This company’s paint decors every third car in the country. It is the market leader in the industrial paint segment and has planned to increase its presence in the decorative segment through aggressive new product development and brand building.
Goodlass Nerolac started out in 1920 in collaboration with Goodlass, UK (a part of Cooksons group) as a paint manufacturer. Over the last eight decades, the company has transformed into a market leader in the industrial paint segment, with more than 70% share of the Original Equipment Manufacturer (OEM) passenger car segment. Its client includes Maruti, Honda, Toyota, Mahindra Ford, Whirlpool, Tata Chemicals, Bajaj, Hero Honda, Godrej GE, TVS Suzuki and Indian Hotels Limited. Recently Tata’s sold their 29% stake in the company to Kansai Paints of Japan at Rs 250 per share (Kansai currently has 65% stake in the company). It has collaborations with E. I. Du Pont de Nemours of USA for the manufacture of coatings for the automotive sector and Kansai Paints of Japan for the manufacture of sophisticated architectural coatings.
Thanks to new launches from Maruti (Baleno, Wagon R), Toyota (Qualis), Honda (City) and Hindustan Motors (Mitsubishi), the company has posted good results for the FY00. The sales went up 17% to Rs 6,292 m for FY00 from Rs 4,518 m compared to the previous year. This is also led by buoyed demand for decorative paints. The company has discontinued its pigment operations and intends to focus only in manufacturing paints and varnishes (for both architectural and industrial segment).
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One reason for this leadership in the industrial segment is that it supplies to Maruti Suzuki, the market leader in the passenger car segment. However in the last one-year, Maruti’s market share has skidded from as high as 70% to 53%. Though the market share declined further in the current year, sales shot up 84% for July 2000 after price cut for some of its models.
The slowdown in the automobile sector is apparent from the first quarter sales figures of the auto companies. Except for Ashok Leyland Limited, which posted a 5% sales growth, others like Kinetic Motors, TVS Suzuki, Indica have posted a 30%, 13% and 23% drop in sale respectively. In fact, Telco has planned to cut the production of Indica by 20,000 units for the current year. The commercial vehicle sales are expected to drop to 15% for FY01 from a handsome 33% growth during FY00. Moreover, the margins in the paints sector would continue to remain strained because of firm raw material prices. The price of titanium dioxide, the main raw material used in paints, is also firming up. This along with continuous rupee depreciation could put further pressure on realisations. This is already evident from the first quarter results of the company for the current year. The margins were flat with just 10% growth in sales. However, a 29% reduction in the interest cost resulted in a 22% growth in net profits.
Nevertheless, the company’s focus on other emerging areas like coil, can and plastic coatings should perk up volumes. Though Maruti’s sales are decreasing, the company’s new clients like Toyota and Mitsubishi are planning to introduce three new models in the coming year, which should compensate for Goodlass Nerolac. Other than this, the company has 40% share in two-wheeler segment and 20% in consumer durables sector (Whirlpool, Godrej GE), which incidentally are some of the fastest growing sectors in India.
Though a industrial paints company, the management off late is increasing its focus on the decorative segment as it is evident from the its strategy to widen its distribution network (currently 10,700) and install more Colour Scape (the computerized paint tinting machine). It is also implementing a state-of-art supply chain management system, which would link it with all vendors and stock keeping units, for the smooth flow of order. This is expected to simplify the distribution structure and would enable the company to control costs.
Increasing consumer spending, easy availability of finance, good monsoon along with the focus of the management on the decorative segment should enable Goodlass Nerolac to post better topline growth in the current year. With strong support from Kansai Paints in terms of technology and research and development, the company should achieve its turnover target of Rs 120 b by FY03.