Analysis of Paint Industry with respect to Godlass Nerolac

Submitted By: Sandesh Mokal PGDBM Marketing

Analysis of the Paint Industry

Project Report On

TABLE OF CONTENTS
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. EXECUTIVE SUMMARY PAINT INDUSTRY AT A GLANCE PAINT INDUSTRY INDUSTRY STRUCTURE SECTOR SPECIFICS EMERGING TRENDS AND OPPORTUNITIES COMPETITOR ANALYSIS COMPANY ANALYSIS SWOT ANALYSIS PRIMARY RESEARCH RESEARCH PROBLEM RESEARCH OBJECTIVE RESEARCH DESIGN CONSUMER SURVEY CONCLUSIONS RECOMMENDATIONS APPENDIX 6 7 10 13 15 19 23 29 36 37 37 37 37 39 47 48 51

EXECUTIVE SUMMARY

Goodlass Nerolac is one of Indias 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 tieups 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.

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 55% of the total paints market while the Unorganised sector comprises of the remaining 45%.

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 Brand Image 2. 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.

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 smallscale 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. 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.

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

Organized sector
In India, Indian Paint industrys total market size is US$1400 million. The organized sector of the industry is 55%. The 45% unorganized sector has about 2500 units.

The big players and their market share-value of the organized sector are:

Asian Paints 37% Goodlass Nerolac 15.9% Berger Paints 13.8% ICI 11% Jenson & Nicholson 5.7% Shalimar 4% Others 12% ( Including Jotun). The overall organized sector market share is shown in the following graph. Asian Paints leads with a market share of 37 per cent; Goodlass Nerolac has 16 per cent while Berger Paints has 14 per cent share.

Unorganized Sector
There are estimated 2500 small-scale producers accounting for 45% 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

10

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
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 (SeptemberDecember) 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 Governments thrust to encourage housing activity. This is likely to favorably impact the demand for the decorative paints.

11

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
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 tieup with automobile manufacturers for assured business. GNPL dominates the industrial paints segment with 41 per cent market share. It has a lions share of 70 per cent in the OEM passenger car

12

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, Indias 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.

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.

13

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 Lankas Paint Industry. Within a short span of just five years, the company has emerged as the number one player in these markets.

Technology collaboration
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

14

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:
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:
15

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:

16

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 Asian Paints Goodlass Berger ICI (Table 5) (source: indiainfoline)

Nos. 14500 7000 5500 4500

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:

17

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 governments 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

18

 Indian Rural Market Auto OEM Finish Auto Refinish Exterior Coatings

Growth Drivers of Indian paint Industry

Per capita consumption at 1.5kg is way below the developed (20kgs) aswell as the developing market standards. Usage of lime extracts (chuna)in ruraland semi urban markets as well as lesser awareness of theprotective attributes of paints can be one of the reasons for lower consumption levels.With growing income levels, both in urban as well as rural India on theback of various government initiatives like NREGS, Farm loan waivers,pay commission led salary hikes etc, we expect the per capitaconsumption to improve in the medium as well as long term.

Rising income levels: According to McKinsey, proportion of low income groups is expected todecline from
24% in FY05 to 10% in FY10e. This will act as a significant catalystfor demand growth in decorative paints.

Increasing media exposure: With better awareness levels, we expect a gradual shift from unbranded to
branded segment as well as improvement in product mix for players like Asian Paints as demand for emulsions continues to outpace enamels and distempers.

Indian housing sectors boom, increasing urbanization had made easy availability of housing loans
and a shift from semi-permanent to permanent housing structures have been driving growth in the decorative paints segment accounting for nearly 65-70% of the Indian paint industry.

Seasons:
time.

are also involved in the demand for decorative paints, where consumption peaks around festive

Increase in nuclear families: This is a consequence of younger demographics (60% of Indias population
is below 30 years of age), with proportion of working population expected to increase from 40% in FY05 to 48% in FY15e.

COMPETITOR ANALYSIS

19

I. ASIAN PAINTS:Asian Paints is India's largest paint company and the third largest paint company in Asia today, with a turnover of Rs 30.2 billion (around USD 680 million). The company has an enviable reputation in the corporate world for professionalism, fast track growth, and building shareholder equity. Asian Paints operates in 21 countries and has 29 paint manufacturing facilities in the world servicing consumers in over 65 countries. Asian Paints is a great marketing success in a branded consumer product business. The company Succeeded where others failed in three areas: First, it understood the requirements of the Indian paints market better than the MNCs which did not bother to respond to local consumer needs. It was the first to introduce small pack sizes, a variety of shades and a wide range of paint types (enamels, distempers, emulsions) to suit different pockets.

Thus, in the sixties, the company came out with plaster distemper, Tractor, to suit the needs of the mass market for a product that was much cheaper than costly emulsions but much better than the widely used whitewash and crude powder distempers. This opened up a huge market and today distemper accounts for 25% of the decoratives market in volumes and 15% in value. And as recently as in 1992, the company introduced a synthetic distemper, branded Utsav, aimed at the same rural and low income urban markets. Secondly, in the highly competitive market emulsions segment, the company introduced as many as 151 shades in its Apcolite range when the competition was offering a maximum of 40 odd shades. The strategy paid off and Asian Paints today commands a 40% share in this segment. It set up an extensive national distribution network to tap demand in smaller towns. Today it has direct dealers in 3,200 towns and 10,000 stockiest. Investments were also made in computer technology to ensure up-to-date information interface between the marketing and production sides of the business .And finally, the company has displayed considerable savvy in its advertising campaigns, dealer relations, point of sale publicity and product demonstrations to consolidate and expand markets. In fact, the company has played a pioneering role in expanding the Indian paints market by identifying high demand potential areas and then tapping them to maximum effect.This ratio is defined as profit after tax divided by the shareholders fund. It measures the profitability of the funds invested in the firm. It is

20

regarded as a very important measure because it reflects the productivity of the risk capital employed in the firm.
2. BERGER PAINTS:Berger Paints is the culmination of over seven-decade process of evolution and growth that began in 1923. Its growth has been closely linked with the business and industrial development of modern India. The performance of this company is anchored today in a wide variety of Decorative and Industrial paints which continue to gain an increasing share of the highly competitive Indian paint market. Being an ISO 9001 company its quality products have attained instant and worldwide recognition, and continues to meet quality requirements that are demanded today even in the domestic market. The Country's third largest paint manufacturer,with its Headquarters in Calcutta, Berger controls a distribution network comprising of 66 stock points and approximately10,000dealers, spread across the country.

BPIL has technical tie-ups with Herberts, a subsidiary of the German pharmaceutical major Hoechst for automotive paints, Tendor NV of Holland for powder coatings and Valspar Corporation, USA for heavy duty coatings. The company is particularly active in the powder coating segment and is a supplier to most OEMs in the white good segment. With its thrust shifting to industrial coatings, the company is expandingitspowdercoatingcapacityfrom840metrictonsto 1,840 metric tons at its existing plant. Recently, it introduced Color Bank, a computerized mixer tinting machine in technical collaboration with Ital Tinto of Italy. Special software, Tintovision installed in the Color Bank gives the customers a choice of more than 5,000 shades and can even produce the colors offered by the companys competitors. Another achievement of Berger is the setting up of Berger Prolinks. Prolinks is Berger Paints' response to a market environment that is increasingly driven by technology and calibrated by expertise. Prolinks is aimed at placing the initiative in the hands of builders, architects and designers to enable them to directly source innovative products and services. The team is entrusted with maintaining a seamless interface

21

between paint specifiers and products and processes - databases, technical services, color consultancy, site inspection, etc. Prolinks experts ensure specific solutions to specific problems, whether it is a particular shade that needs development, special climatic factors to be provided for, or application factors that have to be maintained.
3. ICI INDIA ICI India was the subsidiary of the $15bn British multinational company ICI Plc. Brunner Mond & Co., one of the four Companies that combined to form ICI in UK in 1926, opened a trading office to sell alkalis and dyes in Calcutta. In 1923, Brunner Mond & Co. (India) was incorporated and the company's name was subsequently changed to Imperial Chemical Industries (India) Ltd., in 1929. ICI (India) is ranked fourth in the paint business, after Asian Paints, Goodlass Nerolac -17-Paints and Berger Paints. Unlike the other paint companies, ICI (India) was a diversified unit and paint constituted 43% of its net sales. It identified paints as a thrust area and was aggressively moving to improve its position. The company invested $11 million in a new decorative paints plant near Bombay and constructed a $16.7 million plant for industrial paints near Chandigarh in North India. In order to increase its presence in the paints market, ICIs growth plan is to beef up its distribution network, widen the purview of specialty products, access newer technologies through joint ventures and of course, targetting the urban and semi-urban markets by introducing more products in the lower and middle segment of the paints market. ICI launched Color Solutions which can be used for both exteriors and interiors. This comprises a menu driven, user friendly touch color screen on a computer that helps consumers visualize as many as 6,000 shades on house structures resembling their homes. 4. JENSON AND NICHOLSON:Jenson & Nicholson, a leading paint company in the country today was established in the year 1922. It has a country wide presence with 33 branches and stock points across the country and manufacturing plants at Naihati (near Kolkata), Sikandrabad (near Delhi) and Panvel (near Mumbai). In 1955, it launched Indias first Plastic Emulsion paint, under the brand name of Robbialac.

22

It ventured into the Powder coatings market in 1986, thus becoming the first company in the organized sector to offer this extremely environment friendly coating technology. Subsequently, it introduced Instacolor, in technical collaboration with M/s Tikkurilla OY of Finland. It is the first company in the country to introduce computerized dispensing system.Jenson and Nicholson launched the Standox brand of products in 1996 which offers over 45,000 colours to the Indian car owner. In the very next year, he company in order to cater to highly specialized Marine paints sector, entered into a 50:50 joint venture project with M/s Chugoku Marine paints of Japan.Chugoku is the second largest supplier of marine paints in the world with 30% market share. The new company also handles heavy duty coatings.

COMPANY ANALYSIS
KANSAI NEROLAC (GOODLASS NEROLAC) It was established in 1920 as Gahagan Paints and Varnish Co. Ltd. at Bombay. In 1930, three British companies merged to formulate Lead Industries Group Ltd. In 1933, Lead Industries Group Ltd. acquired entire share capital of Gahagan Paints in 1933 and thus, Goodlass Wall (India) Ltd. was born.Subsequently, by 1946, Goodlass Wall (India) Ltd. was known as Goodlass Wall Pvt. Ltd. In 1957, Goodlass Wall Pvt. Ltd. grew popular as Goodlass Nerolac Paints (Pvt.) Ltd. Also, it went public in the same year and established itself as Goodlass Nerolac Paints Ltd. It is among the oldest paint companies of the country and the undisputed market leader in industrial paints, with a 43% share of this segment. It is a dominant player in the auto paints market which accounts for around one-third of the industrial paints segment. Goodlass Nerolac paints strength comes from the higher end of the auto paints market - passenger cars and light commercial vehicles (LCVs) account for 60% of the companys auto paint sales. The rest comes from heavy trucks and two wheelers auto paints, the market share of Goodlass is now estimated to be around 50% with a 90% share in passenger cars, 60% in LCVs, 40% in two wheelers and heavy trucks. Right now, the company is the only significant producer of CED (cathodic electro-deposition) primer,

23

with technical know-how from its Japanese promoters, Kansai Paints. Goodlass is the only company offering a complete automotive paint system comprising pre-treatment chemicals, primers, anti-rust coatings,intermediate and top coatings as well as auto refinishes. GNPL supplies 90% of the requirements of Maruti Udyog Ltd., which produces 300 cars a day.

The company has a tie-up with Nihon Toshuku Tokyo of Japan for sophisticated coatings for automotive and industrial sectors. Having lost Daewoos Cielo contract to Asian Paints, GNPL is pursuing business opportunities with car majors planning to enter the country. It recently tied-up with Dupont, USA for supplying automotive paints to DuPonts clients in India.
Goodlass Nerolac Paints Ltd. Changed its name to Kansai Nerolac Paints Ltd. in 2006. The present human asset consists of over 2000 professionals and a sales turnover of 1226 crores. It is the second largest coating company in India with a market share of over 20% and also the leader in powder coatings.

Background
GNPL was established in 1920, by Tata stable in collaboration with Goodlass of UK, a part of the Cooksons group. The Tatas 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 Tatas, 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.

24

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 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 relaunched 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

25

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 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. GNPLs 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, companys 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

26

Rs37mn. Net profit increased by 21% yoy to Rs274mn in Q1 2002 from Rs226mn in Q1 2001.

Distribution network
Factory Regional Distribution Centre Depot Dealer Customer

27

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
Competition Low profitability

28

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.

29

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 30 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.

30

CONSUMER SURVEY
Sample size - 30
Which companys brand you use?

Majority of the people is not aware of the brand they use.

31

 When did you last paint your house?

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?

32

In most if the cases painters or dealers decides which brand to use.

How far you agree with the following statements? Statement A price is an important factor in your purchase decision. 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.

33

Most of the people are not brand conscious and they dont have much knowledge about paints. Have you seen advertisements of the following companies?

Most popular brand is of Asian paints followed by Nerolac.

Have you heard about the following brands?

34

Suraksha is the most popular brand followed by Excel among the four brands. Monthly household income

Majority of the people are in the 15001-20000 and above 25000 category

35

CONCLUSIONS

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. Price plays a major role in purchase of paints.

RECOMMENDATIONS
RECOMMENDATION 1
36

GNPL needs to increase and defend its share in the industrial segment: It needs to take the following steps: Introduce new products/innovations NEROLAC 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 technologies Technologies 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.

RECOMMENDATION 4

37

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 CCDs should be made clearer to the consumers. More advertisements should be given showing CCD and its use. With implementation of such strategies hopefully APIL will become No. 1 in all the segments not only in India but the whole world.

38

APPENDIX
QUESTIONNAIRE

39

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 above 5 years b) 1 3 years ago c) 3 5 years ago d)

3) What is the time of your purchase? a) During festivals please specify b) after the rainy season c) any other,

4) Who decides which brand to buy? a) Father/Husband d) Dealers b) Housewife c) Painters

5) 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.

d) You feel that some brands have better quality than others.

6) Have you seen advertisements of following companies?

40

Yes Asian paints Nerolac paints Berger paints ICI paints 7) Have you heard about these brands? Yes NAE Allscapes Suraksha Excel What is your monthly income? b) 15001 20000 No

No

8)

a) 10000 1500 above 25000

c) 20001 25000 d)

41