• SEPTEMBER 28, 2001

“We would certainly like to achieve market share of 25% three years down the line…”

After joining Goodlass as an Assistant Manager-Factory Accounts in 1985, Mr. H. M. Bharuka has raised to become the Managing Director of the company in 2001. He has been actively involved in managing various committees of the Indian Paints Association and currently heads the Western Region. His other interest areas are reading, sports and music.

In an interview with Equitymaster.com, Mr. Bharuka spoke about the paint industry in general and how he plans to make Goodlass as one of the leaders in the Indian paint sector.

EQM: The budget has provided lot of incentives to the housing industry. In view of this, how do you see the decorative paint volumes growing?

Mr. Bharuka: Even in the current year, what we are seeing is that new housing development growth is good. If you look at HDFC figures that have come out, things are encouraging. But the entire thing depends on the repainting market. Growth in agricultural income is very important. Good monsoon will help boost demand and that is the only hope we have right now. But the ‘feel-good’ is missing and people have lost lot of money in the stock markets recently. The scaling down of housing disbursement in the current year is basically on account of the above said reasons than anything else. Otherwise, I would say that the requirement of housing is good in India. The concerns are basically temporary in nature.

EQM: Paint demand remained subdued in the first quarter of the current year also. Given the fact that monsoons have fared well, are you witnessing any revival in demand? Are there any early indications?

Mr. Bharuka: I would say that we are indeed hearing good news but some bad ones always compensates it. As of now, it is very unclear. Even though certain feedback is good that agricultural output is set to increase on the back of a good monsoon, we have also being hearing that the government is full with food stock. So even if they announce a good increase in prices, we are not sure whether the government has money to buy it. So, at the end of the day, whether the farmer will get the money and that money would translate into purchasing power is questionable.

EQM: So given this scenario, how do you see paint volumes and prices moving in the coming quarters?

Mr. Bharuka: It is definitely going to be a tuff year compared with the previous one for the paint industry. But it is still positive compared to other sectors. Especially, when you view the overall industry growth rate, which is in a bad shape.

Paint prices, of course, are a function of demand and supply and individual company strategies. But I would say that demand per se would be lower when compared to the previous years. If you look at last year, our growth in decorative segment was the highest. We have grown by 19% whereas the industry grew by 8.6%. Given the fact that our strength i.e. automotive and industrial paint segment are not doing well, our strategy is to concentrate on segments that would partially compensate whatever loss we are going to have on the industrial paint front.

EQM: Goodlass has recently launched Suraksha in the exterior segment. How have these new product introductions performed in the current year? Which category in the decorative segment will fuel growth in the coming years?

Mr. Bharuka: Actually we have introduced a lot of new products. Of course, it is a fact that the exterior segment is growing at a faster rate. ‘Suraksha’ was in response to the market need and it has done very well. We have a 23% market share right now as against a decorative market share of 14%. And we believe that Suraksha has the potential to become a leader in its segment.

Apart from that, we also introduced ‘Excel’, a premium finish in the exterior segment, which is also doing well. We have recently launched another premium product ‘Excel Everlast’ based on the technology from Goodyear Chemicals. We are the only company to have that technology in India. That product is better than all available premium exterior finishes in the country. We also have the entire range of wood finishes available under our brand and this is the other segment on which we are concentrating.

When you look at our branding, ‘Goody’ is the brand for the lower end of the segment and ‘Nerolac’ is our regular brand. We have launched products in the superior range, which are in the category of ‘Excel’.

Mr. Bharuka: We are also re-launching “All Scapes” now, which we consider as the best available interior finish today. Other than decorative category, we are also concentrating on general industrial segment, which has been an ignored area for Nerolac Paints. This segment is doing very well and in the last two years we have been growing at the rate of 30%. In powder coatings, we are the leader in India. Our associate company, Polycoat Powder, is the market leader, which I think we will be able to maintain.

So we are launching a series of products in the decorative segment and the specialty segment will definitely give us an edge over our competitors.

EQM: You are the market leader in the automotive coating segment. How do you see the company's presence in this segment developing in light of competition and slow down in sales?

Mr. Bharuka: I would again say that it is a confusing signal. Till July, passenger car sales were positive but it seems that in the current month the number is negative again. Even CV sales is not picking up. So far indications are not positive. But as you know, it is a cycle. If you look at the year before the last, the growth was the highest i.e. more than 50%. So I think it is averaging out now.

But yes, certainly the CV industry has bottomed out. But as I mentioned, the CV segment depends upon the overall industrial scenario in the country and unless that improves, CV sales are not going to improve. Of course the government is taking a lot of steps towards that.

EQM: Industrial paints constitute a significant part of your revenue. In light of your increasing emphasis on the decorative paint segment, what would be the desired revenue mix?

Mr. Bharuka: I will put it this way. We have a 42% market share in the industrial segment and 14% in decorative segment. Our decorative segment market share, which was 13% in FY00, has increased by 1.1% in FY01. I think we are moving towards increasing our market share in the decorative segment. Overall we should be in a better position to maintain the share.

If you have to maintain your market share in the industrial paint segment you need to have both systems and technology in place. What we are saying is we are better placed compared to all our competitors in terms of technology. Of course, we have Kansai as our parent company, which does lot of research. So we have the latest available from them. We also have 160 chemists undertaking research for us. We have a tie-up with DuPont. So both American and Japanese technologies are available with us. We are also the only company to offer the entire system i.e. from pre-treatment chemicals to the final solution. And in case of auto paints, service levels are very important. So we take care of the entire shop floor problem of our customer and with our application expertise we should be able to sustain our market share.

EQM: What is your view on the raw material scenario and is there any price rise on the suppliers’ front? How do you see margins faring in the coming year?

Mr. Bharuka: I don’t think there is much inflation on the raw material prices front except that we are worried about the exchange rate. Since we are the leader in the industrial paint sector it does affect us because almost 30% of raw material requirements are sourced by way of imports. Otherwise raw material price scenario is stable.

EQM: How would you rate the progress of Colour Scape? What are the expansions plans pertaining to these outlets?

Mr. Bharuka: Again, our decorative market share is 14% whereas in the CCD machines that we have installed in the dealers place we have a 26% market share. So Colour Scape market share is higher than the decorative market share. Till last year, we invested almost Rs 400 m and this year we have plans to invest about Rs 200 m in CCD’s alone.

EQM: You have targeted revenues of Rs 12 bn by FY03? Does this slow down in sales necessitate any change at all? Where do you see Goodlass three years down the line in terms of market share, revenue mix and size?

Mr. Bharuka: What we had mentioned was, we are targeting a 25% market share by FY03. Our market share at that point in time was 19%. If the growth in the paint industry continues at 12%-14%, we would achieve that figure. Now looking at the current scenario, where the growth has come down from 12%-14% to 6%-8%, certainly that target is difficult to achieve. But what we are saying is that we would certainly like to achieve market share of 25% three years down the line.

EQM: What is view on competition? Do you see more number of international players coming into the market in the future? What is Goodlass’s strategy on this front?

Mr. Bharuka: Again you have to look at the two segments differently. In case of the industrial paint segment, the international players like PPG, Nippon and BASF are already here. I don’t think any further competition can come in the industrial segment. It is too small a market, where these four players are competing. And in the last three to four years, we have been able to maintain our market share, which in itself, I believe is creditable.

As far as the decorative paint is concerned, right now, we think that it is difficult for any international player to set up shop over here. Importing and selling also appears to be a difficult proposition. So I would say, from that point of view, all those players who are in India right now and enjoy brand equity have an edge over international players.

EQM: The personalities or books that have influenced you the most?

Mr. Bharuka: I always believe that it is my family that has influenced me the most and I will give credit to my father.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407