GOODLASS NEROLAC PAINT LTD:
1. Background:
GNPL was established in 1920, by Tata steel in collaboration with goodlass, of UK, a part of cookson group. The tata’s had 40% stake in the company through group company Forbes Gokak ltd. In 1983, the company entered into 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 paint unit at parel in 1920. In 1971 another plant was established at Thane.
The Thane plant had also facilities of manufacturing pigments, one of the indegredents in paint manufacture. In FY92 the company made a right issue for funding its new Kanpur plant, which was commissioned in august 1993. Last year Kansai brought over stake of Tata’s, thus making GNPL its subsidiary.
KANSAI PAINT COMPANY:
Kansai Paint Company is the largest company in Japan and among the top ten in the world with 1991 consolidated sales of $2bn. It has 21 subsidiaries in 12 countries. Kansai has its 45% sales coming from automotive coating, 26% from decorative paint and 29% from containers, marine, metal, and heavy duty coatings. Last year company spends close to Rs 2.4bn on R&D with the thrust being on high technology, environment friendly products. India accounts for 40% of kansai investment subsidiaries.
• BUSINESS:
GNPL one of the oldest paint manufacturing companies, has concentrated on the industrial paint segment. Its product range also includes decorative paints and organic and inorganic paint. GNPL has technical collaboration with a number of manufacturers that gives it a competitive edge over the competitors in the industrial paint segment.
Its collaboration with different companies to cater to different segment as follows.Kansai paint co ltd, Japan – for all automotive coatings.Nihon Parkerizing co ltd, Japan- sealands and underbody compounds. Nihon tokushue toryo, Japan- for pretreatment chemicals. Valspar Corporation, USA- powder coating. Ameron coating Inc, USA- high performanance coating.
• INDUSTRIAL PAINT:
GNPL is the market leader in the industrial paint. With a 43% share. GNPL dominates the OEM share with the 70% of share of passenger cars OEM market, a 40% share of two wheeler and 20% share of commercial vechicles OEM market. It has a major share of alkyd and amino paints, which are rapidly replacing NC lacquers, traditionally used for automotive coatings.
GNPL has almost all the major automotive OEM as its customers except the Korean ones. Other key accounts are Bajaj Auto, Whirlpool, Hero Honda etc. suppliers to maruti 70% of maruti’s paint requirements account for 12% of sales. In the automotive segment, GNPL has launched low brake ED primers and common base coats to remove body and lumper colour mismatch. GNPL is also trying to regain its market supremacy in markets like General industries and Auto ancillaries, which it had exited due capacity constraints.
• DECORATIVE PAINTS:
GNPL has a stronger presence in distempers and emulsions. Emulsions are the fastest growing segment in the decorative paints. It has alls capes as a premium segment product. Its super acrylic distemper is claimed to be the first water-based, any-surface, environment friendly painting segment. It has recently launched acrylic system.
It has recently launched paint excel to counter competition in exterior paint segment. GNPL has launched three technology led products namely Zola coat (multi-colour designer finish paint) satin emulsion (acrylic emulsion for premium silky finish) and nerosign (colour specifically for sign board painting). However, it is a distant #2 in the decorative paint segment, way behind industry.
• MANUFACTURING FACILITIES:
GNPL has plants at Lower Parel (MUMBAI), lote Parshuram (RATNAGIRI), and Dehat (KANPUR). Last year GNPL has expanded capacity at two its plants and set up new plant. All this has taken the total capacity to 101000 TPA from 57500TPA. For FY06/07. GNPL achieved sales of 61000 tonnes, up from 52057 tonnes.
It also has two more plants through 100% subsidiaries at Madras (capacity 27,000 TPA) and vatva in Gujarat (9000 TPA). It has 62 sales offices and depots and more than 7000 dedicated dealers. Its paints are sold under brand name of Nerolac. The company has introduced VRS to employees of kavesar plant at Thane.
• THRUST ON IT:
GNPL is planning a major push in the IT segment; in fact a major portion of its apex plan of Rs 400 mn is earned market towards IT. This includes implementing ERP program to improve it operational efficiencies and integrating all of its 60 odd depots.
Amalgamation of Polycoat Powders Ltd. with the Company
Polycoat Powders Ltd. (PPL), a Company engaged in the manufacture of powder coatings, has been amalgamated with the Company with effect from 1st April, 2006, pursuant to the approval of the Hon'ble High Court of Judicature at Bombay.
The amalgamation is expected to result in better internal economies such as reduction in administrative costs, exercise of effective control, synergistic operational advantages, better use of infrastructure facilities and increased productivity of the combined resources. The figures of PPL for the financial year ended 31st March, 2007 are included in the financial results of the Company for the current year. For the above reason, financial results for the current year are not comparable with those of the previous year.
Dividend
The Company declared and paid an interim dividend of Rs. 11.50 per share (115%) in March 2007. The Directors recommend that this interim dividend already paid in March 2007 be confirmed as the final dividend. The dividend paid for the financial year ended 31st March, 2007 is the same as that for the previous year ended 31st March, 2006, though for the last financial year 2005-06 an additional special dividend of Rs. 8.50 per share (85%) had been paid, on account of extraordinary income recorded in that year from sale of investment in an associate company, Polycoat Powders Ltd.
Management Discussion and Analysis
(A) Information about the Company:
Kansai Nerolac Paints Limited (formerly Goodlass Nerolac Paints Ltd.), established on 2nd September 1920, is an 86 years old company. Being India's second largest paint company, it enjoys clear market leadership in Industrial, Automotive and Powder Coating business. The main strength of the organization lies in its employees and the technological superiority of the products manufactured, which has enabled the Company to maintain a steady growth over the years.
The Company has an open culture with transparency in operations and a professional approach. The stated purpose is Innovations for evolving surfaces. Innovation here means new ways of looking at business, which also implies innovation in products, work and processes. Evolving surfaces indicates future possibilities.
The Company has a strong value system that serves as guidelines for exhibiting appropriate behaviour, internally and externally. This year, Kansai Nerolac Paints Limited (KNP) re-looked at the changing business environment and the organization's core values.
The Company has 67 sales locations to serve its customers and is well supported by five strategically located factories. The proximity of plants to the customers' base offers logistical advantage and an edge over others, when it comes to service.
The Company operates on SAP R-3 platform and uses Advanced Planning Optimizer for Demand Planning, Forecast and Demand Fulfillment. While Data Intelligence Warehousing supports day to day decisions within the Company, Knowledge Portal serves as repository of accumulated knowledge within the organization.
Information Technology (IT) is centralized with online connectivity and security framework. The performance at all levels of employees is reviewed on the platform of the Balanced Score Card. Management Committee (MC) comprising of Top Management decides on broad policies and sets direction of organization and reviews results.
Business Analysis Team (BAT) analyzes business problems, opportunities and supports MC.
KNP has been consistently meeting challenges of the dynamic business, rising costs, industry demands and competitive scenario, in order to meet profitability objectives, by taking measures to increase productivity and manage the resources more effectively, meeting customers' expectations at the same time.
(B) How the industry fared:
Paint industry continues to do well riding high on the growth in housing and the automobile sectors. GDP growth of 8.5% for the year has been supporting and so has been the growth of 10.5% in Manufacturing and 3% in agriculture. These are the indicators of the buoyant economy. Only concern has been the inflation, which has been hovering around 6%. The Raw Material prices for the majority of the period in this year have been on a rise.
The paint industry growth of 15% has not been surprising, thus taking the industry size to Rs. 10000 crores, both for organized and unorganized sectors put together. The share of the organized sector is estimated to be Rs. 7400 crores.
Sales growth for KNP is in line with the industry growth. The growth this year is led by decorative business and within the decorative business, by Interior and Exterior emulsions. The paint industry is likely to do well in the next two years as well. The management therefore looks to the future with confidence, even though there is increasing competition from international paint companies.
(C) Marketing initiatives:
The Company went though the exercise of new brand architecture as a part of its Corporate Identity (CI) initiative. Products were re-branded as per new classification/brand architecture and the pack designs changed. The new product packs now look more contemporary, futuristic and have been well accepted by the consumers.
Continuing to take the platform of Innovation, new products have been launched in the decorative business like Nerolac Impressions Metallic and plain finishes, Excel Total with seven years warranty for exterior application, Suraksha Advanced with four years warranty for exteriors. Beauty Flexi Coat, a crack free finish Emulsion in premium range for the interiors has also been launched along with Designer finishes.
The back end support service, under Nerolac Assured Paint Service (NAPS), in select towns, is doing well with more and more consumers passing on supply & apply contracts to KNP's trained applicators. The Company's Institutional cell has also done extremely well by lapping up more contracts.
Setting up an Impressions Experience Center, at the Company's Head Quarters has been another major initiative to provide touch & feel facility for the consumers and serve as a learning centre before this concept is taken to the retail market. In Industrial business, General Industrial, High Performance Coatings and Powder coating business has done extremely well. The growth in automotive business has been in line with sector growth.
The new technology introduced of three coats - one bake has been well accepted by the automobile industry, resulting into high productivity and savings in power cost at the customers' end. UV cure technology has been introduced in the market paving the path for KNP to make rapid strides into the futuristic technology.
Multiple CED lines have been awarded in this year at the new and existing plants of the Automobile manufacturers, thus further strengthening the Company's position in this area.
(D) Opportunities & Threats:
The Company continues to identify gaps in the customers' needs and the products available and has been expanding its brand portfolio. The current customer is well enlightened, demanding, is clear on the choice of finishes unique to his personality and is open on experimentation. More over, customer is looking for a back end support. The Company is geared up to exploit these opportunities and grow its business.
Value additions, customer responsiveness and satisfaction are keys to performance and for retaining the market shares. Delivering the products at the prices which are competitive, inspite of rise in raw material cost and still maintain profitability is an ongoing challenge requiring a continuous working on improving internal operational efficiencies.
KNP has been therefore continuously working in the areas of product improvements, innovation in products and services. Various products and finishes have been offered both in decorative and industrial business, addressing the needs of customers both on quality and price.
There is a growing competition visible with more and more international players entering the industry and the way business is being transacted getting redefined.
(E) Segment wise performance:
The Company has only one segment of activity namely paints, in accordance with the definition of Segment as per the Accounting Standard 17 issued by the Institute of Chartered Accountants of India. The performance of the Company is discussed separately in this Report.
(F) Risks & Concerns:
The Company has identified risk areas along with its probability and severity, department wise. The Company has in place, a detailed Enterprise Risk Management (ERM) framework to mitigate the risks. A detailed Risk Register is maintained functionwise to monitor and mitigate risks.
Macro economic conditions do affect the Company operations as is the industry. Low demand, political instability, crop failures, natural calamities may affect the business. Business, therefore, cannot be risk free. What is important is to correctly assess risks area wise, understand the impact and initiate action to mitigate the risks.
General Risk areas are classified under heads like statutory compliances, economy, financial, government regulations and policies, market related, operational, products and technology, intellectual property. The technology provides a cutting edge to offer products innovatively and at a competitive price, thus improving sales.
Availability of raw material at the right price and at the right time is crucial for maintaining steady supplies to the customers. Rising prices of crude oil and its derivatives could be a cause of concern and similarly for Forex. Getting into new areas of business, products would carry the associated risk.
The Company has not been significantly affected on account of these risks due to proactive actions against anticipated hindrances. The Company enjoys strong brand equity amongst consumers, is known for superior technology and service backup, has a strong distribution network and follows systems and processes. Efficient materials and foreign exchange management is followed and statutory compliances are proactively auctioned upon.
(G) Research & Development (R&D) and Technology:
Research & Development department of the Company continued carrying out research in specific areas like development of new coatings/paints, quality upgradation of existing products, development of resins and polymers for paints, value engineering, process development and import substitution.
The benefits derived as a result of R&D have been in development and
commercialization of new products. This year, developments have been:
* 3 wet coat automobile coating system.
* Hybrid Technology for Automotive metallic base coats
* Glass clear lacquer
* Premium Exterior Architectural Paint.
* Advanced Economy Exterior Emulsion.
* Interior Flexi Stain Resistant Architectural Paint.
* Premium Interior Water Borne metallic finish Architectural paint.
R&D has played a crucial and a supportive role in KNP maintaining leadership in Industrial/automotive coatings and making inroads in the decorative sector.
(H) Financials:
Gross sales for the year aggregated to Rs. 1484 crores reflecting a growth of around 21% over the previous year. During the year, Polycoat Powders Ltd. (PPL), a 100% subsidiary of Kansai Paint Co. Ltd., Japan
was merged with Kansai Nerolac Paints Ltd. Thus current year's sales includes sales of PPL.
The growth on a stand alone basis is at 14.9%. Raw material inflation during the year was high at 7% impacting profitability of the Company. Overheads were kept under control. Overall overheads as a percentage to sales, dropped from 13.3% to 12.4%. Profit Before Depreciation, Interest and Taxes (PBDIT) (without other income) for the year is higher at Rs. 171.44 crores as compared to Rs. 157.14 crores of previous year reflecting a growth of 9.1%.
Depreciation for the year is slightly higher at Rs. 33.56 crores as against Rs. 31.78 crores of previous year.
Other income is lower at Rs. 24.05 crores as compared to Rs. 75.01 crores of previous year. Previous year's other income includes extraordinary gain of Rs. 50.40 crores by way of profit on sale of shares of Polycoat Powders Limited to Kansai Paint Co. Ltd., Japan. If this is excluded, then other income for the current year is more or less at the same level as the previous year.
Profit Before Tax is at Rs. 160.97 crores as compared to Rs. 149.20 crores (normal profit) of the previous year which is a growth of 7.9%.
(I) Collaboration
The Directors record their appreciation for the contribution made and support provided by Kansai Paint Co. Ltd., Japan (Kansai). Kansai continues to provide support on process design, quality improvement, world class technology, which has helped the Company in maintaining market leadership in the industrial business including automotive coatings, by servicing existing customers better and adding new lines. Kansai also provides technology for manufacture of architectural coatings.
The Company also has Technical Assistance Agreement with Oshima Kogyo Company Ltd., Japan for manufacturing heat resistant paints, Dupont Performance Coatings GmbH & Co. KG, Germany, for Anodic Electrodeposition Coating System and PPG International Performance Coatings and Finishes, USA (formerly Ameron International Performance Coatings and Finishes) for high performance coatings. The Directors record their appreciation of the cooperation from these collaborators.
(J)Directors
In accordance with the Articles of Association of the Company, Dr. J. J. Irani, Mr.Y. Kawamori and Mr.Y.Tajiri retire by rotation and being eligible, offer themselves for re-appointment. Mr. Pradip P. Shah was appointed as a Director of the Company with effect from 30th January, 2007, in the casual vacancy caused by the resignation of Mr. K.C. Mehra. Pursuant to Section 262 of the Companies Act, 1956, Mr. Shah holds office upto the date of the Annual General Meeting, but being eligible, offers himself for re-appointment.
The Directors have placed on record their sincere appreciation for the valuable services rendered by Mr. K.C. Mehra during his Directorship with the Company.
None of the Directors of the Company is disqualified under Section 274(1)(g) of the Companies Act, 1956. As required by law, this position is also reflected in the Auditors' Report.
3. Further Plan of Action:
- Development of eco-friendly coating products.
- Development of UV curable plastic coatings.
- Development of water borne tile coatings.
- Development of Waterborne Exterior Metallic finish Paint
1. Background:
GNPL was established in 1920, by Tata steel in collaboration with goodlass, of UK, a part of cookson group. The tata’s had 40% stake in the company through group company Forbes Gokak ltd. In 1983, the company entered into 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 paint unit at parel in 1920. In 1971 another plant was established at Thane.
The Thane plant had also facilities of manufacturing pigments, one of the indegredents in paint manufacture. In FY92 the company made a right issue for funding its new Kanpur plant, which was commissioned in august 1993. Last year Kansai brought over stake of Tata’s, thus making GNPL its subsidiary.
KANSAI PAINT COMPANY:
Kansai Paint Company is the largest company in Japan and among the top ten in the world with 1991 consolidated sales of $2bn. It has 21 subsidiaries in 12 countries. Kansai has its 45% sales coming from automotive coating, 26% from decorative paint and 29% from containers, marine, metal, and heavy duty coatings. Last year company spends close to Rs 2.4bn on R&D with the thrust being on high technology, environment friendly products. India accounts for 40% of kansai investment subsidiaries.
• BUSINESS:
GNPL one of the oldest paint manufacturing companies, has concentrated on the industrial paint segment. Its product range also includes decorative paints and organic and inorganic paint. GNPL has technical collaboration with a number of manufacturers that gives it a competitive edge over the competitors in the industrial paint segment.
Its collaboration with different companies to cater to different segment as follows.Kansai paint co ltd, Japan – for all automotive coatings.Nihon Parkerizing co ltd, Japan- sealands and underbody compounds. Nihon tokushue toryo, Japan- for pretreatment chemicals. Valspar Corporation, USA- powder coating. Ameron coating Inc, USA- high performanance coating.
• INDUSTRIAL PAINT:
GNPL is the market leader in the industrial paint. With a 43% share. GNPL dominates the OEM share with the 70% of share of passenger cars OEM market, a 40% share of two wheeler and 20% share of commercial vechicles OEM market. It has a major share of alkyd and amino paints, which are rapidly replacing NC lacquers, traditionally used for automotive coatings.
GNPL has almost all the major automotive OEM as its customers except the Korean ones. Other key accounts are Bajaj Auto, Whirlpool, Hero Honda etc. suppliers to maruti 70% of maruti’s paint requirements account for 12% of sales. In the automotive segment, GNPL has launched low brake ED primers and common base coats to remove body and lumper colour mismatch. GNPL is also trying to regain its market supremacy in markets like General industries and Auto ancillaries, which it had exited due capacity constraints.
• DECORATIVE PAINTS:
GNPL has a stronger presence in distempers and emulsions. Emulsions are the fastest growing segment in the decorative paints. It has alls capes as a premium segment product. Its super acrylic distemper is claimed to be the first water-based, any-surface, environment friendly painting segment. It has recently launched acrylic system.
It has recently launched paint excel to counter competition in exterior paint segment. GNPL has launched three technology led products namely Zola coat (multi-colour designer finish paint) satin emulsion (acrylic emulsion for premium silky finish) and nerosign (colour specifically for sign board painting). However, it is a distant #2 in the decorative paint segment, way behind industry.
• MANUFACTURING FACILITIES:
GNPL has plants at Lower Parel (MUMBAI), lote Parshuram (RATNAGIRI), and Dehat (KANPUR). Last year GNPL has expanded capacity at two its plants and set up new plant. All this has taken the total capacity to 101000 TPA from 57500TPA. For FY06/07. GNPL achieved sales of 61000 tonnes, up from 52057 tonnes.
It also has two more plants through 100% subsidiaries at Madras (capacity 27,000 TPA) and vatva in Gujarat (9000 TPA). It has 62 sales offices and depots and more than 7000 dedicated dealers. Its paints are sold under brand name of Nerolac. The company has introduced VRS to employees of kavesar plant at Thane.
• THRUST ON IT:
GNPL is planning a major push in the IT segment; in fact a major portion of its apex plan of Rs 400 mn is earned market towards IT. This includes implementing ERP program to improve it operational efficiencies and integrating all of its 60 odd depots.
Amalgamation of Polycoat Powders Ltd. with the Company
Polycoat Powders Ltd. (PPL), a Company engaged in the manufacture of powder coatings, has been amalgamated with the Company with effect from 1st April, 2006, pursuant to the approval of the Hon'ble High Court of Judicature at Bombay.
The amalgamation is expected to result in better internal economies such as reduction in administrative costs, exercise of effective control, synergistic operational advantages, better use of infrastructure facilities and increased productivity of the combined resources. The figures of PPL for the financial year ended 31st March, 2007 are included in the financial results of the Company for the current year. For the above reason, financial results for the current year are not comparable with those of the previous year.
Dividend
The Company declared and paid an interim dividend of Rs. 11.50 per share (115%) in March 2007. The Directors recommend that this interim dividend already paid in March 2007 be confirmed as the final dividend. The dividend paid for the financial year ended 31st March, 2007 is the same as that for the previous year ended 31st March, 2006, though for the last financial year 2005-06 an additional special dividend of Rs. 8.50 per share (85%) had been paid, on account of extraordinary income recorded in that year from sale of investment in an associate company, Polycoat Powders Ltd.
Management Discussion and Analysis
(A) Information about the Company:
Kansai Nerolac Paints Limited (formerly Goodlass Nerolac Paints Ltd.), established on 2nd September 1920, is an 86 years old company. Being India's second largest paint company, it enjoys clear market leadership in Industrial, Automotive and Powder Coating business. The main strength of the organization lies in its employees and the technological superiority of the products manufactured, which has enabled the Company to maintain a steady growth over the years.
The Company has an open culture with transparency in operations and a professional approach. The stated purpose is Innovations for evolving surfaces. Innovation here means new ways of looking at business, which also implies innovation in products, work and processes. Evolving surfaces indicates future possibilities.
The Company has a strong value system that serves as guidelines for exhibiting appropriate behaviour, internally and externally. This year, Kansai Nerolac Paints Limited (KNP) re-looked at the changing business environment and the organization's core values.
The Company has 67 sales locations to serve its customers and is well supported by five strategically located factories. The proximity of plants to the customers' base offers logistical advantage and an edge over others, when it comes to service.
The Company operates on SAP R-3 platform and uses Advanced Planning Optimizer for Demand Planning, Forecast and Demand Fulfillment. While Data Intelligence Warehousing supports day to day decisions within the Company, Knowledge Portal serves as repository of accumulated knowledge within the organization.
Information Technology (IT) is centralized with online connectivity and security framework. The performance at all levels of employees is reviewed on the platform of the Balanced Score Card. Management Committee (MC) comprising of Top Management decides on broad policies and sets direction of organization and reviews results.
Business Analysis Team (BAT) analyzes business problems, opportunities and supports MC.
KNP has been consistently meeting challenges of the dynamic business, rising costs, industry demands and competitive scenario, in order to meet profitability objectives, by taking measures to increase productivity and manage the resources more effectively, meeting customers' expectations at the same time.
(B) How the industry fared:
Paint industry continues to do well riding high on the growth in housing and the automobile sectors. GDP growth of 8.5% for the year has been supporting and so has been the growth of 10.5% in Manufacturing and 3% in agriculture. These are the indicators of the buoyant economy. Only concern has been the inflation, which has been hovering around 6%. The Raw Material prices for the majority of the period in this year have been on a rise.
The paint industry growth of 15% has not been surprising, thus taking the industry size to Rs. 10000 crores, both for organized and unorganized sectors put together. The share of the organized sector is estimated to be Rs. 7400 crores.
Sales growth for KNP is in line with the industry growth. The growth this year is led by decorative business and within the decorative business, by Interior and Exterior emulsions. The paint industry is likely to do well in the next two years as well. The management therefore looks to the future with confidence, even though there is increasing competition from international paint companies.
(C) Marketing initiatives:
The Company went though the exercise of new brand architecture as a part of its Corporate Identity (CI) initiative. Products were re-branded as per new classification/brand architecture and the pack designs changed. The new product packs now look more contemporary, futuristic and have been well accepted by the consumers.
Continuing to take the platform of Innovation, new products have been launched in the decorative business like Nerolac Impressions Metallic and plain finishes, Excel Total with seven years warranty for exterior application, Suraksha Advanced with four years warranty for exteriors. Beauty Flexi Coat, a crack free finish Emulsion in premium range for the interiors has also been launched along with Designer finishes.
The back end support service, under Nerolac Assured Paint Service (NAPS), in select towns, is doing well with more and more consumers passing on supply & apply contracts to KNP's trained applicators. The Company's Institutional cell has also done extremely well by lapping up more contracts.
Setting up an Impressions Experience Center, at the Company's Head Quarters has been another major initiative to provide touch & feel facility for the consumers and serve as a learning centre before this concept is taken to the retail market. In Industrial business, General Industrial, High Performance Coatings and Powder coating business has done extremely well. The growth in automotive business has been in line with sector growth.
The new technology introduced of three coats - one bake has been well accepted by the automobile industry, resulting into high productivity and savings in power cost at the customers' end. UV cure technology has been introduced in the market paving the path for KNP to make rapid strides into the futuristic technology.
Multiple CED lines have been awarded in this year at the new and existing plants of the Automobile manufacturers, thus further strengthening the Company's position in this area.
(D) Opportunities & Threats:
The Company continues to identify gaps in the customers' needs and the products available and has been expanding its brand portfolio. The current customer is well enlightened, demanding, is clear on the choice of finishes unique to his personality and is open on experimentation. More over, customer is looking for a back end support. The Company is geared up to exploit these opportunities and grow its business.
Value additions, customer responsiveness and satisfaction are keys to performance and for retaining the market shares. Delivering the products at the prices which are competitive, inspite of rise in raw material cost and still maintain profitability is an ongoing challenge requiring a continuous working on improving internal operational efficiencies.
KNP has been therefore continuously working in the areas of product improvements, innovation in products and services. Various products and finishes have been offered both in decorative and industrial business, addressing the needs of customers both on quality and price.
There is a growing competition visible with more and more international players entering the industry and the way business is being transacted getting redefined.
(E) Segment wise performance:
The Company has only one segment of activity namely paints, in accordance with the definition of Segment as per the Accounting Standard 17 issued by the Institute of Chartered Accountants of India. The performance of the Company is discussed separately in this Report.
(F) Risks & Concerns:
The Company has identified risk areas along with its probability and severity, department wise. The Company has in place, a detailed Enterprise Risk Management (ERM) framework to mitigate the risks. A detailed Risk Register is maintained functionwise to monitor and mitigate risks.
Macro economic conditions do affect the Company operations as is the industry. Low demand, political instability, crop failures, natural calamities may affect the business. Business, therefore, cannot be risk free. What is important is to correctly assess risks area wise, understand the impact and initiate action to mitigate the risks.
General Risk areas are classified under heads like statutory compliances, economy, financial, government regulations and policies, market related, operational, products and technology, intellectual property. The technology provides a cutting edge to offer products innovatively and at a competitive price, thus improving sales.
Availability of raw material at the right price and at the right time is crucial for maintaining steady supplies to the customers. Rising prices of crude oil and its derivatives could be a cause of concern and similarly for Forex. Getting into new areas of business, products would carry the associated risk.
The Company has not been significantly affected on account of these risks due to proactive actions against anticipated hindrances. The Company enjoys strong brand equity amongst consumers, is known for superior technology and service backup, has a strong distribution network and follows systems and processes. Efficient materials and foreign exchange management is followed and statutory compliances are proactively auctioned upon.
(G) Research & Development (R&D) and Technology:
Research & Development department of the Company continued carrying out research in specific areas like development of new coatings/paints, quality upgradation of existing products, development of resins and polymers for paints, value engineering, process development and import substitution.
The benefits derived as a result of R&D have been in development and
commercialization of new products. This year, developments have been:
* 3 wet coat automobile coating system.
* Hybrid Technology for Automotive metallic base coats
* Glass clear lacquer
* Premium Exterior Architectural Paint.
* Advanced Economy Exterior Emulsion.
* Interior Flexi Stain Resistant Architectural Paint.
* Premium Interior Water Borne metallic finish Architectural paint.
R&D has played a crucial and a supportive role in KNP maintaining leadership in Industrial/automotive coatings and making inroads in the decorative sector.
(H) Financials:
Gross sales for the year aggregated to Rs. 1484 crores reflecting a growth of around 21% over the previous year. During the year, Polycoat Powders Ltd. (PPL), a 100% subsidiary of Kansai Paint Co. Ltd., Japan
was merged with Kansai Nerolac Paints Ltd. Thus current year's sales includes sales of PPL.
The growth on a stand alone basis is at 14.9%. Raw material inflation during the year was high at 7% impacting profitability of the Company. Overheads were kept under control. Overall overheads as a percentage to sales, dropped from 13.3% to 12.4%. Profit Before Depreciation, Interest and Taxes (PBDIT) (without other income) for the year is higher at Rs. 171.44 crores as compared to Rs. 157.14 crores of previous year reflecting a growth of 9.1%.
Depreciation for the year is slightly higher at Rs. 33.56 crores as against Rs. 31.78 crores of previous year.
Other income is lower at Rs. 24.05 crores as compared to Rs. 75.01 crores of previous year. Previous year's other income includes extraordinary gain of Rs. 50.40 crores by way of profit on sale of shares of Polycoat Powders Limited to Kansai Paint Co. Ltd., Japan. If this is excluded, then other income for the current year is more or less at the same level as the previous year.
Profit Before Tax is at Rs. 160.97 crores as compared to Rs. 149.20 crores (normal profit) of the previous year which is a growth of 7.9%.
(I) Collaboration
The Directors record their appreciation for the contribution made and support provided by Kansai Paint Co. Ltd., Japan (Kansai). Kansai continues to provide support on process design, quality improvement, world class technology, which has helped the Company in maintaining market leadership in the industrial business including automotive coatings, by servicing existing customers better and adding new lines. Kansai also provides technology for manufacture of architectural coatings.
The Company also has Technical Assistance Agreement with Oshima Kogyo Company Ltd., Japan for manufacturing heat resistant paints, Dupont Performance Coatings GmbH & Co. KG, Germany, for Anodic Electrodeposition Coating System and PPG International Performance Coatings and Finishes, USA (formerly Ameron International Performance Coatings and Finishes) for high performance coatings. The Directors record their appreciation of the cooperation from these collaborators.
(J)Directors
In accordance with the Articles of Association of the Company, Dr. J. J. Irani, Mr.Y. Kawamori and Mr.Y.Tajiri retire by rotation and being eligible, offer themselves for re-appointment. Mr. Pradip P. Shah was appointed as a Director of the Company with effect from 30th January, 2007, in the casual vacancy caused by the resignation of Mr. K.C. Mehra. Pursuant to Section 262 of the Companies Act, 1956, Mr. Shah holds office upto the date of the Annual General Meeting, but being eligible, offers himself for re-appointment.
The Directors have placed on record their sincere appreciation for the valuable services rendered by Mr. K.C. Mehra during his Directorship with the Company.
None of the Directors of the Company is disqualified under Section 274(1)(g) of the Companies Act, 1956. As required by law, this position is also reflected in the Auditors' Report.
3. Further Plan of Action:
- Development of eco-friendly coating products.
- Development of UV curable plastic coatings.
- Development of water borne tile coatings.
- Development of Waterborne Exterior Metallic finish Paint