Tier 2 & 3 towns have retained their buoyancy: Sameer Nagpal, Shalimar Paints

Shalimar Paints, a more-than-100-year-old brand, has been charting a new growth trajectory, under the leadership of Sameer Nagpal, the Managing Director and CEO of the company. Having 22 years of work experience, he is an acknowledged business leader with multi-functional management experience of diverse businesses in consumer and industrial segments.
 
Since joining Shalimar Paints in May 2013, Nagpal is focussing on developing a clear roadmap for company's growth and is leading the business through several important initiatives to create value for all stakeholders. While acknowledging that the company missed out on the growth phase when the dynamics of the paint industry shifted from protection to decoration, in this interview with Rakesh Rao, Nagpal is confident that Shalimar Paints is on the turnaround path by bringing the focus back on consumer business.
 
How do you view the current market for paints (decorative and industrial) in India?
The Indian paint market is valued at approx. Rs 30,000 crores with about 66% accounted for decorative, while the rest is industrial. The industrial market has been sluggish as most segments have experienced slowdown due to the overall economic environment in the country. The decorative market too is impacted but the extent has been limited. While growth in tier 1 towns has seen a slowdown, tier 2 & 3 towns have retained their buoyancy and are registering double digit growth rates. Overall the paint market tends to grow at 2-3 times GDP which is likely to be maintained.
 
Do you agree that despite being more than century year old company, Shalimar Paints has not been able to leverage its brand to the extent that it should have? How do you plan to change it?
Shalimar Paints will celebrate its 112^th anniversary this year and is India’s oldest paint manufacturing company. We started out as pioneers in the protective coatings segment and have many industry firsts such as high build zinc coatings, radiation resistant coatings for nuclear power plants, polyurethane paint for fighter aircraft and railway coaches, among others. Our brand traditionally has had a very high recall.
 
However, we missed out on the growth phase when the dynamics of the paint industry shifted from protection to decoration, ie industrial to consumer. We continued to focus on industrial and institutional segments where we enjoyed strong credibility. This resulted in the organisation not making adequate investments in brand building, distribution network or point of sale tinting machines. As a result, we could not grow our emulsions business which has been the highest growth segment within decorative.
 
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We are now turning around the business by bringing the focus back on consumer business and have charted a two phase strategy to win our fair share of the market. In the first phase, we are undertaking several internal changes such as correcting our product mix, increasing our channel engagement, improving our distribution efficiency & reach, and refreshing our brand.
 
In the second phase, we will go for segment leadership by launching innovative products that will add value to our consumers in a meaningful way. I believe this industry needs innovation beyond colours and we are currently deep diving into the lives of our consumers to find out their unmet needs and pain points which we could fulfil or address.
 
Are you seeing a surge in demand for your decorative paints in 2013 compared to 2012? Do you see the trend to continue in 2014?
For the industry, the decorative paints segment has been growing faster than the industrial segment, and that holds true for us as well. This growth is driven by changing lifestyles which are resulting in higher frequency of painting and usage of better products. Within the decorative segment, emulsions or the top coat is growing at the fastest rate. We expect this trend to continue.
 
Has slower growth in manufacturing sector impacting your industrial coatings business? Are you expecting much better market for industrial coatings in 2014?
Yes, the industrial coatings business has been impacted by slowdown and rise in raw material costs. We do not expect any significant change in the situation in 2014 till a new government is in place and policies become clearer and predictable.
 
Is the demand for paints from rural and tier III cities increasing compared to tier I & II cities?
There has been a slowdown in the tier I sentiment. With the government’s focus and spending directed to tier II & III cities and rural areas, the outlook has been positive in these areas and they are registering a much higher rate of growth. In pursuit of better homes, consumers are now moving from cement paints and distemper to emulsions resulting in value sales growing higher than volume sales. With our coverage of over 2000 cities and towns across India, we are already very well penetrated and are benefiting from this demand.
 
Are customer’s inclination towards water-based, eco-friendly paints increasing? Is demand for water-based paints more than solvent-based paints?
World over there is a growing consciousness among consumers to use environment friendly products, especially when it comes to products in their household and personal space. The same reason extends to paints. Volatile Organic Compounds (VOCs) are the main solvents in oil based paints that affect the quality of indoor air.
 
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Water based paints, which are low on VOC, are good from health and environment standpoints. Earlier, the lack of availability of such products, prohibitive costs and absence of options led to muted demand, especially in the Indian context. Now, there is a growing segment of Indian consumers who are demanding green products.
 
Oil prices have stayed high for quite some time. At the same time Rupee has witnessed high depreciation in 2013. Has these factors adversely affected your business? How are you plan to neutralise these effects?
Paint costs are significantly impacted by the oil prices and there is a large import content in our products. Both the oil prices and rupee depreciation have impacted our profitability this year. We have taken a couple of price hikes this year to partly neutralise the impact of some of these costs. We hope these prices will stabilise on a go-forward basis.
 
Your outlook for Shalimar Paints in 2014-15
We believe next year will be a good year for Shalimar. There is a huge gap of 10x between consideration and actual purchase of Shalimar products, and this offers us a great opportunity. To bridge this, we are taking a number of initiatives such as refreshing our brand, improving our reach, launching new products, bringing new initiatives for painters, and augmenting our manufacturing capacity.
 
All these initiatives and a number of internal efficiency improvements will enable us to grow faster than the market in 2014-15.