You are currently viewing Kansai Nerolac Paints: We are making certain investments in strategic areas to enhance our ability: Anuj Jain, Kansai Nerolac Paints

Kansai Nerolac Paints: We are making certain investments in strategic areas to enhance our ability: Anuj Jain, Kansai Nerolac Paints

” I can only say that there is possibility of improvement from here on and as I said that the gross margins will definitely improve. So, to that an extent our investment in the top line, the growth initiative will also be there,” says Anuj Jain, MD, Kansai Nerolac Paints.

Do you think the market reaction is justified because the markets are saying worst is behind Kansai Nerolac and they will stand tall to the competition which is coming from the Birlas and Jindals.
You know better about the market but I can say we are working to support all our businesses and in this quarter all businesses have grown well so to that to an extent the result was good. The gains, now let us talk about the top line, how much of the top line is because of volume and how much is because of value?
Volume and value basically matter when it comes to the decorative business. So in decorative business there is a double-digit value, volume. Both are kind of equal growth and even in other businesses the value growth is better in case of industrial and volume growth is a little lower, but decorative volume growth is also in double digit.

You have seen input prices as well that have softened. In light of this, what is the outlook on your overall margin trajectory given that you have already seen a smart margin expansion YoY?
Yes, so it is a combination of one that there is some softening of the input prices, but the weighted inflation is still positive but the prices are cooling off and then there are some internal initiatives. So, margins, we have seen some expansion and there is definitely a possibility of margin improvement going forward also, but we also have some initiatives where we are investing because these are long-term, medium-term initiatives and we are investing behind these initiatives so that we are able to respond like the question was asked that how do you respond to the competition. I think we have to increase, enhance our ability and to that extent we are making certain investments in the strategic areas.

Can you just put a number to that, will it normalise to pre-COVID levels of 17% to 18% and by when?
Difficult to comment on the numbers. I can only say that there is possibility of improvement from here on and as I said that the gross margins will definitely improve. So, to that an extent our investment in the top line, the growth initiative will also be there.

How much of the raw material benefits you are likely to pass on and how much are you likely to retain?
As of now as I said this weighted inflation is still positive, so there is no question as of now passing on, it is not the right time. So, whenever we will reach the right time because typically what happens is that in the decorative market when these prices goes up then we are able to pass it on to the market but industrial there is a lag period, so similarly when the prices cool off there will again be a lag period, so it is not the right time. When the right time comes, we will take appropriate decision.

Numbers from Dabur, they are struggling because rural demand is not there. I look at the numbers which are coming from let us say Nestle. They are growing because urban demand is strong. What are the factors at play if I have to compare rural versus urban demand for Kansai?
We are relatively stronger in the rural market you can say and quarter on quarter we have seen some improvement in the rural demand. We can say that urban demand is better, but there is uptick in the rural demand if we look at quarter on quarter basis.

When it comes to the urban demand, the institutional business, the project business, the premium categories have been doing well and our initiatives in terms of launching some of the innovative products under paint plus, increasing our outreach to the influencers have been there in the urban market and there we are seeing that these initiatives are gathering the momentum and it is working for us.

How do you see FY24 moving differently from FY23 because FY23 the general sense was that it was not a great Diwali or Dussehra or a Christmas season. Do you see somewhere impact of high inflation, higher raw material pricing, everything will normalise and FY24 will be a significantly better year there?
In terms of top line, if we talk about Diwali because I think this year Diwali is in the month of November and typically we have seen whenever Diwali is in the month of November paint industry gets a better result, reason being because the monsoon get extended every year till say late September or October. So, last year Diwali was in the month of October, so the second quarter got impacted, so there will be a better response in this year because Diwali is in the month of November. Overall, for the year, paint industry has a good correlation with the GDP growth, so if GDP growth is expected to be around 6% I think the industry growth would be in the range of 8% to 10% in this year.

Your demand, is it coming from fresh construction, is it coming from repainting, where is the demand coming from?
Coming from both sides, so fresh construction contributes around 12% to 15% to the total business. In the fresh construction the demand is slightly better, so we can say that in the repainting if the demand is 8% to 10%, the fresh construction the demand is around 15% to 20%. So that is the difference, but the contribution of this new construction is about 15%.

If I look at the current construct of the paint industry, there is one large player with more than 50% market share, then there are four players who in between them have about 40% market share, two new players are going to be coming in the market soon. How do you see this entire dynamics of the paint industry changing because the Jindals are trying to disrupt and Birlas are committed to change the dynamics, how do you see the dynamics changing in two years, three years, four years, five years?
See, it is good for the industry, good for the consumers that more number of player in the industry mean that more innovations, the more efficiencies. So, to that an extent it is definitely welcoming step for the industry and for the consumers. It may increase the competitive intensity that is a different issue, but if you see in paint the penetration is still about 50% to 55% and obviously the existing players they do a lot of communication, advertising to basically increase the awareness and over a period of time we have seen that the penetration is going up, but with the good players coming in the industry and more number of good players will be there and when they also participate I think the penetration of the industry will go up and therefore there is expected that the industry growth also go up.

The second is the formalisation of this because in the paint industry still 25% to 30% come from the informal sector and there also we have seen gradually that there is a shift to the formal which probably will further escalate when these players will come in and we can see a lot of innovation because paint traditionally has been about colour and finish but I think there is a lot of technology, functionality, so many new products and the cost efficiencies one will be able to see and to that an extent it will good for the market.

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