The Hindu Business Line : `Paints are acquiring FMCG overtones'

Continuing his conversation with Business Line, Mr H. M. Bharuka, Managing Director of Goodlass Nerolac Paints, talks about the impact of paint imports, his companies growth plans and the regulatory changes that would provide a boost to the paints industry.

Excerpts from the interview:

What has been the impact of the recent appreciation of the rupee, coupled with the reduction in import duties that were announced in the last Budget?

The appreciation of the rupee happened only recently and is marginal. If one were to look at the movement of the rupee since the cut in duties were announced in the Budget, it has actually depreciated. In any case, prices are determined by trends in the global market and issues of supply and demand.

However, rising crude prices have affected us, both directly and indirectly. Material costs over the past six months have gone up considerably. We have responded by partly increasing product prices in the decorative segment and absorbing a part of the increase.

Companies like Goodlass Nerolac have to also constantly focus on cost cutting. In the industrial segment, we have found it difficult to pass on the increase in price to our customers

What is the threat from imports?

There are no significant imports taking place. The imports that came in earlier were rejected paints, which faced a lot of problems when it came to application because of the different conditions that prevail here.

It is not just the import of cheaper paints; what is needed is a good brand. So, imports have not been successful.

Paints have for long been considered a low-involvement category from the customer perspective. Now, it is distinctly acquiring FMCG overtones.

How is the industry and Nerolac, in particular, handling this transition in customer perception?

A lot of credit has to be accorded to the industry for drawing customers towards their products. Earlier, painters used to play a pivotal role in influencing the purchase decision. Establishing tinting machines represented the first step by which customers could choose from a variety of shades as against depending on the shade card, on which only a few shades are available.

Secondly, in the case of Nerolac, we have launched a device called the "electronic eye", which can match any shade. All a customer needs to do is to walk in to a store with a shade of his/her choice, and the device carries out the matching and the preferred shade is produced. To that extent, the involvement of the painter in the entire selection process has been reduced. Moreover, if one looks at our campaign that is currently on air, it addresses the consumer directly and not the dealer. The campaign serves as an attraction for the consumer to be involved in the purchase of the product. These initiatives have helped us gain greater attention of the end-users.

Can you take us through some of the technology initiatives you have undertaken, specifically on the supply chain and ERP implementation?

We implemented ERP some two-and-a-half years ago, as we felt that what Nerolac lacked was distribution strength. While the entire product range might be available, what is important is that it reaches the dealer point at the right time. The biggest complaint of our dealers was that product supplies were erratic. Through the ERP package, we hooked up all our factories and depots through VSATs.

Today, it has become an open and transparent system, which enables a user — irrespective of location — to find out stock availability status. It also helped us track demand for products as well the sales orders lost. It has helped us release close to Rs 30-35 crore through reduction in working capital, apart from a decrease in transaction and processing costs brought about by a reduction in manpower.

Having done that, we needed to optimise our supply chain. We have just finalised an order for a supply chain management package and that will be implemented shortly. It would help us in reducing not only the inventory, but also the loss of sales arising out of non-availability of products.

Developed countries have been moving towards water-based paints. Do you think the same trend would play itself out in India?

Water-based paints have been doing well in India too. The growth has been good, albeit on a small base. In the time to come, water-based paints would play a key role as growth drivers. Emulsions and distempers, both of which are water-based paints are growing well.

Would Nerolac be open to the idea of acquisitions to drive topline growth?

We are part of Kansai paints, which is one of the 10 largest paint companies in the world. So, we need not acquire companies abroad as we are represented by Kansai. In India, however, if we come across the right company and the right opportunity, we would not be averse to pursuing growth through the inorganic route. Having said that, I think a company like Nerolac would like to concentrate more on organic growth than on inorganic growth.

When Kansai acquired a stake in Nerolac, it was at a price of Rs 250 per share, as against which the stock trades currently at Rs 135...

The stock is definitely undervalued. The price is not reflective of our profits as well as the goodwill that we carry.

Probably the industry has not got the attention that it deserves from the stock market. The other reason could be the liquidity of our scrip — 65 per cent in Nerolac is held by Kansai, and another 20 per cent by financial institutions. Plus, we also have a low capital base of Rs 15 crore, which is the lowest in the industry. But that is no reason for such an extent of under-valuation.

What steps can the government take in the form of regulation that will provide the industry with the impetus to grow at a level higher than the current rate?

Personally, I think that this has to be looked at as an infrastructure industry that protects the assets of the country. The Government should not look at this as a decorative or an architectural industry. Once that recognition comes, and the customers are educated, this industry will grow better.

Apart from this, the Government, when it undertakes projects like bridges and oilrigs, should go in for the use of sophisticated paints of high quality and not lower quality paints. That will also help in extending the life of the structure. Other pieces of legislation like the Rent Control Act and the Urban Land Ceiling Act need to be looked at.

After all, if the owner does not get an appropriate rent, painting would definitely not be his priority. Once attention is paid to these regulations, I am sure that the industry would do well.

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