On 2 September, 2020, paint major Kansai Nerolac Paints Ltd (KNPL) has completed its 100th year. From one pandemic (Spanish Flu 1920) to another (Covid-19), it has been a journey of not only resilience but also sheer determination of a true winner. Amidst global calamities and challenges – World Wars, the Great Depression of 1930 and Financial Crisis of 2008 – the company marched its way to a leadership position in the paint business, setting new benchmarks and milestones all along the way.
Started as Gahagan Paints and Varnish Co Ltd way back in 1920 with a small factory at Lower Parel in Mumbai and then acquired by Lead Industries of the UK in 1933; rechristened to Goodlass Nerolac Paints Ltd in 1957 to becoming a part of the Tata group in 1976 and then subsequently a subsidiary of world’s 8th largest paint company, Kansai Paints of Japan in 2000 and thereafter getting rebranded to its present name Kansai Nerolac Paints Ltd in 2006, the company has come a long way. Kansai Paints currently holds 74.99 per cent share in the company.
“Our journey of 100 years is mapped by many strategic initiatives and mileposts, helping us build and sustain our leadership in the Indian paint industry. From creation of a strong brand, expansion of distribution and manufacturing footprint, new products and categories, to new geographies and collaborations, we have judiciously scaled our capabilities and offerings to cater to the transforming demands and needs of our diverse and growing clientele,” says H.M. Bharuka (60), vice chairman and managing director, KNPL.
Today, Mumbai-based KNPL is the third largest paint company (after Asian Paints and Berger Paints) in the Rs50,000-crore domestic paints market with a clear leadership position in the industrial paint segment. In the automotive coatings business, the Rs5,000-crore company which has grown at a CAGR of over 12 per cent in the last decade, is a distinct leader with over 50 per cent market share. All the major automotive OEMs like Maruti Suzuki, Tata Motors, Mahindra, Toyota, Honda, Ashok Leyland, TVS, Bajaj and Volvo are its clients. In fact, every second car and two-wheeler on Indian roads is coated with Kansai Nerolac paints.
The company is also ramping up its decorative paint business where it commands over 10 per cent market share. Last year, it commissioned a state-of-the-art digital factory in Goindwal, Punjab for decorative paints. This 52,800-tonne capacity plant is the country’s first most modern and digital decorative paint manufacturing facility in the country. KNPL is also looking to put up one more manufacturing facility (7th one) in Vishakhapatnam for an estimated project cost of around Rs400 crore.
In 2018, the company commissioned a modern automotive coating facility in Sayakha, Gujarat. KNPL which augmented its overall paints and coatings capacity, from 410,000 tonnes per annum two years ago to currently 525,000 tonnes (across six facilities), has invested over Rs1,100 crore in setting up these two recently-commissioned facilities.
Currently, the decorative paint business contributes around 55 per cent to its total revenue, from less than 50 per cent sometime back. However, in the overall paint market, the decorative paints business accounts for more than 75 per cent and considered to be more dynamic and vibrant due to its inherent non-cyclical nature and its ability to generate regular cash flow. Moreover, the decorative paint segment is a consumer-facing business and provides an organisation a greater degree of brand recall and often draws more investors’ attention.
Jain: in pursuit of new ways to improve
Amidst growing consumerism, increasing income and changing demographics and aspiration level, the decorative paints business on the line of FMCG space in India, has witnessed a major transition. The per capita consumption of paints in India is abysmally low at 4 kg as against the global average of around 14 kg.
Responding to this market transition, KNPL has also repositioned itself afresh in the market and aggressively pursuing its newly-formulated strategy where it is diversifying its portfolio in the high margin and high potential areas, even as it continues to build on its core areas. Over the years, KNPL has been expanding its horizons by foraying into new market segments and new geographies. In order to scale up leadership position in the powder coating segment, the company acquired 100 per cent share in Marpol Pvt Ltd in April 2018 for R36 crore. Marpol is a Goa-based company engaged in the business of powder coating. It manufactures products such as epoxy polyester, pure polyester, pure epoxy, and polyurethane powder.
As part of its strategy to tap newer areas, the company is also diversifying its portfolio. In August 2019, KNPL formed a 60:40 joint venture with Polygel Industries, a manufacturer of adhesives, construction chemicals and sealants. The JV named Nerofix which will be aggressively tapping the adhesive and sealants market and thus allows the company to add this new business to its portfolio.
Earlier, in April 2019, the company had acquired a Gujarat-based small construction chemicals company, Perma Construction Aids Pvt Ltd for around Rs30 crore, to give a boost to its construction chemicals business where the company has already launched a new range of construction chemicals under the Nerolac Perma brand. KNPL has also entered into high-potential wood finishes segment and recently inked an agreement with Italy’s ICRO Coatings as it is looking to set up dedicated manufacturing capability for wood finishes at its Jainpur facility near Kanpur.
In the past few years, the company while increasing its presence within the country, has also expanded its footprint in Sri Lanka, Nepal and Bangladesh, through acquisitions and joint ventures. KNPL has operational presence in these neighbouring countries through its subsidiaries. The company is in the process of ramping up all these operations even as it recently launched the Nerolac range of decorative paints through its subsidiary RAK Paints Ltd in Bangladesh and received good response from the market. It entered the Bangladesh market in 2018.
In Sri Lanka where it entered in 2017, the company has changed its branding from Kansai to Kansai S-lon and revamped its distribution strategy. S-lon is a leading brand in the hardware sector of Capital Maharaja Organisation Ltd, KNPL’s partner in Sri Lanka. The company has taken a major step to further boost its Nepal business by starting a project to upgrade the Birgunj Plant. The company, having got into the Nepal market in 2012, sees its international operations (which though is insignificant in size at present) as growth opportunities and is all committed to invest in them.
KNPL’s modern plant: creating paints and solutions for a healthy and beautiful future
“As a part of our strategy, we on the one hand are strengthening the core product portfolio, on the other hand leveraging existing capabilities to create new growth engines by expanding into nearby geographies and allied businesses. The objective is to deliver long-term sustainable value to our stakeholders through a strong platform of organisational capability,” says Anuj Jain, 51, executive director, KNPL who has been with the company for 30 years. Joined the company in 1990 as a management trainee, Jain became vice-president, marketing & sales in April 2003 and from 2018 he has been serving as executive director – in charge of entire sales and marketing, manufacturing and technical function.
The company currently boasts of a well-diversified portfolio of products across industrial and decorative paints. In the industrial paint business, it offers a range of products to auto makers, including pre-treatment chemicals, electro deposition primers, intermediate coats/primer surfacers, solid and metallic top coats, clear coats and touch-up paints. It offers performance coating (general and high performance) products to industries, such as power, railways, metal, cement, fertilisers, petroleum/petrochemical, infrastructure, floor coating, and offshore. Besides, there are powder coating products for applications in industries like refrigerators, washing machines, air-conditioners, light fixtures, electrical, auto components, pipes and rebar steel.
In the decorative segment, the company has got a wide range of exterior and interior products across enamels, distemper, emulsions and primers. It has also made its presence in categories like wood finishes, adhesives, construction chemicals, waterproofing and soldier paints.
Backed by around 3,000 employees, KNPL currently has six factories located in Jainpur (UP), Lote (Maharashtra), Bawal (Haryana), Hosur (Tamil Nadu), Sayakha (Gujarat) and Goindwal (Punjab). These facilities, in case of industrial business, are strategically located near key Original Equipment Manufacturers (OEMs), thus giving the company a strong competitive edge. The manufacturing capability of the company is well backed up by in-house R&D facilities, both centrally and across the plants located in customer proximity.
The company has recently also commissioned a modern R&D lab in Vashi near Mumbai. Moreover, it also has access to Kansai Paints’ global R&D facilities, and leverages technical capabilities of its parent and group companies – Oshima Kogyo Co. Ltd; Japan; Cashew Co. Ltd, Japan and Protech Chemicals Ltd, Canada.
While the company is focussing on R&D and technology and aggressively carrying out innovations, its manufacturing strategies are directed towards environment-friendly innovations, which help in reduction of water and energy consumption, as well as air emission, thus minimising its carbon footprint. All plants are zero liquid discharge, and also ISO 14001 and ISO 45001 certified.
“We are constantly in pursuit of devising new ways to improve our manufacturing competency by implementing state-of-the-art technologies, embracing digital and automation, and undertaking green initiatives in business operations,” says Jain.
“With sustainability at the core of our business strategy, we are continuously imbibing sustainable business practices to address social and environmental concerns. To meet our stakeholders’ expectations with respect to the global development challenges, we are continuously striving to enhance our contribution towards the UN Sustainable Development Goals (SDGs),” states Bharuka.
Graph: Mathew Thomas
KNPL, has been actively working on the sustainability agenda for nearly a decade and has been voluntarily publishing the Sustainability Report on its Website since 2012. The company focuses on water management where it has achieved zero liquid discharge at all its manufacturing plants, reduction in hazardous waste, reduction in carbon footprint, energy management where it focuses on renewable energy, health and safety and emission management.
“While continuing its focus on pioneering innovative, globally best-in-class products in diverse market segments, enabling dramatic improvements across key parameters of finish quality, reduced cost of ownership, consumption and baking time, the company has proactively been coming out with environment-friendly products across its portfolio. Today, we boast of a comprehensive range of 100 per cent heavy metal free and low VOC (volatile organic compounds) products that offer total painting solutions to consumers across price points,” says Jain.
Amidst all this, backed by a well-established distribution network, KNPL has established a pan-India presence through 104 sales depots and 27,500+ dealers/customers to reach out effectively to customers across regions, where north and east command a stronger presence for it. With these measures and capabilities in place, KNPL has established itself as a strong consumer brand and is today one of India’s Top 40 brands.
“Paints are no more only for looks and aesthetics. Today’s discerning consumers are much more informed than ever before and seeking for differentiated products in terms of functional and environment-friendly aspects. Nerolac is a trusted brand and lately, they have tried to enhance their exposure in the decorative paints segment, which is more into retail consumer-facing business and hence further adds to their brand recall,” says N. Chandramouli, CEO, TRA Research, a consumer analytics and brand insights company.
Despite beginning its journey as a traditional company over 100 years ago, the company has never shied away from imbibing new-age technologies. Almost two decades ago in 2000, the company took a conscious decision to take a leapfrog upgradation to introduce SAP ERP from having a rudimentary IT base. In fact, it was one of the very few companies in the paint industry to do so at that time. This was followed by a number of other upgradations that transformed the company into a dynamic entity with robust processes and functions in place.
“We have always considered these initiatives as a continuous process and worked towards improving upon our existing base. With the goal of becoming smart, agile and intelligent in the prevailing dynamic environment, we have set targets towards digitalising our plants and business processes. In line with this, we have taken definitive steps to deliver transformative solutions. Digitalising our plants would reduce manual material handling, improve productivity and efficiency, and also optimise resource utilisation,” says Jason Gonsalves, director - corporate planning, IT & Materials, KNPL, who joined the company in 1994. Gonsalves who is currently responsible for driving the company’s strategy, holds a Bachelor’s degree in Production Engineering and Master’s degree in Business Management from Mumbai University. Under his leadership KNPL was certified as one of the Great Places to Work by GPTW.
“As a company, KNPL has grown a great deal over the decades evolving a holistic, technology, service and a knowledge driven approach to develop and pioneer a variety of coating solutions for its consumers to touch everyday lives from homes, automobiles, white goods and infrastructure projects. In recent times, the company has pioneered the concept of healthy home paints by bringing in heavy metal-free and low VOC paints. At this historic juncture of our 100th year of existence, we want to take forward this ethos of care to the next level. We want to do so by sparking a positive change among customers and keeping their need for ‘well-being’ and ‘holistic care’ as our guiding light,” states Bharuka who has been the driving force behind KNPL’s transitional journey in the past over two decades.
‘Colours that Care’ is the brand’s new positioning statement
The great churn
KNPL, in its centenary year, has decided to commemorate the occasion by unveiling a new positioning and a refreshed brand outlook. The new visual identity has been inspired from the great ‘Manthan’ – the churning of every element of nature to isolate the purest, freshest and most vital elements. This is also symbolic of the need of the hour and what the company aims to deliver to its customers and stakeholders going forward.
Being the pioneer of healthy home paints (ultra-low VOC and ultra-low odour), the brand aims to continue playing a proactive role in its customers’ lives by creating paints and solutions for a healthy and beautiful future. This is even more relevant in today’s unprecedented times when we are faced with challenges of a scale previously unknown to humanity.
“Colours that Care” is the brand’s new positioning statement and a new campaign has been launched titled `Aaj Careful toh Kal Colourful’ promoting the hashtag #ACKC that puts the new positioning in the context of today’s times. A series of digital films have been released by the brand encouraging people to act responsibly today as the world seeks to rebuild towards a sustainable and bright future.
“Nerolac has always believed in creating products and solutions to nurture a healthy and beautiful environment for future generations. When we decided to look at our business with a fresh perspective and renewed focus as a means to plan for the next 100 years, we didn’t know how significant a step it will be for us as a brand in today’s context. We are proud of our 100 years journey and humbled by the constant support and encouragement received from each one of our partners and customers who have been part of our journey. Now is the time to take it forward,” adds Bharuka.
Ever since Bharuka was appointed as managing director in April 2001, he has been instrumental in building and positioning the company as a leading player in the domestic paint industry. A qualified AICWA from the Institute of Cost and Works Accountants of India, he joined the company in 1985 and steadily rose through the ranks to become managing director. Before joining KNPL, he had brief stints in the engineering, textile and paper industries.
He inherited a company where profitability was low, and it was facing serious competition from global players in India. The biggest challenge before him was to not only revive KNPL but also to make it relevant for the times ahead and do it at a faster pace. He worked hard to turn the business around by implementing what he described as “bold, decisive initiatives”.
He closed all the factories that were operating at a loss and had outdated plants and machinery; confronted unions; undertook a high-risk SAP enterprise resource planning implementation; and tackled supply-chain issues. On top of that, he set up new plants, put a heavy focus on productivity and cost reduction, expanded the product range, rebranded the company, and created a team of leaders that spawned a new organisational culture.
“The initiatives were without precedence in the history of the company and were a culture shock for the workers. All these strategies, and many more, were led from the front and we had to sacrifice everything to restore the credibility of the company,” says Bharuka who when took up the top job, the company had an annual sales revenue of around Rs682 crore, which has currently soared to around R5,000 crore.
These measures helped rebuild KNPL into a high-quality, fundamentally strong organisation with high profitability, despite being one-third the size of the industry leader. Efforts were carried out to diversify the portfolio and strengthen the decorative business in order to build a well-diversified portfolio and leverage the fast changing market place.
On the decorative side, the company’s main challenge was to build the brand, infrastructure and capabilities as also build a distribution network which was consumer-facing in the B2C space. For doing that, the company adopted a multipronged strategy involving multifaceted investment in product differentiation.
To create differentiation, KNPL was the first to launch environment-friendly products, with the tagline ‘Healthy Home Paints,’ and it created Colour Shoppe, an experience centre for customers to touch and feel the products. “We also had influencer programmes like Nerolac Premium Painters to create long-term relationships with painters,” explains Bharuka.
On the industrial side, where the company was the undisputed leader and known for its innovations and differentiation with regard to technology, quality, delivery, cost and service, KNPL kept looking for improving upon its existing capability and adding newer innovations and technologies. It developed breakthrough technology like acrylic CED for two-wheelers, which eliminated the need for a second coat and reduced consumption and energy by 50 per cent. It also developed the 3C-1B, wet-on-wet application for four-wheelers, reducing energy consumption by a third.
Based on the company’s performance, as well as India’s contribution to the global performance of Kansai Paints, Japan, in June 2017 Bharuka was made a director on the board of the parent company. He was the first non-Japanese person to be given this position.
Going forward, the company will continue to pursue its strategy where it will continue to strengthen its core product portfolio, even as it will leverage existing capabilities to create new growth engines by expanding into allied businesses and nearby geographies. Having entered some of the key markets in the subcontinent, the company is betting big on newer areas like adhesives, construction chemicals and powder coatings. It is looking to grab 2-3 per cent market share in the next couple of years.
Meanwhile, the company which has significant exposure in the automotive sector has seen some pressure on its revenue. Moreover, the overall demand for the industrial paints has also faced challenges in the last couple of years. The Covid-19 has further impacted the scenario in the last couple of quarters with demand for both decorative and industrial paints are under pressure, even as the company’s operations have now fully recovered after couple of months of closure during the initial period of the lockdown.
“Our operations are fully back on track. The demand is gradually picking up. We expect more revival in demand during the festival season. Though urban revival will be slow, we expect good demand from the rural side and hence expect a good deal of revival in our sales in coming months,” says Bharuka.
In decorative, KNPL has outpaced its bigger rivals
The company, in line with the industry expectation, has seen contraction in revenue in the first quarter of the current fiscal year (FY21). The sales declined by 59 per cent (YoY) to Rs598 crore, while net profit hit by 71 per cent to Rs43 crore. For the full year of FY20, the company had seen its revenue slowing down by around 4.5 per cent to Rs4,943 crore, even as its net profit improved by over 15 per cent to Rs535 crore.
“Though the challenging macro and micro economic factors adversely impacted the revenue during FY20, the company’s prudent strategy of adopting aggressive cost control, dynamic formulation management, product mix changes and overhead control measures, helped us on the profitability front,” says Jain.
Analysts are of the view that KNPL like any other players, may face demand contraction in the short run. However, given its dominant share in key auto accounts, they believe the recovery could be swifter than the industry as auto market leaders typically lead the recovery given their strong distribution and after-sale touch points. Moreover, they are also of the view that in the last few years, the company has been beefing up its relatively less cyclical non-auto industrial portfolio. In decorative, KNPL has outpaced its bigger rivals, thanks to its aggressive marketing and distribution push.
“Despite near term demand uncertainty due to sporadic lockdowns, long term outlook led by shift towards organised sector, housing push in Tier II/III cities and shorter painting cycle will boost demand for decorative paints in coming years. We believe auto paints demand will show steady improvement given rising demand for personal mobility, while rising demand for powder coatings from appliances, infra coatings, transport/metros, rebar and industrial applications will power non-auto industrials,” says a research report of Prabhudas Lilladher.
“For the last few years, KNPL has consciously been increasing its presence in the decorative segment and this along with introduction of differentiating products, has helped it put up a more robust portfolio. With increasing sales and marketing efforts, the company, backed by its Japanese parent, seems to be better placed in the market currently,” says Deven Choksey, promoter, KRChoksey Shares and Securities Pvt Ltd.
No doubt, the scenario has been challenging for the industry lately as also KNPL as a company in particular. But the company is known for its resilience and determination all through its long journey of over 100 years. It has successfully paved its way surmounting many ups and downs in the past and positioned itself quite strongly in the market. The backing of global paint player Kansai Paints as its parent, has strengthened its capability in a big way.
In the last few years, the company has aggressively tried to diversify its portfolio by getting into less cyclical and high-margin businesses. Its conscious move to increase its exposure to decorative paints business, will certainly provide its whole business with more risk-hedging ability as also add to its topline as also bottom line. All in all, the company, backed by its recent measures and efforts, is well positioned to continue its forward journey.