final analysis of paint industry
TRANSCRIPT
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.
.
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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