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PROJECT REPORT FIRM ANALYSIS SUBMISSIONSUBMITTED TO PROF. R SRINIVASAN
Firm Analysis for Kansai Nerolac
3/17/2011
Team Members (Section A)
Anup CV
Gurkirat Singh 1011028
Purnima
Navdeep Chahal
Saba Rahman
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CONTENTS
Company Overview: ............................................................................................................................................... 2
Resources and Capabilities: .................................................................................................................................... 2
Technology- ....................................................................................................................................................... 2
Research and Development: ............................................................................................................................... 2
Quality: .............................................................................................................................................................. 2
Marketing: ......................................................................................................................................................... 3
Manufacturing and Dealership: .......................................................................................................................... 3
Mission & Vision:.................................................................................................................................................... 3
Innovation: ......................................................................................................................................................... 4
Team Orientation: .............................................................................................................................................. 4
Vision of the Future: ........................................................................................................................................... 4
EVOLUTION OF COMPETITIVE STRATEGY ................................................................................................................ 5
The Initial Years .................................................................................................................................................. 5
The Next Decade ................................................................................................................................................ 5
The Twenty-first Century .................................................................................................................................... 6
Competitive advantage- ......................................................................................................................................... 6
Industry Trends and Nerolacs Strategy Fit to leverage these trends........................................................................ 8
Trend 1 Robust growth in Demand with growth in Decorative Segment higher than growth in Industrial
Segment ......................................................................................................................................................... 8
Trend 2 - Changing Consumer behavior in Decorative Segment, consumer becoming more involved with the
product .......................................................................................................................................................... 9
Trend 3 Rise in Value added Services from Choosing the right colors to application support ............ ............. 9
Trend 4 Technological Improvements will continue to play a critical role ............. .............. ............... .......... 10
Trend 5 - Unorganized Sector losing share to Organized Sector - ........................ .............. .............. .............. . 10
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COMPANY OVERVIEW:
Kansai Nerolac Paints Company India Limited was established in India as the Gahagan Paints and Varnish
Co. Ltd. in Mumbai. It then became the Goodlass Wall India Ltd which was a private company. It went
through a brief period under the purview of the Tata Group after which it was acquired by the Kansai
Paint Company based in Japan. Nerolac is the second largest producer of paint after Asian Paints in India
and is the market leader in automotive paints and industrial coatings.
RESOURCES AND CAPABILITIES:
TECHNOLOGY-
Kansai Paint Company which is the primary technology partner of Nerolac paints is one of the
top ten paint companies in the world. It is the technological edge given by Kansai which enables
Nerolac to come up with new products to cater to unmet customer needs in certain niche areas.i
It has sourced the CED Primer system and Auto refinishing technology from Kansai. Othertechnology partners are Nihon Parkerising Company, Oshima Kogyo for heat resistant paints.
The fact that Kansai is the prime supplier for Suzuki in Japan enabled Nerolac to establish a
foothold in the automobile industry by becoming the prime supplier for Maruti. Dupont
Performance coatings offered the technology for Anodic deposition coating and Ameron Inc. for
high performance coatings.
Apart from core technology, Nerolac has always kept pace with developments in IT. It has
harnessed Information Technology to increase efficiencies using SAP, Vendor portals, Dealer
Portals and other forms of business intelligence.ii
RESEARCH AND DEVELOPMENT:
Nerolac place great emphasis on R & D which has been one of its key reasons for success. It has
developed new innovative products such as Vaasthu paints, Disney paints for kids. They have
also targeted specific niches such as beauty emulsions at lower prices to capture a greater
section of the decorative paints market. They have developed a painting solution which has
reduced the six step painting process to four steps for automobiles. The laboratory set up for
research has been officially recognised by the Department of Science and Technology.
Nerolac has a very strong base in value engineering, quality and service. Almost 85 Technical
Service Team members are placed at offshore customer sites to support applications, controlling
process specifications .
QUALITY:
Kansai Nerolac Paints Ltd. aims to achieve customer satisfaction through exceeding customer
expectations in terms of the product specifications, delivery timing and price sensitivity. The
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Japanese collaboration has also contributed to the company philosophy of total quality
management and getting manufacturing and services right the first time round. Various quality
management systems, the Japanese 5-S and total productive maintenance concepts have been
put into play in the organisation.iii
MARKETING:
Nerolac is the biggest supplier of CED coatings catering to over 3/4th
of the needs in India. It is
attempting to expand its base in the decorative segment by supplying Beauty Emulsions in the
range of Rs. 80-100 /litre. It has formed an alliance with ITC E Chaupal to get an alternative
distribution network in the rural areas. Nerolac has succeeded in understanding the consumer
and communicating with them in the language and manner they understand. For example,
Goody the tiger was a mascot specially designed for the rural market.iv
MANUFACTURING AND DEALERSHIP:
Nerolac has a strong relationship with the automobile industry and supplies paints to 9 out of 11
automobile companies. The company has had five manufacturing plants over the years, in
geographically significant locations such as Tamilnadu, Gujarat, U.P., Maharashtra and Haryana.
Almost all of the manufacturing have been Greenfield projects and it has won environmental
management and excellence awards.
Nerolac has a very strong dealer network of more than 11,0000 dealers and has 8 sales divisions
and over 66 depots to meet the local demands. The company has a workforce of approximately
2000 personnel which has helped the company achieve high turnovers.
MISSION & VISION:
In todays dynamic business environment, no organization can afford to survive without a well-
articulated and carefully thought vision stating the overall strategic direction and long-term future of its
business.
Kansai Nerolac Paints has been at the forefront of paint manufacturing over eight decades pioneering a
wide spectrum of quality products that change the face of economy and lifestyles of people at large. The
broad vision of the company has been to leverage global technology to serve customers with superior
coating systems built on innovative and superior products and world class solutions, to strengthen
leadership in Industrial coatings and propel for leadership in Architectural coatings, all to the delight ofstakeholders.
This vision has been developed by the company keeping in view the values based proposition as the
ultimate foundation on which the business has to grow and prosper. To continuously build up and
practice this vision the company has been using the following capabilities in all business transactions
through both product and human resources:
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y Innovationy Entrepreneurial skillsy Responsive to changey Simplicityy Team Orientationv
INNOVATION:
Nerolac has used this vision in attaining a firm foothold in the industrial paints segment where it has
been the leader with more than 40% market share and an overall market share of 20% of the Indian
paints market. The decorative segment forms over 75 per cent of the organized sector. Nerolac, which
has a 14 per cent market share in the decorative segment, is focusing on increasing its presence in this
segment to tap the available opportunity. Nerolac is undertaking various initiatives to increase its sales
in the decorative segment. The company has introduced products, such as Disney Paints, Beauty
Emulsion, Impressions Luxury Emulsion with metallic finishes (first time in India) etc., in the market. All
this has been possible due to its very strong innovative base and strong culture of involving employees
in the product development and branding.vi
TEAM ORIENTATION:
Goody Vision is a monthly internal magazine where the employees of Nerolac at all levels and across the
country at all their geographical locations are the target audience. Nerolac understands that the levels
of employee satisfaction in any organization will depend on the communication levels within the
organization across the levels more formal than informal.
Nerolac won the Goody Vision for Best Visual Display for the year 2003-2004.Expressing his happiness
on Nerolac winning this award, Mr. Ashok Saini, Vice President, Special Projects and Corporate
Communications said, People are the most important asset of any organization. Our people have
always been our biggest strengths and they are the ones who have supported us in all our endeavors at
all levels of functions. We owe it to them to provide a transparent atmosphere where they are
communicated about everything that concerns them. Internal communications plays a crucial role in this
and hence Goody Vision is so much a part of our lives."vii
VISION OF THE FUTURE:
We expect the company to continue with its vision of delivering value to all stakeholders through
innovation and leveraging of global technology mixed while giving special emphasis on the people
both its employees and its customers. Through this it can position its brand strongly in the decorative
segment as well and hope to achieve a significant market share in the overall paints market.
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The company focused on extensive branding that involved introducing a signature tune and roping in
celebrities to drive home its USP
Another reason which provided Nerolac with an edge over its competitors in the late twentieth century
was the implementation of ERP and data warehousing solutions for all its operationsxii
THE TWENTY-FIRST CENTURY
The competitive strategy for Nerolac for the twenty-first century can be aptly summarized in the words
of Mr. H. M. Bharuka, Managing Director of Kansai Nerolac, Our strategy would be to ride on the
growth, create adequate noise & brand salience, expand distribution at the right counters and offer the
product range that consumers will lap upxiii
The strategies adopted in this period can be summarized as follows -
y It aims to infuse Rs. 600 crores for enhancing its capacity. The increase is going to be to the tuneof 50 per cent and will be done in the next three years time.
y Change in branding strategy which involves moving beyond the proposition of mere aestheticsand highlighting paint-related environmental issues. To ensure this, the company has increased
its portfolio and the eco-friendly paints have been added to the listxiv
y The company is using top-notch technology to manufacture low VOC (Volatile OrganicCompound), lead-free paints, which help enhance the in-home environment
y Strategic alliance with fashion designer Manish Malhotra to launch 'Colour Styles of 07-08' toconnect with the consumers on a more humane level and ensure that style does not remain only
for the elite but reach more and more people.xv
y The firm also built a vendor portal, a Supplier Relationship management initiative aimed atreducing the procurement cycle time, reducing working capital and strengthening the
relationship with the vendorxvi
Thus, to summarize, the competitive strategy of Nerolac has evolved from essential focus on industrial
and automotive segment to include end-consumers through color capes and Nerolac assured paint
service which have changed the way paint is sold in India.xvii
Thus, we can say that Nerolac has been able to include stringent criteria for its resource allocation
process (prioritizing among technological advancement, ERP, data warehousing) to take strategic actions
(decisions to introduce lead-free paints, unconventional tie-ups etc)
COMPETITIVE ADVANTAGE-
The main competitors in Indian paints industry are Asian paints, Goodlass Nerolac Paints, Berger Paints,
Dulux, Jenson and Nicholson paints and others which includes all the regional and local players. While
regional players fight on basis of price major players fight with innovation, superior quality and variety.
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The following table shows market share (FY 99) for all players:xviii
Goodlass Nerolac was the first to take the lead in industrial markets with a market share of 43%. This
market includes automotive coatings, General industrial coatings and High performance coatings.
Kansai is the market leader in automotive coatings category in Japan. With acquisition of Tata Forbes
part in 1999 and acquiring technology from Kansai, Nerolac has strengthened its position in Automotive
paints category.xixThis range of products include Pre-treatment Chemicals, Electrodeposition (ED)
Technology, Intermediate Coats, Top Coats, Clear coats, Touch up paints, Heat Resistant paints etc.xx
For General Industrial coatings, the company has pioneered R&D to ensure that it manufacturers a wide
range of paints to cater to all industrial needs. Be it Drums and Barrels, Cylinders, Helmets, Fans,
Furniture, Beverages Industry, Steel and Aluminium substrates; it has products for all these industries
and much more xxi
Nerolac follows a customer centric approach with rich experience while working closely with its
customers in order to provide and implement coating solutions. These products are developed by
prolonged discussions with customers and ensuring that expected deliverables are given on time and
that too with stringent quality measures fully ensured.xxii
Hence overall in industrial segment, Kansai Nerolac ensures that it maintains its leadership position by
strong R&D focus, dedicated customer focus teams, collaboration with industry leaders for specific
product range. It has several firsts to its credit like introduction of automotive coatings in India, bumper
coatings for automotive industry etc.xxiii
Though the company is behind its competitor Asian Paints in decorative segment, yet it has managed to
create a place for itself in India with it paints in Interior, Exterior, Wood and Metal segment. Its Excel
Total product won Product of the Year award in 2009xxiv. Also it was the one of the pioneers to take out
lead free paints and eliminate the use of hazardous materials in paints.xxv
Company Industrial Market Decorative Market Overall Position
Asian Paints 14.00% 37.00% 33.00%
Goodlass Nerolac(formerly) 43.00% 13.00% 16.00%
Berger Paints 14.00% 11.00% 11.00%
Dulux 8.00% 8.00% 9.00%
Others 21.00% 31.00% 31.00%
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Decorative segment can also be broken down to Premium category (Emulsions), Medium category
(Enamels), Popular segment (Distempers). With Asian paints boasting of Royale rangexxvi
and Dulux
paints having Weather Shield, Dulux velvet touch in Premium rangexxvii
, KNPI has Impressions range of
paints with extensive variety and finish. In this segment the key success factors are service, design and
innovativeness. Gone are the days when customers would paints their homes in festive season,
customers are now looking for varied options, variety etc. Here the customers are not only influenced by
branding of the company but also by their interior decorators and architects. Keeping this in mind,
companies are developing Total solution shops (like Impressions style zone outlets) where consumers
are provided with end to end solutions right from choosing the right kind of paint for their homes to
how the product will look like in their living space.xxviii
To cater to Rural Decorative segment of the country, Asian paints has Utsav and Tractorxxix
range of
Distempers which not only provide wide variety of range and choices but are also very economical.
Asian Paints clearly looks like a winner in this segment with its range and cost benefits over others.
Coming on to Cost leadership and Differentiator matrix, KNPI clearly falls in Differentiator block of the
matrix in industrial segment. Although in spite of being a differentiator, its margins are on lower side as
its main segment is Industrial paints where margins are far lower than decorative segment.
Asian
Paints
2005-06 2006-07 2007-08 2008-09 2009-10
Sales 2777.4 3360.7 4062.8 5003.4 5335.5
PAT 187 272.1 375.2 362.4 774.5
Ratio 7% 8% 9% 7% 15%
Nerolac 2005-06 2006-07 2007-08 2008-09 2009-10Sales 1971.705 1663.739 1613.32 1484 1226
PAT 165.5 98.59 119.79 108 139
Ratio 8% 6% 7% 7% 11%
To Summarize, Nerolac can be seen as following a differentiation strategy while Asian Paints follows a
cost leadership strategy.
INDUSTRY TRENDS AND NEROLACS STRATEGY FIT TO LEVERAGE THESE TRENDS
Fit of the Company's Strategy to industry context - Comparison with competitors strategies, general
trends in the industry and how the company strategy fits in, how the future looks
TREND 1 ROBUST GROWTH IN DEMAND WITH GROWTH IN DECORATIVE SEGMENT
HIGHER THAN GROWTH IN I NDUSTRIAL SEGMENT
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The significant change that we can look forward to in Indian Paint Industry is the growth in decorative
segment. With rising disposable incomes, more and more number of people entering into middle class,
the demand for decorative segment is definitely going to rise. Currently decorative segment comprises
75% of the overall market. Overall, the growth in Paint demand is related to the GDP growth of India.
With most analysts bullish on Indias growth in next 5 years, increased Government spending on
Infrastructure, more capital investments in manufacturing, paint companies will see a robust growth of
more than 15% according to most estimates.
Nerolacs Strategy to leverage this Opportunity
Traditionally a leader in Industrial Segment and with only 13% market share in decorative segment,
Nerolac has definitely recognized this emerging trend and increased its efforts to expand its revenue
share from decorative segment. With more new products and launch of new stores like Impression
Style Zone Outlets, company wants to increase its presence in this growing segment. Company has also
plans to increase its capacity from 2MT by 40% to cater to the growing demand.xxx
In spite of its efforts,
Asian Paints has significantly higher presence in decorative segment distribution and more brand recall
than Nerolac because of its higher current market share. With a ratio split of 70:30 between repainting
and new construction, Nerolac will be challenged in its efforts to gain market share.xxxi
TREND 2 - CHANGING CONSUMER BEHAVIOR IN DECORATIVE SEGMENT, CONSUMER
BECOMING MORE INVOLVED WITH THE PRODUCT
Over the past decade, paint has become a much more consumer involving product. Instead of a
commodity like white wash, emergence of emulsions and other enhanced products have opened up
numerous options for the buyer. Before finalizing paint, a typical house hold consumer wants to feel the
paint and wants to experiment with different shade combinations before he zeros down on one
product.
Nerolacs response to this emerging trend compared to the response from other competitors
Nerolac has initiated efforts to cater to this change in buyer behavior by setting up a new chain of stores
under the name Impression Style Zone Outlets.xxxii
Currently they have 9 outlets across 3 cities and the
company is claiming them to be the game changers as far as the decorative segment is considered.
However, this effort falls much shorter when compared to the initiatives of Asian Paints which is
currently pursuing this goal far more aggressively. They have opened a special Color Signature Store in
Mumbai. Asian paints also has ambitious plans to expand its current color idea store chain from 12
current 12 stores.
TREND 3 RISE IN VALUE ADDED SERVICES FROM CHOOSING THE RIGHT COLORS TO
APPLICATION SUPPORT
With customers looking for more than just paint, both companies have started to provide end to end
painting solutions to the customer instead of selling paint as a product. Nerolac is backing on its Home
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stylers initiative which gives guidance on different kinds of paint and help the consumer in choosing the
right colors; Home Canvas compliments this service which allows the costumers to compare different
shades in the different parts of their house. Asian Paints has gone one step ahead in providing guidance
and a Paint Calculator which helps the consumers in estimating the cost of the product. Kids world and
makeover idea section of their website attempts to target high end consumers and give more than just
paint.
TREND 4 TECHNOLOGICAL IMPROVEMENTS WILL CONTINUE TO PLAY A CRITICAL ROLE
This is one trend which, in our opinion, will be to the advantage of Kansai Nerolac. With more customer
awareness about ill effects of different additives like lead, Nerolac has taken the lead to remove harmful
chemicals like lead, arsenic etc. It has already made its entire range of decorative segment lead free and
working on more environment friendly range of products. With support from Kansai based in Japan, it
has been able to stay ahead in technological improvements over its rivals and enjoys the leadership
position in Industrial Paints category with 42% market share because of its ability to deliver complex and
advanced products to sophisticated buyers of this segment.
TREND 5 - UNORGANIZED SECTOR LOSING SHARE TO ORGANIZED SECTOR -
Because of all the above mentioned trends, it is becoming increasingly difficult for unorganized players
(around 2000) to compete with organized players. Moreover the drop in excise duty from 40% to below
20% has altered the cost structure in favor of organized players. This will mean that the demand will be
even higher and Nerolacs intent of capacity addition will enable it to cash on this advancement.
i http://www.nerolac.com/about/origin-evolution
iihttp://www.nerolac.com/about/it-pillar
iiihttp://www.nerolac.com/about/quality-safety
ivhttp://www.ibef.org/download/KANSAI_PAINTS_COMPANY.pdf
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vhttp://www.nerolac.com/about/corporate-values
vihttp://www.ibef.org/download/KANSAI_PAINTS_COMPANY.pdf
viihttp://www.specialchem4coatings.com/news-trends/displaynews.aspx?id=2433
viiihttp://archives.digitaltoday.in/businesstoday/20050327/cover7.html
ixhttp://business.mapsofindia.com/india-company/k/kansai-nerolac-paints.html
x
http://www.nerolac.com/about/origin-evolutionxihttp://www.hinduonnet.com/businessline/iw/2000/09/03/stories/0503e052.htm
xiihttp://www.expresscomputeronline.com/20020729/esi7.shtml
xiiihttp://www.indiainfoline.com/Markets/News/Interview-with-H.-M.-Bharuka-Managing-Director-Kansai-
Nerolac-Paints/5072571581xiv
http://www.stockwatch.in/kansai-nerolac-invest-rupees-600-crore-production-enhancement-28267xv
http://www.dnaindia.com/money/report_manish-malhotra-joins-hands-with-nerolac-paints_1124239xvi
http://www.informationweek.in/EDGE/09-06-01/Kansai_Nerolac_Paints_Limited.aspxxvii
http://www.indiainfoline.com/Markets/News/Interview-with-H.-M.-Bharuka-Managing-Director-Kansai-
Nerolac-Paints/5072571581xviii
http://members.tripod.com/~Umesh_R/paintsprojects/marketscenarioxix
http://www.nerolac.com/products/automotive-paintsxx
http://www.nerolac.com/products/automotive-range-of-productsxxihttp://www.nerolac.com/products/general-industrial-coatingsxxii
http://www.nerolac.com/products/high-performance-coatingsxxiii
Annual Financial Results 2010- page 10- From- http://www.nerolac.com/financialsxxiv
Annual Financial Results 2010- page 5- From- http://www.nerolac.com/financialsxxv
Annual Financial Results 2010- page 13- From- http://www.nerolac.com/financialsxxvi
http://www.asianpaints.com/applications/decorative_selector_result.aspx?SelSurface=Interior%20Walls-
Emulsions&SelBrand=0&newprod=xxvii
http://www.dulux.in/interior_paints.jspxxviii
Annual Financial Results 2010- page 13- From- http://www.nerolac.com/financialsxxix
http://www.asianpaints.com/applications/decorative_selector_result.aspx?SelSurface=Interior%20Walls-
Distempers&SelBrand=0&newprod=xxx
Kansai Nerolac plans Rs 400 capacity ramp up available at http://www.business-
standard.com/india/news/kansai-nerolac-plans-rs-400-capacity-ramp-up/87652/onxxxiLalitha Rao interviewing Ramakanth V. Akula available at http://www.projectsmonitor.com/CHEM/the-indian-
paint-industry-will-grow-by-1820-every-yearxxxii
Annual Report of kansai Nerolac available at http://www.nerolac.com/financials