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Kansai Nerolac Paints Ltd.

BSE: 500165 Sector: Consumer
NSE: KANSAINER ISIN Code: INE531A01024
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NSE 00:00 | 22 Sep 618.80 -1.10
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OPEN 625.00
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VOLUME 37053
52-Week high 679.60
52-Week low 461.85
P/E 54.19
Mkt Cap.(Rs cr) 33,323
Buy Price 0.00
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Sell Price 0.00
Sell Qty 0.00
OPEN 625.00
CLOSE 620.15
VOLUME 37053
52-Week high 679.60
52-Week low 461.85
P/E 54.19
Mkt Cap.(Rs cr) 33,323
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Kansai Nerolac Paints Ltd. (KANSAINER) - Director Report

Company director report

Dear Members

The Directors of your Company are pleased to present the 101st Annual Report andthe Audited Financial Statements (Standalone and Consolidated) for the year ended 31stMarch 2021 ("year under review / FY 2020-21").

The section on Management Discussion and Analysis includes a review of the financialperformance of the Company – Financial Highlights of the Company's standalone financialratiosand the results key dividend declared / recommended by the Directors. It alsoincludes the particulars of the subsidiaries of the Company including overseassubsidiaries and their performance during the year under review.

1. Management Discussion and Analysis

Introduction

Established in 1920 Kansai Nerolac Paints Limited ("KNPL") is one ofIndia's largest Coatings companies with leadership in industrial coatings. In line withits stated strategy and objective KNPL has built organisation capabilities to expand itshorizons into new product segments and new regions while strengthening its core oftechnology and service orientation to provide revolutionary and best-in-classproducts to its customers. The Company has ventured into new segments such as High-endWood Coatings Adhesives Construction Chemicals and HygieneProducts.KNPLisoneofthemosttrustedbrandsintheindustry and stands for quality ingenuityand excellence. Apart from its primary operations in India KNPL operates in Nepal SriLanka and Bangladesh.

Marking The Centenary – 100-Year Celebrations

Founded in 1920 as Gahagan Paints and Varnish Co Ltd with a paint manufacturing unit inLower Parel Mumbai KNPL crossed the glorious 100-year milestone on 2nd September 2020.The Company is now a subsidiary of Kansai Paint Co. Ltd. Japan ("KPJ"). It hasbeen a journey of not only resilience but also pure resolve from one pandemic (Spanish Flu1920) to another (COVID-19). The Company maintained its technological leadership over thedecades through continued focus on pioneering innovative revolutionary and globallybest-in-class products in diverse market segments. It brought world-class technology toIndia in the areas of automotives powder coatings and high-performance coatings. Itpioneered environment consciousness through the introduction of heavy-metal-free paints bydesign and low-VOC paints.

As we turn a century we have renewed ourselves through our Purpose Vision MissionBrand promise and Brand expression. We have also changed our corporate identity/logo tocapture the spirit of positive change and re-evaluation that we encourage as a brand. Ournew logo highlighted by the Swirl underlines the connect with Change (transformationhighlighted by the swirling circle) and Care underscoring our new tag line of‘Colours that Care'. The endless possibilities triggered by this marriage of Changeand Care showcase the constant evolution of the Company towards something better.

Industry Progress

COVID-19 has been the most disruptive event in recent memory for the Indian paint andcoatings industry. Due to the nationwide lockdown restrictions imposed to combat thespread of the COVID-19 demand was suppressed in the first half of the year.

Following the easing of COVID-19-related restrictions demand conditions improved inthe second half of the year. New construction and renovation as well as strong holidaydemand bolstered the recovery. The manufacturing and construction sectors have also shownsigns of improvement.

While raw material prices were soft during the initial months of the year the secondhalf of year saw inflationary pressures mainly due to global supply-demand gapsforce majeure and shipping-line disruptions and delays.

The implementation of the COVID-19 vaccination campaign augurs well for a broad-basedand well-established domestic demand recovery.

Financials

Financial Highlights

A summary of the Company's standalone financial results for the year ended 31st March2021 (FY 2020-21) results for the previous year vis-a-visstandalone financial FY2019-20 is as under:

Rs. in Crores
FY 2020-21 FY 2019-20
Revenue from Operations 4690.00 4943.17
Profit before Depreciation Interest Exceptional Item or material orders passed by and Tax (PBDIT) 833.08 781.62
Less: Depreciation and Amortisation 138.97 119.88
Profit Before Interest Exceptional Item and Tax 694.11 661.74
Less: Finance Cost 7.49 5.00
Less: Exceptional Item 10.82
Add: Other Income 38.71 26.86
Profit Before Tax (PBT) 714.51 683.60
Less: Tax Expense 183.52 148.20
ProfitAfter Tax (PAT) 530.99 535.40
Other Comprehensive Income (Net of Tax) 0.19 (1.02)
Total Comprehensive Income for the year 531.18 534.38

Revenue from Operations for the year aggregated to 4690.00 Crores as compared toRs.4943.17 Crores for the previous year reflecting a de-growth of 5.1%. Till YTDDecember 20 there was a deflation however there 2020-21 resulting in overall was a steepinflation inflation for the year. Raw material prices also increased due to globalshortages.

During the year Company took major steps to reduce operating costs. Cost reduction wasachieved through innovative ideas renegotiations and strong budgetary control. Theseinitiatives resulted in improvement in the bottom line.

PBDIT (before exceptional item) for the year was higher at Rs.833.08 Crores compared toRs.781.62 Crores reflecting a growth of 6.6%.

Depreciation for the year was at Rs.138.97 Crores which was higher compared to theprevious year Rs.119.88 Crores mainly due to project capitalisation and addition in Rightof Use assets. Other income was higher at Rs.38.71 Crores as compared to Rs.26.86 Croresof the previous year. Increase was due to higher deployment of surplus funds in mutualfunds & fixed deposits.

In the current year we had provided for impairment loss towards our investment insubsidiary viz. Kansai Paints Lanka (Private) Limited amounting to Rs.10.82 Crores.

PBT (before exceptional item) for the year was Rs.725.33 Crores as compared toRs.683.60 Crores of the previous year reflectinga growth of 6.1% over previous year. PATis lower at Rs.530.99 Crores compared to Rs.535.40 Crores resulting in de-growth of 0.8%.

There is no amount proposed to be transferred to any reserves.

The Company has not accepted any deposits covered under Chapter V of the Companies Act2013 during the year.

There are no significant

Regulators Courts or Tribunals against the Company which could impact the goingconcern status and Company's operations in future. There is no corporate insolvencyresolution process initiated under the Insolvency and Bankruptcy Code 2016. There hasbeen no failure to implement any Corporate Action. There has been no change in the natureof business during the year. There have been no material changes and commitmentsaffectingthe financial position of the Company which have occurred between the end of thefinancial year of the Company to which the financial statements relate and the date ofthis report.

Dividend

The Board has recommended a final dividend of 400% (Rs.4.00 per share) which includesspecial dividend of 200% ( Rs.2.00 per share) for the year in addition the Company haddeclared interim dividend of 125% ( Rs.1.25 per share) paid on 27th November 2020.Accordingly the total dividend is 525% (Rs.5.25 per share) for the financial year ended31st March 2021 as compared to total dividend of 315% (Rs.3.15 per share) declared lastyear.

Key Financial Ratios

Key Ratios 2020-21 2019-20 Difference % Change Explanation
Debtors Turnover (No. of Days)... 45 42 3 7.1%
Inventory Turnover (No. of Days) 114 118 -4 -3.4%
Interest Interest cost on account of lease accounting as per Ind AS 116.
Coverage
Ratio 93 132 -39 -29.5%
Current Ratio... 3.0 3.4 -0.4 -11.3%
Debt Equity Ratio - - - -
Operating Profit Margin (%) 14.6% 15.7% -1.1% -6.8%
Net Profit Margin (%) 11.3% 10.8% 0.5% 4.5%
Return on Net Worth (%).. 13.0% 14.1% -1.1% -8.0%

Subsidiaries and Consolidated Financial Statements

In terms of the provisions of Securities and Exchange Board of India (ListingObligations and Disclosure Requirements) Regulations 2015 ("SEBI ListingRegulations") the Board has approved a Policy for determining material subsidiaries.The same is also available on the website of the Company at www.nerolac.com. Further interms of the said policy the Company does not have a material subsidiary.

Indian Subsidiaries

a. Marpol Private Limited

The Revenue from Operations was lower at Rs.58.01 Crores as compared to Rs.59.03 Croresof the previous year.

PBDIT for the year stood at 9.5%. Profit After Tax (PAT) Rs.2.63 Crores (FY 2019-20:Rs.2.90 Crores).

b. Perma Construction Aids Private Limited

The Revenue from Operations was at Rs.35.94 Crores compared to Rs.35.23 Crores of theprevious year. PBDIT for the year increased to 13.3% from 9.7%. Profit After Tax (PAT) isRs.3.52 Crores (FY 2019-20: Rs.2.28 Crores).

c. Nerofix Private Limited

Private Limited (Nerofix) started operations in Nerofix December 2019 and achievedRevenue from Operations of Rs.69.98 Crores in FY 2020-21. PBDIT for the year was at 3.1%.Nerofixincurred a loss of Rs.3.71 Crores during the year. Nerofixhas plans to expand thisbusiness and become a noticeable player in this category.

d. Merger of wholly-owned subsidiaries with the Company The Company had conductedNational Company Law Tribunal (NCLT) convened meeting of the members of the Company on20th October 2020 wherein the consent of the members had been obtained for the merger ofMarpol Private Limited and Perma Construction Aids Private Limited both wholly- ownedsubsidiaries of the Company with the Company. The merger process is on and petition formerger has been filed by the Company and the subsidiaries with NCLT.

Overseas Subsidiaries:

a. Operations in Nepal During the year the Revenue from Operations of KNP JapanPrivate Limited the subsidiary of the Company in Nepal was lower at Rs.68.46 Crores ascompared to Rs.85.09 Crores of the previous year. PBDIT for the year improved from 16.1%to 18.0% on Y-o-Y basis. Profit After Tax is Rs.10.24 Crores as compared to Rs.10.34Crores in the previous year.

b. Operations in Sri Lanka

The Revenue from Operations of our subsidiary in Sri Lanka Kansai Paints Lanka(Private) Limited (KPLPL) for the year was Rs.15.17 Crores as compared to Rs.12.19 Croresduring the previous year. KPLPL incurred a loss of Rs.7.68 Crores during the year ascompared to loss of Rs.10.00 Crores during the previous year. During the year the Companyhas made additional equity infusion of Rs.12.00 Crores.

c. Operations in Bangladesh

The Revenue from Operations of our subsidiary in Bangladesh Kansai Nerolac Paints(Bangladesh) Limited (Formerly known as RAK Paints Limited) (KNPBL) for the year wasRs.163.52 Crores as compared to Rs.135.30 Crores in the previous year. PBDIT for the yearimproved from 2.9% to 6.0% on Y-o-Y basis. KNPBL incurred a loss of Rs. 6.09 Croresduring the year as compared to loss of Rs.9.27 Crores during the previous year. During theyear the Company has made additional equity infusion of Rs.14.34 Crores.

Consolidated financial statements of the Company as on 31st March 2021 are prepared inaccordance with applicable Accounting Standards and form a part of this Annual Report. Allthe subsidiaries of the Company as on 31st March 2021 have been considered in thepreparation of consolidated financial statements. Further a separate statement in FormAOC-1 containing the salient features of the respective financial statements ofsubsidiaries of the Company forms part of this Annual Report. Also Annual AuditedFinancial Statements of all subsidiaries of the Company are available on the website ofthe Company i.e. www.nerolac.com.

Segment-wise performance

KNPL has only one segment of activity namely "paints" in accordance withthe definition of "Segment" covered under Indian Accounting Standards (Ind AS)108 on Operating Segments. The performance of the Company is discussed in this Report.

Marketing

Decorative Paints

New Long-term Roadmap for the Decorative Paints Business

The year saw KNPL re-visit its approach to the Decorative Paints market. A long-termroadmap has been evolved.

As part of this initiative the business is being restructured under verticals such asRetail for the Nerolac range and Retail for the Soldier range Institutional and newbusiness segments. Various initiatives around unique to category products markets anddistribution would now be undertaken as part of the roadmap. Amongst the initiativesto be undertaken are a new thrust on rural areas as well as experimentation with newdistribution models. The Company would also look at entering painting services.

Foray into new product lines and segments

In line with its stated strategy KNPL has been making strategic investments in the newbusinesses of Adhesives Construction Chemicals and High-end Wood Finishes. move ahead onthe path of becoming

For Adhesives it entered into a strategic JV with Polygel last year to set up a newcompany "Nerofix" to tap the B2B and B2C adhesives markets. During the year theCompany undertook many initiatives around strengthening and augmenting its product rangesecuring traction duringvarious OEM approvals developing connect with carpenters andstrengthening distribution.

For Construction Chemicals KNPL had acquired Perma Construction Aids Private Limited.It also launched a range of products under the Nerolac Perma Brand.

During the year many products were introduced and distribution strengthened as KNPLsharpened its strategic focus in this segment. With these investments KNPL acanconfidently significant player in this space.

For High-end Wood Coatings KNPL had inked an agreement with the Italian company ICROCoatings.

The product range has gained significant year. To ensure a strong presence in woodcoatings the Company is augmenting its wood-coatings manufacturing capability through anew facility at Jainpur.

A separate organisation structure has been put in place to drive these businesses.

Product Launches in Health & Hygiene

Keeping to its brand promise of "Colours that Care" KNPL is dedicatedto developing products in the segment of health & hygiene. It launched India'sfirstanti-viral paint Nerolac Excel Virus Guard with Japanese Shiqui technology.

The product has excellent antiviral properties and efficacy against different viruses.

Marketing Campaign

During the year KNPL strengthened its Economy Emulsion Portfolio for Interiors andExteriors through a variety of launches. In addition it introduced Suraksha Dust Resistand Beauty Gold washable and anti-bacteria.

In the Soldier range of products catering to the lower end of the market KNPLstrengthened its portfolio through the launch of emulsions. It also introduced CCDmachines for its dealers carrying the Soldier range of products. The Floor Coatings andMetallic ranges introduced last year have been accepted by the market.

KNPL introduced another ground-breaking innovation with the launch of NerolacExcel Multi-Surface Protection Sheets providing anti-viral and anti-bacterial protectionfor highly-used surfaces. The product has been made with Japanese technology and launchedon e-commerce and rolled out in select paint-dealer channels.

In Construction Chemicals KNPL has strengthened its product range through theintroduction of products such as Damp Protect Magic Boost Perma Super 2K and WaterproofLatex.

KNPL has been in forefront in providing healthy and sustainable solutions to customers.It realised the harmful effects of lead and introduced lead-free decorative paints back in2008. In2010itwasthefirstcompany to introduce eco-friendly and low-VOC paints. The newbrand positioning of "Colours that Care" resonates with our philosophy of careand accountability.

Keeping to its brand promise KNPL launched a series of digital films titled‘Aaj Careful toh Kal Colourful' to spread the message that we need to be careful inthe context of the pandemic situation which has gripped the whole world. The campaignwas also amplified across television and radio. An industry-first podcast series on AajCareful toh Kal

Colourful was also launched on Spotify as a part of the campaign.

Digital Marketing

In line with our philosophy of customer focus we have identified the digital space asa thrust area for deepening consumer connect and brand promotion. We have devised atwo-pronged approach for digital marketing:? Drive brand affinity through contentand digital engagementactivations? Creating salience for key focussed products

Influencer Activities

KNPL believes in equitable growth and development of the whole value chain; thepainter community is a crucial partner in this value chain. The Company went an extra mileto support this community during the pandemic crisis. It initiated Aatmanirbhartraining for painters in which they were trained for home-sanitisation services creatingalternative sources of income in the absence of fewer painting jobs and adding one moreskill to their profession. 500 painters were trained in Delhi and Ghaziabad andwere given a sanitisation kit along with a Nerolac disinfectant. Several online trainingprogrammes were also conducted during lockdown benefiting 4000 painters. Safety kitswere provided to one lakh painters.

KNPL launched a unique crowd-sourcing initiative for painters called "Paint theirFuture". This was unique and a one-of-its-kind programme for painters wherestakeholders across the value chain were tapped to support this community during thepandemic crisis. A Rs.25 Lakh COVID fund was generated through this painters'welfare programme.

NexGen

KNPL realises the importance of business partners. It had designed an innovativeprogramme ‘NexGen' for its partners. It is a one-of-its-kind partner-engagementprogramme in the paints industry with the objective of aiding business growth. Thisprogramme is curated on the basis of a deep understanding of trade partners' needs andenables paint dealers access the best in technology and knowhow to improve and growtheir business manifold.

Industrial

KNPL specialises in distinctive services for industrial customers based on decades ofknow-how and experience working with most automotive lines in India.

Due to the pandemic and lockdowns factories were completely shut down. KNPL engagedwith all customers to ensure smooth and safe shutdown of their production lines. Laterthe factories were gradually given permissions by the Authorities to operate atreduced rates. KNPL worked with customers to ensure a smooth start-up of theirproduction lines. It ensured continuity even while the external environment became evermore challenging.

Automotive Coatings

During the year KNPL gained market share among automotive customers within itsexisting customer base as well as through wins of new accounts. Many innovativetechnologies were introduced during the year.

In auto ancillaries for automobile wheels the products introduced by KNPL usingtechnology from group company Kansai Altan Turkey have been well accepted.

Performance Coatings

Under Performance Coatings the Company offers liquid and powder coatings. KNPLcontinues to grow from strength to strength in powder coatings and is the market leader.

Besides conventional coatings the Company's foray in areas like bridges and pipecoatings gained traction during the year. KNPL's range of products like the C5 FluoroPolymer Coatings IPNet Polysiloxane and anti-carbonation systems have yielded goodresults.

In Powder Coatings the Company renewed its focus on high-end functional powders likeRebar Coatings heat resistant powders super durable powders and powders for pipecoatings. KNPL has made good progress in these areas and has gained market share. Bondedmetallic powders developed in the previous year and offering customers the advantages of auniform finish and lower process costs have gained acceptance in the market.

Auto Refinish

Auto Refinish remains one of the key focus divisions under the Industrial CoatingsDivision. The Company continues on the growth path with strategic actions to improvemarket share year-on-year.

The Premium PU brand "Retan" from Kansai Paints Japan is anenvironment-friendly paint high-solids system offering great benefits to paint shops withincreased productivity and profitability. This brand is predominantly well accepted inacross the premium segment.

The Mid-Tier PU brand "Cardea" based on technology from Kansai PaintsAltan introduced last year was launched in different markets during the year. The productprovides a superior finish and performance benefits for retail customers. The brand is nowsoaring to new heights and has now presence across the country in the retail segment.

Perfect Match is one of the flagship brands in the retail segment. The brandprovides channel connect PU products and delivers quick paint-finishing solutions toend-customers. The brand is well established across the retail channel in the country.

Coil Coatings

Over the past few years KNPL had forayed into Coil Coatings in a big way. Withdedicated capacity in place an innovative product range and agile services KNPL hasgarnered market share in this segment. It introduced many innovative products which aretechnology-based such as low-bake coatings uni-coats and super durable coil coatings.During the year KNPL innovated with products such as topcoats with anti-bacterialproperties as well as Clear coats with high gloss at very low thickness. KNPLcontinues to work on expanding its customer base and positioning itself as atechnology player in this market.

Research & Development

KNPL has maintained its leading position in the paint industry by staying ahead ofconsumer needs and providing solutions proactively. With a dedicated facility at Mumbaialong with a satellite facility at its plants R&D is at the core of KNPL's strategyof creating customised and innovative solutions catering to the ever-changing needs of itsvarious customers. The R&D facility focusses on not just creating solutions fortoday's need but works on creating new unique-to-category products which offer long-termvalue to its valued customers. It has developed deep expertise to develop new products andshades with quick turnaround and offering the best value proposition to customers.

KNPL has decades of experience in designing and commissioning various customer lines tosuccessfully run various paint products in the automotive and OEM spaces for both liquidand powder coatings. Together with deep expertise in resin technology and keen workingwith suppliers over many decades KNPL has introduced many technological innovations overthe years which have helped customers improve finish film thickness productivity savepainting time and reduce energy cost based on its deep expertise and R&D strength.The Company has also pioneered many new concepts and innovations in decorative paints. Itstechnology-based products customised for various operating environments offer protectionto many key industries like metals chemicals and petrochemicals among others.

Collaboration with Kansai Paints Japan and Kansai Paint Group Companies and OtherCollaborators

The Company has stayed ahead of the technology curve and maintains its leadership inindustrial coatings. This is because of the strong collaboration and support from Kansai

Paint Co. Ltd. Japan one of the global leaders in the category with several decadesof experience in designing and developing technologies. KNPL works closely with KPJ indeveloping paint and resin formulations customised to Indian customers. It also offersinsights to customers on emerging shade trends across the globe with world-classtechnical support to Indian customers based on experience across the globe.

KNPL also collaborates with Kansai Group companies across the globe to offer Indiancustomers differentiated technologies across a spectrum of end-user industries in theareas of industrial coatings coil coatings ARF and decorative paints.

The Company has a technical assistance agreement with Oshima Kogyo Co. Ltd. Japan tomanufacture heat-resistant coatings; Cashew Co. Ltd. Japan to manufacture coatingproducts MICRON TXL SK-1 and thinner for MICRON; and Protech Chemicals Limited Canada tomanufacture powder-coating products. The Directors record their appreciation for theco-operation from these collaborators.

Emulsions coil coatings rebar coatings pipe coatings high-end wood finishesadhesives and construction chemicals hygiene products and automotive sealants are someof the product segments where the Company is now concentrating its efforts.

Leadership in Industrials Paints:

KNPL's in-house R&D capability coupled with partnerships gives it a hugeadvantage in maintaining its technical leadership in the paints sector. The R&D teamfocusses on its domain expertise and collaborates closely with customers to developlong-term product roadmaps and shade concepts.

R&D also leads the effort to collaborate closely with customers to develop uniqueand customised value-added and value-engineering projects that when combined with productand line knowledge have added significant value to customers in areas like finishimprovement consumption reduction productivity and energy saving.

In the PV segment as the European Union has banned the use of formaldehyde which wasdeclared a toxic substance to fulfil this requirement we have initiated the developmentof low formaldehyde products. In the 1st phase we have implemented low formaldehyde basecoats at one of our precious PV manufacturers' unit.

In the two-wheeler sector on the trend of introducing high-end bikes expectationsregarding coatings performance are much superior to conventional coatings with respect todurability and scratch resistance. We have introduced PU KP 200 HP Clear Coat to meetthese requirements.

For commercial vehicles we have introduced PU High Solid Top Coat which has manybenefits like increased productivity and energy saving. With this technology a product'ssuperior performance can be achieved at lower baking conditions. We have also introducedzero flash off 3C-1B System this technology product can be introduced at the existingpainting set-up without any extra investment. This has helped customers for enhancement ofa superior performance without losing productivity. In addition we have implemented acommon primer for ABS and PP Plastic

Substrate as an inventory-reduction project

Sealants for passenger vehicles is an emerging segment where the Company has directedits research efforts.

Towards that end the Company has developed sealants for automotive customers which hasbeen approved. A dedicated facility is being put in place to cater to this newarea.

Key Developments in Decorative Paints:

The decorative space is exciting with constantly evolving customer needs. KNPL has beenbringing exciting innovations to this market segment based on technology.

With products built on the platform of Healthy Home Paints its products areheavy-metal-free by design and Low VOC.

Building on the brand promise of Colours that Care KNPL is now working to create a newbasket of products that address the emerging trend of functional products. With a range of"smart" coatings it has now developed another unique category product ExcelVirus Guard which has various performance qualities like anti-viral anti-bacteria andpollution abetment properties like Ammonia Formaldehyde SOx and NOx.

Given the thrust of the Company in adhesives construction chemicals and high-end woodcoatings it is rapidly developing new products which can offer differentiated value toend-customers. This year the Company already introduced many products in bothconstruction chemicals and adhesives which have gained good acceptance in the market.

Key developments in Performance Coatings:

Performance Coatings help protect and beautify surfaces in a variety of OEMs andend-user Industries. KNPL has strong demonstrated skills and competency to cater to thiswide variety of end-user industries. In case of construction equipment most of thecolours are very vibrant and achieving good colour and gloss retention is a challenge. Wehave developed a high-durable product system and implemented it at one of our keycustomers overcoming all challenges.

The Company is working on areas such as new coatings solutions for demandinginfrastructure categories like bridges metro-rail and pipelines.

Key developments in Powder Coatings:

Technological leadership in this segment has helped KNPL be the market leader in powdercoatings serving a vast array of industries such as white goods furniture autoancillaries and electricals besides others.

The Company continues to be at the forefront of working closely with customers in Autoas it converts liquid coatings to powder coatings. With electrical vehicles going to bethe future KNPL is working in this emerging space. It has developed a dielectric powderfor use in coating the battery enclosure of 2-wheeler batteries having the property ofelectrical insulation.

R&D is focussed on developing products for niche areas like rebar coatings powdersfor pipe coatings heat-resistant powders and other high-end powder coatings. R&Defforts are also focussed on developing various resin backbones for powder coatings.

Key developments in Coil Coatings:

In coil coatings KNPL has been bringing to the market a differentiated set of productswhich can create differentiated value for customers. Despite entering this space only afew years ago the Company's products are now well accepted. In line with bringingtechnology leadership in this space the Company has developed the Nero Coil anti-bacteriatop-coat. These coil-coating sheets will be used for Hospitals which will help in hygieneimprovement. The R&D efforts of the Company are committed to ensuring thatmarket-share gain in this space.

Key developments in Auto Refinish:

In ARF the Company's R&D efforts are towards creating better products forend-customers using the vast Kansai experience across the globe. Work is being done tocontinue to bring various factory-made shades to end-customers through the Perfect MatchRange. The Company is also working to strengthen its Retan and Cardea ranges of offeringsto the high end and popular PU segment.

This year KNPL introduced an innovative Rapid Cure non-isocyanate PU primer surfacewhich is an isocyanate- free product for human health & safety. This product has theproperty of drying fast which helps start the next process within 30 minutes and reducesthe process time by around 60%.

Collaboration with vendors

KNPL considers its vendors as partners with whom it strives to achieve a win-winsituation. Via a structured coordinated programme it collaborates closely with its mainglobal supplier base various research institutes and academia to develop new ideasproducts and innovations for the future.

Instrument analysis and analytical capabilities

KNPL has a strong R&D talent pool and high-end instrumentation to analyse complexchemicals and provide systematic solutions offering invaluable support to customers. Thecapabilities of the instrument lab have been strengthened by the addition of AtlasCi4400 Xenon Arc Weatherometer at the R&D centre.

Supply Chain

In a year of extremely high uncertainty in the macro environment due to the pandemicdaily new challenges were faced to keep operations running. The year also saw extremevolatility in crude oil prices and exchange rates.

There were a series of proactive measures taken to ensure raw-material andpacking-material supplies and minimise the damage caused due to disruption in the globalsupply chain.

With the single agenda and passion of fulfilling customer needs KNPL ensuredcontinuity of operations for all its customers. At KNPL supply chain excellence is allabout putting in place a more customer-focussed and data-driven planning process tohelp fuel our and our customer's growth. KNPL continues to invest in systems to offerworld-class supply-chain capabilities with a customer-centric approach backed bydata-driven planning systems.

Information Technology

KNPL has always been investing regularly in cutting-edge technologies to help thebusiness gain an additional edge in the market. With the advent of the new age digitaltechnologies it is ready to leverage these technologies to bring in digitaltransformation across the organisation and reap the necessary business benefits from theuse of these technologies.

The lockdown at the beginning of the year saw KNPL embrace Digital in a massive waywith the entire workforce migrating to Digital platforms to facilitate WFH.

This year KNPL began to implement the digital roadmap it had drawn for itself. It hasbeen making rapid progress on pushing an organisation-wide digitisation agenda to improveconsumer responsiveness reliability speed and productivity. Some of the key digitalinitiatives that have been introduced for various stakeholders are:

? Dealers: Introducing a Dealer app ‘SAATHI' aimed at creating adigital bridge between a dealer and KNPL.

? Influe ncers: Introducing an InfluencerApp ‘PRAGATI‘ to . create adigital connect with influencers

??Sales Teams: Use of machine learning and chatbots to generate and guide regardingactionable insights for enhanced effectiveness in the marketplace.

? Employees: A range of apps concerning employee-trainingcompetency-enhancement engagement employee well-being and performance managementthrough gamification.

? Decision-making: Dashboards were developed incorporating visual andpredictive capabilities.

? Automation: Introducing Vendor Invoice Management for automatic billpassing.

? Manufacturing and R&D: KNPL had set up its first

Digital factory using the latest technology at Amritsar. In manufacturing and R&DKNPL is using advanced analytics to drive improvements in formulation developmentformulation cost optimisation for new developments asset utilisation tintingoptimisation formulation optimisation and waste reduction.

? Mobility and Cloud: This year KNPL has embraced Mobility and Cloud in abig way with applications being developed and rolled out using these platforms. This wouldbe further enhanced in the years to come.

People

At KNPL people are the most important asset. It is the employees of the organisationthat create value.

Many efforts are made to engage the energies and enthusiasm of KNPL employees in themost effective way. KNPL strongly believes that it is the employees that make theorganisation successful.

KNPL strives to create an atmosphere of "trust confidence and transparency"for employees. It believes in offering careers.

Employee well-being is an important facet of KNPL's HR focus and this year withthe onset of the pandemic the Company undertook many initiatives to ensure the well-beingand health of its employees.

Pandemic and Employee well-being:

The COVID-19 outbreak engulfed the world in an unprecedented crisis. KNPL adapteditself quickly to the situation to ensure an "employee safety first"environment.

KNPL holds employee well-being in high regard; therefore the corporate communicationsfunction released care bulletins. An advisory guide on corona virus guidelines for travelto work and updated office etiquette were issued biometric machines were discontinued andcrowd-controlling measures were taken even before the implementation of the lockdown andwork from home by the government.

Beginning with setting up a dedicated task-force internally to attend to employeescreating a COVID Site for employees launching a Health and Wellness App KNPL has triedto do its utmost for employee care. Regular interventions right through the lock-down andduring the various phases of opening up HR and the COVID taskforce ensured that employeeconcerns at all levels related to self or family were heard and addressed. Employees wereencouraged to work from home wherever possible and all necessary support for this wasextended to make an effortless transition to the new

WFH environment.

At KNPL plants right from the beginning of the lock-down the plants were safely shutdown and subsequently safely started up following all the safety protocols to create asanitised and safe environment. Clear operating protocols for travel to and fro from theplants and manuals for day-today operations were created and employees trained.

Similar care for taken for all employees operating out of the depots R&D and thehead office. Regular health check-ups were also organised to ensure the health of itspeople.

Employees who were affected by COVID were provided with necessary help and aid toensure their recovery. Help was also extended to the immediate families of the employeesin need.

Competency and Capability Building:

KNPL puts utmost focus on training and skilling its employees. Interventions oftraining extend right from the time an employee joins and continues during the life-cycleof an employee.

For personnel in sales the Company has a multi-step structured training approach toinduct and ensure that a salesperson reaches full capability to lead a team. Inmanufacturing employees are continuously exposed to various facets of process qualitysystems technology kaizen and group projects to develop their skills and capabilities.For personnel working in R&D a detailed training system has been evolved andimplemented to develop the skills and competencies of the R&D personnel.

Leadership training is also imparted to various employee groups. Wherever needed KNPLhas external interventions in various functional areas either through external training orthrough projects with best-in-class companies to upgrade the knowledge and capability ofits employees. These interventions expose the employees to new thinking and concepts andhelps them better cope with the challenges of the environment.

During the year a special focus was launched around Digital to make employeescomfortable in operating new platforms and applications.

As part of the initiative to provide a formal opportunity to managers and employees todevelop themselves various assessment tools were used which gave employees feedback aswell as courses to pursue to improve competency in identifiedareas. The Company launchedthe 1st phase of the Digital University for managers across the Company. The platformprovides content from numerous Ivy League colleges and provides a forum for managers todevelop new competencies in various subject areas.

Nurturing Talent:

The Company is investing in a big way to nurture and develop leaders for the newdecade. Emphasis on competency building structured and experiential learning as well asoutside world exposure is stressed. Many of our employees are being exposed toexternal training programmes and structured interventions including Ivy League schoolexposure to develop themselves.

Communication Platforms:

The Company lays a lot of emphasis on two-way communication with employees.

Digital has helped create a closer working environment with management regularlyinteracting with employees over various matters. Regular updates on performance andstrategic initiatives help employees stay tuned to the latest developments. The Companyhas launched an Internal Communications App I Am Nerolac which keeps employees posted onvarious facets of the organisation.

Functional Connects:

HR lays much emphasis on connecting with employees at a functional level to communicatevarious policies discuss issues around performance management talent developmenttraining-need identification and make employees aware of happenings across the Company andthe Kansai Group.

Performance Management:

KNPL is a professional organisation. We believe in transparency in goals andobjective-setting as well as providing continuous feedback to our employees. This isachieved through KRAs and performance dashboards for our employees in which they canrelate how their KPIs and performance impacts the overall organisation. KNPL also believesin a shared goal towards the larger corporate goal of top line and bottom line withemployees.

Taking performance management a step forward this year the performance managementsystem has been gamified by introducing the NPL (Nerolac Premier League) built around thepopular Cricket concept of IPL.

Community Development

KNPL's emphasis on social responsibility extends to the communities in which it worksas well as society at large.

The Company operates under the principle of making a meaningful contribution to theprogress of humanity by behaving as a good neighbour being considerate of others andacting as a responsible corporate citizen with zeal and compassion. It also aspires to bea responsible corporate citizen by proactively partnering in the cultural social andeconomic growth of societies through use of creative technology goods and practicesoutside the scope of the regular industry.

The Company actively works and engages with communities around its manufacturingfacilities as well as with painters and their families through a variety of interventions.

The organisation participates in Corporate Social Responsibility (CSR) programmesfocussing on societal improvement with special emphasis on events that support thedisadvantaged and vulnerable sectors of society.

The Company strives for overall national growth as well as community development.Involvement of the Company's staff deployed in all regions in CSR programmes tends toinculcate in them a sense of belonging while also building a strong image of the Company.

As a responsible corporation the Company approaches people's social needs consciouslygiving attention to the local communities where it works under different programme heads.All programmes can be broadly defined as follows:

Rural Development / Community Development

The facilitiesgoal is to reach out to people by offering and amenities in the villagessurrounding the plant locations/ depots. Construction and renovation of basicinfrastructure of schools and child care centres.

Preventive Health Care and Sanitation

This programme's goal is to provide facilities that enhance general health care andsanitation. Among them are health camps the provision of toilets in villages publicbuildings and schools provision of clean drinking water and COVID-19 related activitiessuch as periodic sanitisation of common public areas distribution of sanitisers and masksto the villagers.

Promoting Education

To increase the educational level and encourage education in rural areas theorganisation implements a variety of programmes in schools near its plants and depots.Construction of classrooms and science laboratories provision of computers solarinverters clean water facilities and provision of instructional materials such asprojectors benches and tables and inverters among other things are essentialpractices.

Ensuring Environmental Sustainability

The Company is committed to supporting the community in the preservation of naturalresources and in ensuring a clean environment. It has undertaken many projects aimed atmaintaining the ecological balance. These include the development of public parkspainting in village schools plantation tree guards and rainwater harvesting projects toname a few.

Affirmative

The Company has adopted a Code of Conduct for affirmative action to provide employmentopportunities for the socially disadvantaged.

Environment Health & Safety

At KNPL environment health and safety (EHS) is a top priority and an integral partof the Company's value system. We make concerted efforts to be an environmental stewardand ensure the well-being of every employee. As a responsible organisation we continuedto introduce and embrace high-quality practices and programmes to protect the environmentand encourage the highest level of physical emotional and social well-being among ouremployees.

Safety

During these unprecedented times we continued to raise employee awareness and instil asafety culture across the organisation. All locations implemented appropriate safetymeasures not only limited to industrial safety but also to COVID-19 and ensured 100%adherence.

The Company's manufacturing sites except for Amritsar are ISO 45001-certified. TheCompany lays specific emphasis on periodic mock drills and fire drills. Periodic safetyaudits are conducted. The Company conducts operations and process reviews through ProcessHazard Analysis (PHA) and Hazard and Operability (HAZOP) studies. It also has HazardIdentification and Risk Assessment (HIRA) registers at every location to track expectedhazards and analyse risks.

The Company has clocked 25.7 million man-hours without lost-time injury (LTI).

Zero Accidents

In pursuance of a ‘Zero Accident' goal thematic safety online tests trainingsand competitions like Kiken Yochi Training (KYT) Danger Experience Programme (DEP)trainings on static electricity and human-error prevention are conducted across all levelsat regular intervals. Self-learning Safety Training Kiosks with customised trainingmodules are deployed to increase competency and imbibe a safety culture among employees.

We understand behaviour plays an important role as a majority of incidents are causeddue to negligence non-adherence to standards and procedural violations. Aiming to reducebehavioural incidents this year we have developed and introduced an in-houseBehavioural-Based Safety (BBS) training module and initiated BBS observations across allplants.

We have instituted an online system to prevent unsafe conditions report incidents andfor timely closure. We have also set up safety laboratories to demonstrate and experiencehazards related to specific activities. During the year we conducted varioussafety-related studies interlock assessments fire-load surveys and published a revisedchemical-compatibility chart.

At KNPL we consistently study industry-best practices and horizontally deploy themacross all manufacturing locations.

During the year we consumed 7800 kl of rainwater in the process.

Specific water consumption in FY 2020-21 was 1.25 KL/KL of FG compared to 1.4 KL/KL ofFG in FY 2019-20 a reduction of 11% from the previous year. Of the total non-productwater consumed 36% is recycled.

Water and Waste Management

In regards to water and waste management we have adopted a two-way approach: Reductionat source and recycle & reuse.

Water Management

We have water management goals in place and set exacting standards to limit our waterconsumption across the organisation. The aim is to increase the utilisation of recycledand rainwater and reduce freshwater consumption.

During the year we consumed 7800 kl of rainwater in the process. Specific waterconsumption in FY 2020-21 was 1.25 KL/KL of FG compared to 1.4 KL/KL of FG in FY2019-20 a reduction of 11% from the previous year. Of the total non-product waterconsumed 36% is recycled.

During the year we have implemented various water-conservation initiatives likeinstallation of fan-less cooling towers to reduce drift losses faucet-type taps andflow-controllers transition from VAM chillers to SCREW chillers among others. This yearin addition to Lote we have initiated the reuse of rainwater in process at Sayakha. Theseefforts have helped us to successfully achieve our target of reduction in specific waterconsumption compared to last year.

With a long-term strategic goal of becoming a water-positive organisation we intend tofocus not only on reduction of freshwater consumption but also on implementing watershedmanagement projects in neighbouring villages through Corporate Social Responsibility (CSR)to increase water replenishment.

During the year we initiated a water-footprint assessment in line with the WaterFootprint Network to assess our blue green and grey water footprint and identifyopportunities for water reduction.

All plants have achieved ZERO LIQUID DISCHARGE through the installation ofUltrafiltration (UF) Reverse Osmosis (RO) and Multi-effect-Evaporator (MEE) treatmentsystems.

Waste Management

With the changing regulatory landscape and emerging rules it is necessary to managewaste judiciously.

Waste management is another key aspect and of paramount importance. We follow the 3Rprinciple for management of all types of wastes and special precautions are taken tohandle store and dispose of hazardous wastes. Continuous efforts are made to minimiseindustrial waste through adopting and implementing distillation-residue reduction solventrefining sticking-losses reduction and sample resin reuse.

During the year our specific hazardous waste generation decreased by 8.5% from theprevious year.

We have installed bio-composting machines across all plants to convert food waste intogood quality manure. We have also initiated disposal of hazardous waste throughco-processing across all plants to minimise the quantum of waste sent to landfills.

Plastic Waste and Extended Producer Responsibility: During the year special emphasiswas laid on plastic waste. In terms of post-consumer plastic waste we have initiatedefforts under the provision of Extended Producer Responsibility. Also we have takenconcerted steps to reduce incoming plastic waste from suppliers by substituting plasticwith alternative materials or through a take-back mechanism set by the supplier.

Energy and Emission Management

We have continued our energy-saving agenda in FY 2020-21 making a collectiveeffort to minimise our carbon footprint through a number of energy-saving measures andtransitioning towards environmentally-friendly and cost-effective alternatives.

The aim is to gradually reduce our carbon emissions and offset unavoidable carbonemissions to achieve carbon neutrality. During the year we continued to invest inrenewable energy to ensure energy efficiency. In FY 2020-21 46% of our energy (power +fuel) consumed is from renewable sources. 29% of our power consumption is from renewablesources.

Additionally we implemented energy-saving measures which include replacement ofconventional lights with LED lighting installation of a mist cooling tower provision ofinterlocks between dust collector blowers and purging timers timer ad sensorinstallation among others.

As a responsible organisation we conduct tree-plantation drives within and outsidefactory premises on various occasions at all plants round the year. With the currentcarbon sequestration rate we have been able to offset 2% of our total GHG emissions.

Our Scope 1 Scope 2 and Scope 3 emissions have been brought down from 47698 tonnes ofCO2e to 41324 tonnes of CO2e a 13.3% reduction.

Opportunities and Threats

Information for this section can be found in the "Opportunities and Threats"section of the Corporate Overview.

Risks and Concerns

Information for this section can be found in the "Risk and Concerns" sectionof the Corporate Overview.

Outlook

We expect demand to remain positive for the year.

Many favourable factors like demographics nuclear families infrastructure thrust andlower penetration of paint by global standards make the outlook positive over the longterm.

The industry is seeing renewed action with the entry of newer players. This augurs wellfor the industry as it will lead to more innovation. KNPL has taken many strategicinitiatives in the areas of Brand Technology Products Manufacturing DistributionService People Digital and Governance and is confident of meeting the challenges of theemerging tomorrow.

There are small challenges expected in the immediate term due to the second wave ofCOVID-19. However with the vaccine rollout we expect that this would be a short-termhic-cup and the economy will bounce back immediately.

Internal Control Systems and their Adequacy

The Internal Control Systems at KNPL are intended to monitor and control its day-to-dayoperations through regular tracking and reporting. These systems also satisfactorilyscreen consistency to various principles policies and rules and adherence to methodologynecessities.

To strengthen the systems of internal control and provide the Board of Directors withan added ability to oversee internal controls the Company has in place an InternalFinancial Control system in accordance with the requirements of Section 134(5) (e) of TheCompanies Act 2013. Implementation of these systems has been guided by the frameworksuggested in the Guidance Note on Audit of Internal Financial Controls in FinancialReporting issued by The Institute of Chartered Accountants of India to address theCompany's operational and financial risks. In addition the Company's systems are testedthrough automated tools by the statutory auditors.

Control Efficiency Index and Robust Control Index:

The Company continues to monitor its internal audit progress by measuring the Controland the Robust Control Index (RCI). The control measures at KNPL are benchmarked againststandards of efficient control-mechanisms. The Company's internal audit programme focusseson identifying whether gaps arise on account of control design policy design control orprocess deviation IT or regulatory compliances. It also focusses on which controls can beautomated. The Company in turn uses the audit findings to strengthen its internalcontrols.

Compliances:

KNPL has developed a dashboard of key legislation changes that are notified by variousgovernment authorities and is tracked by the management with respect to requirements andimplementation.

The Company tracks all regulatory compliances online through the Legatrix system. Thesystem is updated regularly with all the changes in compliances as they occur.

Online tracking and tracing of completion helps ensure strict adherence to regulations.In addition the Company also tracks any legal cases through the Roznama system.

Cautionary Statement

Statements in this Management Discussion and Analysis section of this report describingthe Company's objectives estimates and expectations may be "forward-lookingstatements" within the meaning of the applicable laws and regulations. Actual resultsmight differ materially from those either expressed or implied.

2. Directors' Responsibility Statement

As stipulated under the provisions contained in Section 134(3)(c) read withSection 134(5) of the Companies Act 2013 (‘the Act') the Board of Directors tothe best of its knowledge and belief and according to the information and explanationsobtained by it hereby states that:

i in the preparation of the annual accounts the required to be Independent Directorsof applicable accounting standards have been followed and there are no materialdepartures;

ii the directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of Company for that period;

iii the directors have taken proper and care for the maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding the assets of theCompany and for preventing and detecting fraud and other irregularities;

iv the directors have prepared the annual accounts of the Company on a going concernbasis;

v the directors have laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and are operatingeffectively; and vi the directors have devised proper systems to ensure compliance withthe provisions of all applicable laws and that such systems are adequate and operatingeffectively.

3. New Projects

The Shareholders were informed last year that the Company's paint manufacturing unit atGoindwal Sahib

Punjab has commenced commercial production. During the financial year 2020-21 theCompany has commissioned its powder coating facility at Goindwal Sahib Punjab woodcoating facility at Jainpur Uttar Pradesh and Cathodic Electro Deposition facility atSayakha Gujarat.

4. Directors

In terms of the provisions of the Act and the Articles of Association of the CompanyMr. Anuj Jain Whole-time Director and Mr. Hitoshi Nishibayashi Non-Executive Directorwould be liable to retire by rotation at the ensuing Annual General Meeting of the Companyand being eligible offer themselves for re-appointment.

None of the Directors is disqualified as on 31st March 2021 from being appointed as aDirector under Section 164 of the Act. As required by law this position is also reflectedin Auditors' Report.

All the Independent Directors on the Board have given a declaration of theirindependence to the Company as required under Section 149(6) of the Act and Regulation16(1)(b) of the Securities and Exchange Board of India (Listing Obligations and DisclosureRequirements) Regulations 2015 ("SEBI Listing Regulations"). In the opinion ofthe Board all the Independent Directors possess the integrity expertise and experienceincluding the theproficiency Company fulfil the conditions of independence as specifiedin the Act and the SEBI Listing Regulations and are independent of the management and havealso complied with the Code for Independent Directors as prescribed in Schedule IV of theAct.

The Company has a Code of Conduct for Directors and senior management personnel. Allthe Directors and senior sufficient management personnel have confirmed compliance withthe said code.

Details with respect to the composition of the Board the meetings of the Board heldduring the year and the attendance of the Directors thereat have been provided separatelyin the Annual Report as a part of the Report on Corporate Governance.

Mr. H. M. Bharuka Vice Chairman and Managing Director resigned with effect from 26thJune 2020 from the Board of Directors of Kansai Paint Co. Ltd. Japan("KPJ") the holding company. He received a remuneration of 20.87 Lakhs duringthe year as a Non-Executive Director of KPJ.

5. Key Managerial Personnel

In terms of Section 203 of the Companies Act 2013 the Company has thefollowing Key Managerial Personnel :

Mr. H. M. Bharuka Vice Chairman and Managing Director Mr. Anuj Jain ExecutiveDirector Mr. P. D. Pai Chief Officer Financial and Mr. G. T. GovindarajanCompany Secretary.

6. Meetings of the Board

The Board met 4 (four) times during the financial year. The meeting details areprovided in the Corporate Governance report that forms part of this Annual Report. Themaximum interval between any two meetings did not exceed 120 days as prescribed inthe Act and the SEBI Listing Regulations.

7. Board Evaluation

In terms of the applicable provisions of the Act and the SEBI Listing RegulationsNomination and Remuneration Committee and the Board of Directors have approved aframework which lays down a structured approach guidelines and processes to be adoptedfor carrying out an evaluation of the performance of all the Directors the Board as awhole and its Committees. The evaluation process has been separately explained in thisAnnual Report as a part of the Report on Corporate Governance.

For the year under review the Board carried out the evaluation of its own performanceand that of its Committees and the individual Directors and the evaluation results ascollated and presented were noted by the Board.

8. Audit Committee

In terms of the provisions of Regulation 18 of SEBI Listing Regulations read withSection 177 of the Act the Audit Committee is constituted as follows:

Names of the Members Designation
Mr. P. P. Shah (Chairman of the Audit Committee) Chairman and Independent Director
Mr. N. N. Tata Independent Director
Ms. Sonia Singh Independent Director

The recommendations made by the Audit Committee to the Board from time to time duringthe year under review have been accepted by the Board.

Other details with respect to the Audit Committee such as its terms of reference themeetings of the Audit Committee and attendance thereat of the members of the Committeeare separately provided in this Annual Report as a part of the Report on CorporateGovernance.

Further detailed information with respect to the other Committees of the Board is alsoprovided in this Annual Report as a part of the Report on Corporate Governance.

9. Statutory Auditors

At the 99th Annual General Meeting of the Company the Shareholders had approved theappointment of S R B C & CO LLP Chartered Accountants (Firm Registration No. 324982E/E300003) as the Statutory Auditors of the Company to hold office for a period of 5 (five)years from the 99th Annual General from the Statutory Auditors Meeting of the Company tillthe conclusion of the 104th Annual General Meeting of the Company in terms of theapplicable provisions of Section 139(1) of the Act read with the Companies (Auditand Auditors) Rules 2014.

The Auditors' Report on the Financial Statements (Standalone and Consolidated) of theCompany for the year under review is clean and there are no qualifications in theirReport. Also no frauds in terms of the provisions of Section 143(12) of the Acthave been reported by the Statutory Auditors in their report for the year under review.The Notes to the Financial Statements (Standalone and Consolidated) are self-explanatoryand do not call for any further comments.

10. Particulars of Loans Guarantees or Investments under Section 186 of the CompaniesAct 2013

Details of Loans Guarantees and Investments covered under the provisions of Section186 of the Act are separately disclosed in this Annual Report as a part of the notes tothe Financial Statements.

11. Related Party Transactions

Related Party Transactions entered into during the year under review were approved bythe Audit Committee and the Board of Directors from time to time and the same aredisclosed in the Financial Statements of the Company for the year under review. Furtherpursuant to the provisions of the Act and the SEBI Listing Regulations the Board ofDirectors has on recommendation of its Audit Committee adopted a Policy on Related PartyTransactions and the said policy is available on the website of the Company i.e.https://nerolac.com/financial/policies.html.

In terms of the provisions of Section 188(1) of the Act read with the Companies(Meetings of Board and its Powers) Rules 2014 and Regulation 23 of the SEBI ListingRegulations all contracts/ arrangements/ transactions entered into by the Company withits related parties during the year under review were in the ordinary course of businessof the Company and on an arm's length basis.

There were no material Related Party transactions during the year. Accordingly FormNo. AOC-2 prescribed under the provisions of Section 134(3)(h) of the Act and Rule 8 ofthe Companies (Accounts) Rules 2014 for disclosure of details of Related PartyTransactions which are "not at arm's length basis" and also which are"material and at arm's length basis" is not provided as an annexure to thisReport as it is not applicable.

12. Corporate Governance

The Company is in full compliance with the requirements and disclosures that have to bemade in terms of the requirements of Corporate Governance specified in SEBI ListingRegulations.

In terms of the provisions of Schedule V(C) of the SEBI Listing Regulations a detailedReport on Corporate Governance forms part of this Annual Report. Further though forbetter readability and easy reference of the Shareholders a Certificate the Companyconfirming compliance with the requirements of Corporate Governance as specified in SEBIListing Regulations is provided together with the Report on Corporate Governance the sameshall be considered to be an annexure to this Report.

13. Remuneration Policy

The Board of Directors has adopted a Policy which deals with (i) criteria fordetermining qualifications positive attributes and independence of a Director and (ii)Remuneration Policy for Directors Key Managerial Personnel and other employees("Remuneration Policy").

The features of the Remuneration Policy are as follows:

• The Company while constituting the Board shall draw members from diverse fieldssuch as finance law management sales marketing architecture administrationresearch corporate governance operations or other disciplines related to the Company'sbusiness. There shall be no discrimination on the basis of gender race ethnicity andnationality while determining the Board composition.

• A Director shall be a person of integrity possesses relevant expertise andexperience. He shall uphold ethical standards of integrity and probity and act objectivelyand constructively. He shall exercise his responsibilities in a bona-fide manner in theinterest of the Company; devote time and attention to his professional obligations forinformed and balanced decision making; and assist the Company in implementing the bestcorporate governance practices.

• An Independent Director should meet the requirements of the Act and the SEBIListing Regulations concerning independence of directors. The Company shall also obtaincertification of independence from the Independent Director in accordance with the Act.

• The objective of the policy is to have a compensation framework that will rewardand retain talent.

• The remuneration will be such as to ensure that the correlation of remunerationto performance is clear and meets appropriate performance benchmarks.

• Remuneration to Key Managerial Personnel Senior Management and other employeeswill involve a balance between fixed and variable pay reflecting short and long termperformance objectives of the employees in line with the working of the Company and itsgoals. The short and long term performance objectives cover amongst various aspectsindustry performance customer performance overall economic environment financialperformance and performance on Environment Social and Governance objectives.

• For Directors the Performance Pay will be linked to achievement of BusinessPlan (achievement of short term and long-term business objective).

For Heads of Department the Performance Pay will be linked to achievement offunctional plan which is derived from the business plan. The functional plan includesboth short-term and long-term objectives.

• The above will take into consideration industry performance customerperformance and overall economic environment.

• For other management personnel the Performance Pay will be linked toachievement of individual set objectives and part of this will also be linked to overall

Company performance.

The Remuneration Policy is also available on the website of the Company athttps://nerolac.com/financial/policies. html#scroll. who

14. Risk Management Policy

The Company has identified the risk areas in its operations along with its probabilityand severity department wise. An effective Risk Management Framework is put in place inthe sufficient Company in order to analyze control and mitigate risk. Risk profiling isalso put in place for all the areas of operations in the Company and well integrated inthe business cycle.

The various risks to which the Company is exposed are disclosed as a part of ManagementDiscussion and Analysis hereinabove.

The Risk Management Framework of the Company comprises of Risk Management Committee andthe Risk Officers.

In terms of the provisions of Regulation 21 of SEBI Listing Regulations the RiskManagement Committee is constituted as follows:

Names of the Members Designation
Mr. H. M. Bharuka (Chairman of the Risk Management Committee) Vice Chairman and Managing Director
Mr. Anuj Jain Executive Director
Mr. Jason Gonsalves Chief Risk Officer

The Risk Management Committee will be reconstituted in accordance with the amendmentsto the SEBI Listing Regulations.

The functional Heads are the Risk Officers of their respective functions. The Board andthe Audit Committee review the effectiveness of the Risk Management framework and provideadvice to the Risk Management Committee at regular intervals.

The functions of the Risk Management Committee include preparation of company-wideframework for risk management fixing roles and responsibilities communicating the riskmanagement objective giving direction for managing cyber security drawing action planand allocating resources determining criteria for defining major and minor risksdeciding strategies for escalated major risk areas updating company-wide Risk registerand preparing MIS report for review of Audit Committee.

The Risk Management Framework aims to:

(a) address our Company's strategies operations and compliances and provide a unifiedand comprehensive perspective.

(b) establish the risk appetite.

(c) be simplistic and intuitive to facilitate a speedy and appropriate identificationof potential and actual risks and its communication.

(d) seek escalation of the identified risk events to the appropriate persons to enablea timely and satisfactory risk response.

(e) reduce surprises and losses foresee opportunities and improve deployment ofresources.

(f) develop a mechanism to manage risks.

Systems and processes are set through the Risk Management framework to identify gaugeand mitigate any potential risk promptly and efficiently and control them effectively.Clearly defined work profiles and assigned responsibilities are well at place throughoutthe organization at all levels and all functions ensuring smooth flow of informationacross various levels within the organization.

15. Vigil Mechanism – Whistle Blower Policy

The Company has a Whistle Blower Policy to report genuine concerns and grievances. Thepolicy provides adequate safeguards against victimisation of persons who use the WhistleBlower mechanism. Details with respect to implementation of the Whistle Blower Policy areseparately disclosed in this Annual Report as a part of the Report on CorporateGovernance. The same is also available on the website of the Company athttps://nerolac.com/financial/ policies.html.

16. Corporate Social Responsibility

The Board of Directors has constituted a Corporate Social Responsibility("CSR") Committee in terms of the provisions of Section 135 of the Act asfollows :

Names of the Members Designation
Mr. H. M. Bharuka (Chairman of the CSR Committee) Vice Chairman and Managing Director
Mr. N. N. Tata Independent Director
Mr. Anuj Jain Executive Director

The functions of the CSR Committee are to:

(a) formulate and recommend to the Board a Corporate Social Responsibility Policywhich shall indicate the activities to be undertaken by the Company in areas or subjectspecified in Schedule VII of the Act;

(b) recommend the amount of expenditure to be incurred on the activities referred to inclause (a); and (c) monitor the CSR policy of the Company from time to time.

There was one meeting of the CSR Committee during the financial year which wasattended by all members of the Committee.

The Board has also framed a CSR Policy for the Company on the recommendations of theCSR Committee and the same is available on the website of the Company at https://nerolac.com/financial/policies.html#scroll.

Pursuant to appeal dated 30th March 2020 by the Secretary of Ministry of CorporateAffairs for contribution to the Prime Minister's Citizen Assistance and Relief inEmergency Situations Fund (PM CARES Fund) the Company had contributed a sum of 4 croreson 31st March 2020 towards the PM CARES Fund. Based on the appeal as aforesaid and legalopinion in respect of recent amendments by Ministry of Corporate Affairs in the Companies(Corporate Social Responsibility Policy) Rules 2014 the Company has set-off excessamount expensed towards CSR in FY 2019-2020 of 2.43 Crores against FY 2020-2021 CSRobligations.

The Annual Report on CSR activities as required under Companies (Corporate SocialResponsibility Policy) Rules 2014 including a brief outline of the Company's CSR Policyis annexed to this Report as Annexure 1.

17. Particulars on the committees of the Board

The details with regard to the composition of the committees of the Board and thenumber of meetings held during the year of such committees as required under SEBI ListingRegulations is separately provided in the Report on Corporate Governance forming part ofthis Annual Report.

18. Dividend Distribution Policy

The Dividend Distribution Policy of the Company has been formulated to ensurecompliance with the provisions of Regulation 43A of SEBI Listing Regulations.

The Board of Directors will assess the Company's financial requirements includingpresent and future organic and inorganic growth opportunities and other relevant factorsas mentioned in this policy before declaring dividend in any financial year.

The Board may consider not declaring dividend or may recommend a lower payout for agiven financial year after analyzing the prospective opportunities and threats or in theevent of challenging circumstances such as regulatory and financial environment.

The Dividend (including interim and/or final) for any financial year shall be declaredor paid by the Company for any financial year out of the profits of the Company for thatyear arrived at after providing for depreciation in accordance with the provisions of theAct or out of the profits of the Company for any previous financial year(s) arrived atafter providing for depreciation in accordance with the provisions of the Act andremaining undistributed or out of both. The Company may before the declaration of anydividend in any financial year transfer such percentage of its profits for that financialyear as it may consider appropriate to the reserves of the Company.

The Company shall follow the provisions of the Act and all the relevant rules andregulations issued thereunder and/ or any regulatory enactment(s) as may be applicablewhile declaring and paying dividend for any financial year.

The rate of Dividend shall be fixed by the Board of Directors of the Company. Finaldividend proposed by the Board of Directors if any would be subject to the approval ofthe shareholders at the Annual General Meeting.

The Board of Directors shall recommend dividend in compliance with this policy theprovisions of the Companies Act 2013 and Rules made there under and other applicablelegal provisions.

The Company will consider various internal and external factors including but notlimited to the following before making any recommendation for dividends:

i. Internal financial factors:

a. Profitable growth of the Company and year as compared with previous years andinternal budgets

b. Cash flow position of the Company

c. Accumulated reserves

d. Stability of earnings

e. Future cash requirements for organic growth/ expansion and/or for inorganic growth

f. Contingent liabilities

g. Deployment of funds in short term marketable investments and/or long terminvestments

h. Capital expenditure(s) and

i. The ratio of debt to equity.

ii. External factors:

a. Economic environment

b. Cost and availability of alternative sources of financing

c. Inflation rate

d. Industry outlook and stage of business cycle for underlying businesses

e. Prevailing Taxation Policy or any amendments expected thereof with respect toDividend distribution

f. Changes in the Government policies industry specific rulings & regulatoryprovisions and

g. Any other relevant factors that the Board may deem fit to consider before declaringDividend.

history and track record of previous Dividends distributed by the Company. The Boardmay additionally recommend special dividend in special circumstances.

Subject to the applicable regulations the Company's retained earnings shall be appliedfor:

• Funding inorganic and organic growth needs including working capital capitalexpenditure repayment of debt etc.

• Buyback of shares subject to applicable limits

• Capitalisation of shares

• Issue of Bonus shares

• Payment of Dividend in future years

Investment in new business(es) and/or additional investment in existing business(es)

• General corporate purposes including contingencies

Any other permissible usage as per law.

The Company currently has only one class of shares viz. Equity shares for which thispolicy is applicable. The policy will be subject to review if and when the Company issuesdifferent classes of shares.

The Dividend Distribution Policy of the Company is also available on the website of theCompany at https://nerolac. com/financial/policies.html#scroll.

The declaration of dividend by the Company is in compliance with the DividendDistribution Policy.

19. Prevention of Sexual Harassment at workplace

In line with the provisions of the Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013 ("POSH Act") the Company has adopted a"Policy on Appropriate Social Conduct at Workplace". The policy is applicablefor all employees of the organization which includes corporate office branches depotsand manufacturing locations etc. The policy is applicable to non-employees as well i.e.business associates vendors trainees etc.

The Company has complied with provisions relating to the constitution of InternalComplaints Committee under the POSH Act to redress complaints received on sexualharassment as well as other forms of verbal physical written or visual harassment.

During the financial year under review the Company did not receive any complaints ofsexual harassment and no cases were filed under the POSH Act.

20. General Shareholder Information

General Shareholder Information is given as Item No. 11 of the Report on CorporateGovernance forming part of this Annual Report.

21. Particular regarding Employees Remuneration

Disclosure comprising particulars with respect to the remuneration of directors andemployees as required to be disclosed in terms of the provisions of Section 197(12) ofthe Act and Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel)Rules 2014 is annexed to this Report as Annexure 2.

22. Conservation of Energy Technology Absorption & Foreign Exchange

The statement giving the particulars relating to conservation of energy technologyabsorption and foreign exchange earnings and outgo as required in terms of Section 134(3)(m) of the Act read with Rule 8(3) of the Companies (Accounts) Rules 2014 is annexed tothis Report as Annexure 3.

23. Share Capital

The paid up Equity Share Capital as at 31st March 2021 stood at 53.89 Crores. Duringthe year under review the Company did not issue any Equity Shares. Further the Companyhas not issued any convertible securities or shares with differential voting rights norhas granted any stock options or sweat equity or warrants. There has been no change in thecapital structure of the Company during the year.

24. Annual Return

Pursuant to Section 92(3) read with Section 134(3)(a) of the Act the Annual Return ason March 31 2021 is available on the website of the Company in the following link https://www.nerolac.com/our-financial-results.html

25. Details of Unclaimed Suspense Account

Details pertaining to Unclaimed Suspense Account of the Company are separatelydisclosed in this Annual Report as a part of the General Shareholder Information.

26. Investor Education and Protection Fund ("IEPF")

Transfer of Unclaimed Dividend to IEPF

During the year under review dividend amounting to 11.14 Lakhs that had notbeen claimed by the shareholders for the year ended 31st March 2013 was transferred tothe credit of IEPF as required under Sections 124 and 125 of the Act.

Unclaimed dividend as on 31st March 2021

As on 31st March 2021 dividend amounting to 2.37 Crores has not been claimed byshareholders of the Company Shareholders are required to lodge their claims with theRegistrar and Share Transfer Agents of the Company i.e. TSR Darashaw Consultants PrivateLtd. (formerly known as TSR Darashaw Ltd.) for unclaimed dividend.

Pursuant to the provisions of Investor Education and Protection Fund Authority(Accounting Audit Transfer and Refund) Rules 2016 (as amended) the Company hasuploaded the details of unpaid and unclaimed amounts lying with the Company as on 31stMarch 2020 on the website of the Company i.e. www.nerolac.com. The same are alsoavailable with the Ministry of Corporate Affairs.

Transfer of Equity Shares

As required under Section 124 of the Act 48120 Equity Shares in respect of whichdividend has not been claimed by the members for 7 (seven) consecutive years or more havebeen transferred by the Company to the

IEPF Authority during the financial year 2020-21. Details of such shares transferredhave been uploaded on the website of the Company i.e. www.nerolac.com. The same are alsoavailable with the Ministry of Corporate Affairs.

Nodal Officer

The Company has appointed Mr. G. T. Govindarajan Company Secretary as the NodalOfficer for the purpose of verification of claims filed with the Company in terms of IEPFRules and for co-ordination with the IEPF Authority.

The said details are also available on the website of the Company i.e. www.nerolac.com.

27. Secretarial Audit

Pursuant to the provisions of Section 204 of the Act the Company had appointed JHR& Associates Company Secretaries as the Secretarial Auditor for the yearunder review to conduct the Secretarial Audit of the Company.

The Secretarial Audit Report for the year under review issued by JHR & Associatesis annexed to this Report as Annexure 4. There is no qualification or adverse remark intheir Report.

Further in terms of the provisions of the Circular No. CIR/CFD/CMD1/27/2019dated 8th February 2019 issued by Securities and Exchange Board of India the Company hasobtained the Annual Secretarial Compliance Report for the financial year ended 31st March2021 confirming compliance of the applicable SEBI Regulations and circulars/ guidelinesissued thereunder by the Company.

The Company has complied with the applicable Secretarial Standards issued by theInstitute of Company Secretaries of India.

28. Cost Audit

In terms of the provisions of Section 148 of the Act the Company had appointed D. C.Dave and Co. Cost Accountants (Registration No.000611) as the Cost Auditor to conduct anaudit of its Cost Accounting Records for the financial year 2019-20 pertaining toproducts of the Company as required by the law. The Cost Audit Report submitted by theCost Auditor for the previous year was clean and there was no qualification in theirReport. The same was duly filed with Ministry of Corporate Affairs on 23rd October 2020.

The Company had re-appointed D.C. Dave & Co. Cost Accountants as the Cost Auditorfor the year ended 31st March 2021 and the Cost Audit Report when submitted bythem will be duly filed with Ministry of Corporate Affairs.

Further the Company has re-appointed D.C. Dave & Co. Cost Accountants as theCost Auditor for the Financial Year 2021-22 to conduct an audit of its Cost AccountingRecords pertaining to said products at a remuneration of 250000 plus Goods and Servicetax and out of pocket expenses. The Company is seeking the approval of the Shareholders bymeans of ratification for the remuneration to be paid to D. C. Dave & Co. videResolution No. 5 of the Notice of the ensuing Annual General Meeting. hasCertificate beenreceived to the effect that their appointment as Cost Auditor if made would be inaccordance with the limits specified under Section 141 of the Act and Rules framedthereunder.

29. Business Responsibility Report

A Business Responsibility Report describing the initiatives taken by the Company froman environmental social and governance perspective as required in terms of theprovisions of Regulation 34(2)(f) of SEBI Listing Regulations separately forms part ofthis Annual Report.

30. Acknowledgements

Your Directors wish to express their grateful appreciation for the co-operation andcontinued support received from customers parent company collaborators vendorsinvestors shareholders financial institutions banks regulatory authorities and thesociety at large during the year.

We also place on record our appreciation for the contribution made by our employees atall levels and for their commitment hard work and support in a challenging environment.

For and on behalf of the Board
P.P. Shah
Chairman
Mumbai 7th May 2021

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