leader in the premium emulsion paint

market, has now lost out to Asian Paints in the same category. The decision of the parent to

invest more funds in the company could prove extremely beneficial. ICI’s restructured

operations consist of paints, speciality products, rubber chemicals, pharmaceuticals,

surfactants, polyurethane, acrylics, catalysts and nitrocellulose

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Financial Analysis

Comparing the growth on non explosive business, the sales grew by 16% to Rs8.13bn from

Rs7bn. Overall sales of non explosive business have grown at a CAGR of 16% in last five

years.

Other income for the year was at Rs290.6mn as compared to Rs393.1mn for FY 99. This

includes Rs75.4mn (Rs89.57mn) from write of provisions of excise with a court ruling in the

company favor. Other components include commission, miscellaneous receipts, income

from investments etc.

Net profit was higher by 4.5% to Rs642mn for FY 00 as compared to Rs614mn for FY 99. The

current year profit includes a one time write off of Rs120mn & exceptional income of

Rs170.3mn as compared to Rs264.8mn of exceptional income in FY 99. Overall net profit has

grown at a CAGR of 14% in last five years.

Material consumes increased by 10.1% to Rs4.66bn from Rs4.23bn. In terms of break up,

raw material cost decreased by 0.5% to Rs3.02bn, packaging material costs decreased by 9%

to Rs343.3mn while purchase of finished goods increased by a steep 53% to Rs1.29

(Rs845mn). The total material consumes as percentage of sales increased from 51.3% to

53.5%, an increase of 2.1% percentage points.

Other expenses increased by 2.86% to Rs2.51bn as compared to Rs2.45bn. As a proportion

of sales other expenses were down by a 0.8% percentage points to 28.7% of sales from

29.5%. The decrease was on account decline in power & fuel costs by 14.8% to Rs238.2mn as

compared to Rs274.6mn and salaries by 10.6% to Rs424.7mn from Rs461.3mn. While the

decline in power & fuel costs was due to transfer of explosive business to a joint venture,

employee costs decline due to implementation of a VRS scheme. Provision for bad debts was

Rs118.2mn as compared to Rs59.9mn.

The company has paid interest of Rs171.5mn for FY 00 as compared to Rs282.4mn for FY 99

as it repaid loans to the tune of Rs1bn. Interest received was to the tune of Rs10.6mn as

compared to Rs6.8mn. The interest paid is expected to decline further this year as the

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company repays more loans as also due to the increase in interest received as the company

has invested surplus cash into deposits.

COMPANY ANALYSIS

Goodlass Nerolac Paints Ltd.

Goodlass Nerolac Paints Ltd (GNPL) is a 65% subsidiary of Japan based Kansai Paints. It has

its presence in decorative paints as well as industrial paints, coatings, varnishes, enamels etc.

Goodlass Nerolac Paints (GNPL) is the No.2 Paint company in India and the market leader in

the industrial paints segment. GNPL reduced the prices of its products including its major

brand Nerolac synthetic enamel due to the reduction in raw material costs in FY02, in a bid

to enhance it share in the household sector.

GNPL has several collaborations with different companies to cater to different segments:

Kansai Paint Co Ltd., Japan - For all automotive coatings

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DuPont Automotive Coatings, USA / UK - For all automotive coatings

Nihon Parkerizing Co Ltd., Japan - For Pretreatment chemicals

Nihon Tokushu Toryo, Japan - Sealants and Underbody Compounds.

Valspar Corporation, USA - Powder coating

Ameron Coatings Inc., USA - High Performance Coatings

Drew Chemicals, USA - Water Treatment Chemicals

Background

GNPL was established in 1920, by Tata stable in collaboration with Goodlass of UK, a part of

the Cooksons group. The Tata’s had a 40% stake in the Company, through group company

Forbes Gokak Ltd. In 1983, the Company entered into a technical cum financial collaboration

with Kansai Paints, Japan. Kansai who currently has a stake of 40% is the other major

shareholder. Manufacturing activities began with the establishment of a paints unit at Parel

in 1920. In 1971 another plant was established at Thane. The Thane plant also has facilities

to manufacture pigments, one of the major ingredients in paint manufacture. In FY92, the

Company made a rights issue, for part funding its new Kanpur plant, which was

commissioned in August 93. Last year Kansai bought over the stake of Tata’s, thus making

GNPL its subsidiary.

Kansai Paint Company is the largest paint company in Japan & among the top 10 in the

world. It has 21 subsidiaries in 12 countries. It has a global strategic partnership with Dupont

Herberts Automotive Coatings. It has 64.5% holding of the equity capital in GNPL.

Industrial paints

GNPL is the market leader in industrial paints segment with a 43% share. The industrial

paints segment is far more technology intensive than the decorative segment. In the

Industrial segment, Goodlass offers a wide range of liquid and Powder coatings to service

spectrum of industry, ranging from automotive, Marine, White goods etc. and also High

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Performance Coatings to meet the corrosion protection needs of chemical industries, power

plants etc. In the automotive segment, all multinational companies except Hyundai are using

GNPL paints as the company provides the entire painting system right from pre-treatment to

final coating. The company supplies to all major two-wheeler and car manufacturers. Maruti

is the biggest customer of GNPL Other user industries for industrial paints include

engineering and consumer durables.

Decorative Paints

Decorative paints accounts for 70% of the total market and includes acrylic & oil-bound

distempers, enamels, and plastic emulsions.

GNPL currently has 14% market share in the decorative segment. GNPL re-launched Nerolac

Allscapes, the premium interior paint, in late-2001, as 24-Carat Emulsion paint for the

interior use in the premium segment. The re-launch of Allscapes is likely to improve the sales

and profitability of the company. The company also roped in film stars like Malayalam

superstar, Mohanlal, to endorse brands like the acrylic exterior paint, excel, for the southern

markets starting in April 2002.

GNPL has introduced a new technologically advanced exterior premium paint - Nerolac Excel

Everlast in Kerala. This paint has outstanding durability due to various features such as

excellent lasting adhesion on most surfaces, all weather application, minimum surface

preparation, unique aging characteristics and protection from fungal attack. The unique

selling proposition of the product is that it can be immediately applied on newly built

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surfaces immediately after construction. It is available in over 21 ready-to-use decorative

shades in value package sizes.

The company has introduced 15 spectrophotometers (a hand-held device that scans any

color that needs to be replicated) branded 'Magic Eye'. This is apart from the 1,500

Colourscapes (computerised color dispensing machines) that Nerolac has installed across the

country. The company has also introduced products like anti-bacterial paints for use in

places where hygiene is paramount and others like anti-carbonation paints for buildings

facing highways or heat insulating paints.

GNPL has been constantly creating value for its customers by continuous upgradation of

technology resulting in reduction in paint consumption per vehicle, increasing the utility and

life span of paints, reducing energy consumption and manufacturing environment friendly

paints. GNPL is the first company to introduce latest environment friendly lead free electro

deposition Paint in India. With changing business and industrial environment, GNPL has

introduced just- in- time (JIT) delivery system with its distributors.

GNPL management has been focussed on paints business in the last three decades. It has a

network of 11000 dealers. GNPL’s prospects are inextricably linked to those of the user

sectors in automobiles and other industrial sectors. The two subsidiary companies primarily

manufacture paints & enamels for parent company on contract basis.

In Q1 2002, company’s sales grew marginally by 3%, from Rs5.7bn in Q1 2001 to Rs5.8bn.

Other income increased by 31% yoy from Rs115mn to Rs151mn in 2002. Operating profit

increased by 10% from Rs595mn to Rs658mn in Q1. Interest expenses declined sharply from

Rs64mn to Rs37mn. Net profit increased by 21% yoy to Rs274mn in Q1 2002 from Rs226mn

in Q1 2001.

Sales breakup

No. of months 12 12 12 12

Period ended 03/99 03/00 03/01 03/02

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Sales value(Rs mn)

Paints, varnishes, enamels & oils 5,235.4 6,211.4 6,744.4 6,961.6

Others 222.4 80.9 91.5 67.7

Sales volume(unit)

Paints, varnishes, enamels & oils

(Ton)55,002.0 64,933.0 73,448.0 76,765.0

Unit realisation (Rs/unit)

Paints, varnishes, enamels & oils

(Ton)95,186 95,659 91,825 90,687

(Table- 6) ( source: indiainfoline)

Financial Analysis

Goodlass Nerolac Paints (GNPL) has continued to report attractive numbers. After

registering a 14% rise in Sales and a 67% rise in net profit for the quarter ended December

2002, it has bettered the same in the quarter ended March 2003.

GNPL has registered a 15% rise in its net sales to Rs 159.12 crore for the quarter ended

March 2003. Cost reduction in its other expenditure (as a % to sales, net of stock down from

24.0% to 15.9%) increased its OPM from 6.4% to 9.6%. The increase in OPM was despite rise

in staff cost from 9.2% to 14.6%. OP was, thus, up by 70% to Rs 15.27 crore.

Other income rose 25% to Rs 4.22 crore. As a % to PBT other income stands at about 40%

against 62%.

Interest cost fell 7% to Rs 40 lakh and depreciation rose 29% to Rs 8.39 crore. Thus PBT rose

97% to Rs 10.70 crore.

Provision for taxation rose 27% to Rs 2.59 crore while that of deferred tax fell 47% to Rs 54

lakh. Finally PAT spurted 96% to Rs 8.65 crore.

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For the FY ended March 2003, its sales rose 11% to Rs 653.37 crore and OPM increased from

9.4% to 11.2%. Thus OP was up 32% to Rs 73.03 crore.

Other income fell 14% to Rs 8.85 crore and interest cost was down by 56% to Rs 1.65 crore.

After providing for depreciation (down 2% to Rs 24.14 crore), PBT rose 50% to Rs 56.09

crore.

Provision for current tax rose 44% to Rs 18.39 crore and deferred tax write back fell by 22%

to Rs 2.14 crore. Finally PAT rose 46% to Rs 39.84 crore.

The results for the quarter and the year ended March 2003 are inclusive of results of entire

year of both the subsidiaries and hence not strictly comparable. However, since the impact

of the merger is negligible on the company's sales and net profit, it is compared and

discussed the same.

The consolidated PBT for the FY ended March 2002 was Rs 37.24 crore against the reported

standalone PBT of Rs 37.36 crore.

The company has now decided to concentrate on the decorative segment that forms 70% of

the Indian paint market. Also, it has lined up new plans for the general industrial segment.

It has introduced specialty products in the decorative segment and it hopes to grow better

than the industry.

The company has launched host of new products in the recent past. It has launched Pliolite-

based products and had entered an exclusive tie-up with Goodyear Chemicals. This product

gives the company an edge over other products. Anti-carbonation products, used on

flyovers, protects the structure from carbon monoxide and other gases. The other pliolite-

based product it introduced was 'Clear' - where the original look of the surface is protected.

The company has extended this same concept to its exterior paint as there are no products

in the premium-finish segment that have this property. The company believes that this will

give it an edge in the market.

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The company's network constitutes 12,400 dealers. Last year it increased it by 10% and it

hopes to increase this number this year too.

Distribution network

Factory

Regional Distribution Centre

Depot

Dealer

Customer

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SWOT ANALYSIS

Strengths No. 1 in industrial paints Highest growth in 4 years Vast dealer base Considered the best in whites

Weaknesses

Advertising salience not enough Is not able to create and sustain a brand pull

Opportunities

Can be no. 1 Paint Company in India

Threats

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Competition Low profitability

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PRIMARY RESEARCH

RESEARCH PROBLEM

To study the consumption pattern, decision making process and consumer preference of

plastic paints.

RESEARCH OBJECTIVE

1. To study the brand awareness of Nerolac paints in the plastic paint category.

2. To understand the decision making process during the purchase of paints.

3. To determine the importance of various factors while purchasing paints.

RESEARCH DESIGN

The research was exploratory in nature.

Consumer survey

To study the consumption pattern, consumer preferences and brand awareness of plastic

paints a consumer survey was done.

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Sampling Plan

The sampling plan is as follows:

The universe of study consisted of the households of Mumbai. Due to constraints with

respect to time and other resources a sample of 100 was taken. It was found out during

exploratory research that 70 to 80 percent of plastic paint users belong to SEC A and SEC B.

The sampling pattern used was convenience sampling . From each zone, two posh localities

were judgmentally selected to include people from SEC A and SEC B.

Primary data was collected through questionnaire and personal interviews. From each

household one member was selected judgmentally.

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CONSUMER SURVEY

Sample size - 100

Which company’s brand you use?

Majority of the people is not aware of the brand they use.

When did you last paint your house?

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Most of the people paint their house once a year.

What is the time of your purchase?

Festivals are peak time for painting house followed by post rainy season.

Who decides which brand to buy?

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In most if the cases painters or dealers decides which brand to use.

Source of information influencing purchase decision

Column1 High Influence Moderate influence Total

TV 63 37 100

Newspaper 18 82 100

Magazines 36 64 100Radio 11 89 100

Painters 83 17 100

Shopkeepers 76 24 100Friends 31 69 100

(Table 11)

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As can be seen from the above table and graph, painters and shopkeepers play a major role in decision making process.

How far you agree with the following statements?

Statement A – price is an important factor in your purchase decision.

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Statement B – you are particular about the brands of paints you buy

Statement C – you have full knowledge of the different aspects of paints you buy. Statement D – you feel that some brands have better quality than others.

In most of the cases price is an important factor.

Most of the people are not brand conscious and they don’t have much knowledge about paints.

Have you seen advertisements of the following companies?

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Most popular brand is of Asian paints followed by Nerolac.

Have you heard about the following brands?

Suraksha is the most popular brand followed by Excel among the four brands.

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How do you rate the quality of the following brands?

Column1 Excellent Good Okay Bad Cant say Total

NAE 14 21 19 5 4 63Allscapes 13 16 18 2 6 59

Suraksha 24 34 14 1 73

Excel 12 27 26 2 1 68 (Table 12)

Suraksha is perceived to be of good quality but NAE and Allscapes lags behind.

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Monthly household income

Majority of the people are in the 15001-20000 and above 25000 category

CONCLUSIONS

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Most of the consumers’ are not aware of the brands of paints they use.

Most of the consumers’ do not have much knowledge about paints.

Painters and dealers play a major role in decision making process.

Awareness level of Nerolac as a brand is quite high second only to the market leader

namely Asian Paints.

Awareness level of Nerolac brands like Suraksha is very good followed by Excel and

Allscapes.

Majority of the consumer paints their house once a year during Diwali.

The quality of NAE and Allscapes are not perceived to be good when compared to

Suraksha.

Price plays a major role in purchase of paints.

Awareness about CCD machines is low.

RECOMMENDATIONS

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RECOMMENDATION 1

GNPL needs to increase and defend its share in the industrial segment:

It needs to take the following steps:

Introduce new products/innovationsNEROLAC already has a market position, which is very established. In order to maintain its position it has to go about making new products and innovations.

Leap Frogging into next generation technologiesTechnologies are not too competitive in this segment as there is less competition. What GNPL can do is get technology tie up with a foreign player specializing in this area. This will help GNPL to reduce variable cost over a period of time.

RECOMMENDATION 2

Dealer awareness level

GNPL has around 120 shades out of which there are many dealers who are not aware of this wide a range of shades. Also the use of the tinting m/c is not known to them due to which often the customer does not get what he sees on the screen of the tinting machine. This will lead to the customer being dissatisfied which is a big threat to GNPL. Hence the overall dealer awareness has to improve, as dealers are the hubs between the company and the customers. Company Sales persons need to be posted at these outlets to help the dealers for some time say 1 month.

RECOMMENDATION 3

Tie-ups

Now the market is getting saturated. What GNPL needs to do is tap the bulk users of paints.GNPL needs to tie-up with Interior designers & Architects who can get them bulk orders for a long time.

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RECOMMENDATION 4

Also the ad spends need to be evenly spread out. A lot is spent in the urban areas when GNPL also has lower end brands available.

Advertisements for rural need to be specially designed after getting the pulse of the customer, also shades shown there should be of more liking to the rural population. It could make use of other media such as pamphlets, hoardings and print ads in the local newspaper.

RECOMMENDATION 5

The company should increase activities in market such as sales promotion schemes, painters meet etc.

RECOMMENDATION 6

Painters play a very important role in paint market. Most of the times they are involve in decision making process. Majority of the painters is not satisfied with the company. Painters meet should be organized frequently and any schemes provided to them should be given on spot i.e. when they purchase materials.Some sort of recognition should be given to the painters like identity card etc that they are recognized by the company.

RECOMMENDATION 7

Company should carry on its effort of brand building. Suraksha is doing well in market so it should concentrate on it. Awareness for Allscapes is still low and more advertising is needed, as Dulux VT is very strong in this category.

RECOMMENDATION 8

Nerolac should quickly launch some product in the 2nd quality category as Tractor Acrylic Emulsion is doing well.

RECOMMENDATION 9

The concept of CCD’s should be made clearer to the consumers. More advertisements should be given showing CCD and its use.

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With implementation of such strategies hopefully APIL will become No. 1 in all the segments not only in India but the whole world.

APPENDIX

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QUESTIONNAIRE

1) Which company's paint you use?

a) ICI b) Nerolac c) Asian paints d) Berger

e) Any other, Please specify

2) When did you last paint your house?

a) 1 year ago b) 1 –3 years a c) 3 – 5 years ago d) above 5 years

3) What is the time of your purchase?

a) During festivals b) after the rainy season c) any other, please specify

4) The following source of information influences your purchase decision.

Write 2 for high influence Write 1 for moderate influence TV Newspaper Magazines Radio

Painters/shopkeepers Friends others, please specify

5) Who decides which brand to buy?

a) Father/Husband b) Housewife c) Painters d) Dealers

6) Please indicate how far you agree or disagree with the following statements.

Write 1 for "strongly agree”, 2 for "agree”, 3 for "neither agree nor disagree”, 4 for "disagree" , 5 for "strongly disagree"

a) price is an important factor in your purchase decision

b) you are particular about the brand of paints you buy

c) You have full knowledge of the different aspects of paints you want to buy.

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d) You feel that some brands have better quality than others.

7) Have you seen advertisements of following companies?

Yes No

Asian paints

Nerolac paints

Berger paints

ICI paints 8) Have you heard about these brands?

Yes No NAE Allscapes

Suraksha Excel

If the answer is "no" skip question no. (9)

9) how do you rate the above brands on the following

a) QualityExcellent good okay bad very bad

b) Price

High reasonable low

c) Availability in the market Excellent good okay bad very bad

10) What is your monthly income? a) 10000 – 1500 b) 15001 – 20000 c) 20001 – 25000 d) above 25000

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