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Mr. H. M. Bharuka, Managing Director, Kansai Nerolac Paints Ltd

India Infoline News Service | Mumbai |

“The decorative segment is doing better as compared to the industrial segment.”

Kansai Nerolac Paints Ltd has been at the forefront of the Indian paint manufacturing industry for more than 88 years. It has pioneered a wide spectrum of quality paints. Kansai Nerolac is the second largest paint company in India and is the leader in Industrial segment. The company has four strategically located manufacturing units all over India and a strong dealer network across the country. The company manufactures a diversified range of products ranging from architectural coatings for homes, offices, hospitals and hotels to sophisticated industrial coatings for most of the industries.

Mr. H. M. Bharuka is the Managing Director of Kansai Nerolac Paints Ltd and has been the driving force behind the high-accelerated growth of the company. He has been instrumental in building and positioning the company as a leading player in the Indian paints industry. Mr. Bharuka was appointed MD of the company in April 2001. Mr. Bharuka is a qualified AICWA from the Institute of Cost and Works Accountants of India and has done B.Com from the Mumbai University.

In an exclusive interview with Hemant P. Maradia of India Infoline, Mr. Bharuka says: ?The decorative segment is doing better as compared to the industrial segment.?

How has the company navigated through the downturn over the past year and a half? What kind of cost control measures have you taken to ward off the threat from the sudden and swift economic slump?

FY 2008-09 was an extremely challenging year, with the economic slowdown affecting various sectors and widely fluctuating commodity prices. Against this backdrop, the company has performed reasonably well in FY 2008-09, primarily driven by good growth in Decorative Paints. Various initiatives in the areas of Inventory Management, Material Costs, Working Capital Management and Overhead Control have helped release Rs1bn cash in the system.

To what extent the sharp fall in crude oil prices have helped the company? What is the impact on your raw material costs? How do you see input costs unfolding over the rest of the quarters?

Due to sudden drop in crude, the impact on the inventory is unfavorable. Price reduction needs to be passed on to customers immediately. This puts pressure on profits.

FY09 was clearly a tough year with wild fluctuations in input costs and prices, besides the demand slowdown and inventory losses. What is the outlook for FY10 and beyond?

With the new government in place and the budget already been announced, we expect recovery in second half of the year, provided the global economy turn around. Progress in monsoon will also have an impact on demand.

What kind of demand have you witnessed in the year so far? Which segment do you see recovering faster (decorative or industrial)?

The decorative segment is doing better as compared to the industrial segment which is growing at a slower rate.

What is the total size of the Indian paints industry? What is the break-up between organised and unorganised? What is your market share in the organised space? How much are you targeting in the next few years?

The Indian Paint Industry is roughly estimated to Rs170bn in 2008-09. Of this, the share of organized business would be Rs110bn and the growth is estimated to 8-10%. Kansai Nerolac has a market share of over 20% on an overall basis. In Industrial paints it is over 40% and in decorative paints we enjoy a market share of over 14%. Our vision is to maintain leadership in automotive segment and improve share in non auto and decorative segments.

Do you think the Government's focus on boosting domestic consumption will help the company and the industry in any way?

The Government's focus on boosting domestic consumption will help in stimulating economic growth in spite of further deterioration on fiscal front. It really won?t affect the company and industry as much.

Tell us about your experience centers? What has been the response from the customers? What are the future plans on this front?

We have only one Experiential Centre at our Head Office in Lower Parel, Mumbai. This centre is opened only for contactors and architectures enabling them to experience the feel of the colour. This centre helps in visualizing the colours on the wall. Our client appreciated us for this initiative.

We have received good response from the client on this centre, we thought of taking this concept further. As this centre was only restricted to builders, contractors and architectures, we went ahead and opened our exclusive outlets ? Nerolac Impression Shoppe, a smaller version of the Experiential Centre for our end consumers.

What are your plans for the retail side of the business - 'Nerolac Impressions Shoppe'? How many stores do you have as of now and how many are in the pipeline?

Nerolac Impressions Shoppe is our exclusive outlet. It is a one-stop-shop for the consumers. By launching these outlets we aim at reaching the end consumers by giving them a more experiential kind of experience in choosing paint. These shop showcases varied range of paints and helps consumers to visualize their home and gives a chance to decorate their house with their own signature style. As one of the aggressive player in the industry, we feel it is our duty to increase the involvement of the consumer by offering innovative products, services and a satisfying buying experience. This venture is towards achieving this objective. Currently we have 6 such outlets and are planning to open few more by 2010.

With the revival in automotive sales, do you expect sales to this sector improving? Which other industrial segments are you betting big on for future growth?

The automotive sector is growing at a slower rate, we expect the sector to perform well by the end of this year. Real Estate and Infrastructure has also started gearing up. The growth of these sectors will also contribute to our profits.

How much of your topline comes from the Powder Coating segment? What are your plans on this segment? We believe you have forayed into the dealer segment aside from the OEM customers?

Powder coating business in India is growing well and we see a great future for this eco-friendly product range. We have made good inroads in job coaters and dealer segment.

A lot of companies have raised money from the markets? Do you have any such plans? If yes, which route(s) are you most likely to adopt?

Right now, we have not planned anything.

What is the debt-equity ratio?

Debt-Equity Ratio as of March 2009 is 0.14.

What is your message to the shareholders?

The paint industry is doing well and within industry, Kansai Nerolac Paints is also doing well. The company?s first quarter results are good in terms of growth and profit. Since Kansai Nerolac Paints is present in both industrial and decorative type of market and both are doing well, we expect our performance to be in line with industry.

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