The Hindu Business Line : `Cost-cutting measures yielded results'

RIDING on the back of a buoyant economy, the paint industry in general has been doing well for the past few years. The period has been particularly good for Berger Paints India Ltd whose strength is in the decoratives.

Despite formidable competition from Asian Paints and ICI, also strong in the decorative segment, Berger has been able to carve out a niche for itself and thus post a healthy growth. The company has been paying handsome dividends over the years and recently rewarded the shareholders with a bonus issue.

The company's foray into insurance broking is a pointer to its interest in diversifying into non-paint activity. Excerpts from interview with Mr Subir Bose, Managing Director of Berger Paints:

Berger Paints India Ltd has been doing well for the past few years. What will be your performance in 2003-04?

We've been having double-digit growth for the past 10 years. But, then this is not something unique about us. The major players in the paint industry such as Asian Paints, Goodlass Nerolac and ICI too have been registering more or less the same rate of growth. In 2003-04, we hope to post 13 per cent growth in value and about 10 per cent in volume.

How do you explain it?

General buoyancy of the economy. The GDP growth on an average has been six to seven per cent annually for the past few years. The boom in housing and automobile sectors particularly benefited us.

Isn't it a recent phenomenon?

Not exactly. For example, the housing sector has been booming for the past five years. Thanks to availability of cheap housing finance, the market has expanded like anything. The automobile sector too posted a good growth. This year the growth has been fantastic, about 30 per cent. To cater to the requirement of the automobile sector, we have tied up with Du Pont Performance Coatings of Germany and Nippon Paints of Japan.

Any company specific reason for the growth?

Not really. But there are certainly company specific reasons for the improvement in profitability. Various cost cutting measures in regard to operation, overheads and the procurement of raw materials have yielded results.

For example, we use alternative raw materials entailing reduced formulation costs. In 2003-04, our company's PBT is expected to grow by 25 per cent as compared to 14 per cent in 2002-03.

What kind of business growth you're looking at in the coming years?

Much will depend on the state of the economy. If everything goes well with the economy, we should be able to maintain the present level of growth. I consider 10 per cent volume growth in paints industry is a sign of healthy growth.

Your presence in the industrial segment?

Nothing to crow about, only 20 per cent of the business. Our focus will continue to be in the decorative segment.

Are you planning any tie-up for the decorative segment?

We already have tie-ups with international firms like Tigerwerke and Powder Coatings.

Exports?

Pushing products into the foreign markets is not our priority. We do export, mostly to Russia, but the value is insignificant, Rs 3 crore to Rs 3.5 crore annually.

How is Berger's subsidiary in Nepal doing?

Not too badly. Initially, we had problems. We've overcome most of them. We had to clear past liabilities and restore normal operation. And this is no small job in a country often rocked by political disturbances. Last year, the Nepal subsidiary posted a small profit on a turnover of Rs 9 crore. This year, we hope to do better and post at least 10 per cent growth.

How do you manage in a politically disturbed atmosphere?

We're somehow managing. The anticipated growth is not there. Only marginal growth. We've to develop market to grow and we trying to do it but with a lot of care and caution. We're not in a hurry in Nepal.

We've hearing about your plans for more acquisitions outside the country for a long time ...

Nothing concrete has happened. No worthwhile proposals are coming our way. We explored opportunities in Sri Lanka, South East Asia and even in Africa but not with much success. But we've not given up.

You've diversified into a non-paint area...

Yes, we've teamed up with Punjab National Bank, Vijaya Bank and Principal Financial of the US to sell non-life insurance products. We hope to start operation within two to three months. We will leverage our strength in dealer network. Our network comprises 12,000 dealers all over the country.

When is your Jammu factory going to be commissioned?

It is being commissioned. The factory has been set up at a cost of Rs 25 crore and will have the capacity of 25,000 tonnes per annum, only decorative paints.

With this factory, the number of our factories goes up to seven - two in West Bengal and one each in Pondicherry, Goa, Vallabh Vidyanagar (Gujarat), Sikandrabad (UP) and now Jammu - and our total capacity to 1,00,000 tonnes annually.

Of these, one of the Rishara factory in West Bengal was acquired from ICI and the Sikandrabad factory from Rajdoot Paints. The Gujarat factory belongs to BP Coatings, which is our wholly-owned subsidiary.

Any major headache?

No headache, major or minor. We've only challenges. Right now our biggest challenge is how to step up our market shares in western and southern regions.

At present our share in these markets is less than 10 per cent.

We must improve upon it. Nearly 80 per cent of our business is in the decorative segment in which we've formidable competitor like Asian Paints, ICI.

But we're not afraid of competition.

t is part of business. It is part of growth.