Nerolac weighs de-bottlenecking gambit

Goodlass Nerolac Paints, which enjoys a market share of 43 per cent in the industrial paints segment, is looking at increasing productivity and debottlenecking. Excerpts from an interview with H M Bharuka, managing director of the company, by Rumi Datta.

What kind of growth are you expecting in the current year?

We expect the industry to post a 8-9 per cent growth against a 7 per cent growth last year. We, however, expect our company to record a double-digit growth.

What is the business plan for the coming year? Is the company looking at expanding capacities or achieving growth through acquisition or through a brownfield expansion?

The company's board has approved in principle the setting up of a new manufacturing unit in north India. The estimated investment on the proposed expansion would be around Rs 70 crore (Rs 700 million).

I would also say that at present we have sufficient capacity. We are first focussed on increasing productivity in our existing plants and we may also go for debottlenecking in the existing units.

Goodlass Nerolac is the market leader in the industrial paint category. However, the company has now enhanced its focus on the decorative paint segment. Why is there a change in focus?

Though we are the undisputed leaders in the industrial paints category, today our exposure to the decorative segment is more than industrial segment.

The overall market for industrial paints is very small and offers limited scope for growth. The decorative to industrial paint market in India is in the ratio of 70:30 which is quite different in other parts of the world. In the past three years, we have been doing quite well in the decorative category.

While we enjoy a market share of 43 per cent in the industrial paints business of which automotive paints account for 65 per cent, our market share in the decorative category is 14 per cent which we expect to increase to 18 per cent in the next four years.

The company enjoys an overall market share of 20 per cent. The Indian paint industry is around Rs 5,600 crore (Rs 56 billion) of which organised sector is estimated to be around 70 per cent.

Your stock appears to be undervalued. What is your message to the shareholders?

I agree that our stock is grossly undervalued despite the fact that it has been giving good returns. We have been paying around 70-75 per cent dividend for the past few years.

It is a transparent and a good company, and there is no reason for it to be so undervalued.

The company had around 17 brands under its portfolio around two years back which it reduced to 10 and finally 7 last year. Any further portfolio rationalisation done or expected?

We have broadly classified the brands into three categories -- premium, popular and economy. 'Nerolac' is the mother brand and the three sub-brands under the mother brand are Nerolac Excel -- a premium exterior emulsion, Nerolac Allscapes -- premium interior emulsion and Nerolac Suraksha -- the popular paint category.

Any plans to rationalise manpower?

We have been rationalising manpower since the last two years. Last year we had around 2,550 employees, which currently stands  reduced to 2,200. This year we are planning to cut manpower by 5 per cent.

Kansai Paints of Japan hold a majority stake in the company. Any indication from the foreign parent company towards a change in the equity holding pattern?

Kansai Paints holds around a 65 per cent stake, foreign institutional investors and mutual funds at 15 per cent and the rest is held by the public and others. At this juncture, we have not heard from the parent company about their intention.

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