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Kansai Nerolac Paints: Market Leader in Industrial Paints

Kansai Nerolac Paints Ltd

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(A) About The Company

Kansai Nerolac Paints Limited is the second largest coating company in India and a market leader in Industrial Coatings. It is a subsidiary of Kansai Paints Co. Ltd Japan.

Further, Kansai Nerolac Paints Limited (KNPL) is the third largest decorative paint company with ~12% market share in the organised category.

Moreover, Kansai Nerolac Paints Limited has gained market share in the automotive segment.

KNPL has presence in multiple market segments of the paint market viz. Decorative, Automotive, Auto Refinish, Wood Coatings, General Industrial, Coil Coating, Floor Coating, Performance Coatings and Powder Coatings.

(B) Journey of Kansai Nerolac Paints Ltd

(C) Executive Management - Kansai Nerolac Paints

(i) Mr HM Bharuka - V. Chairman and MD

Mr. Harishchandra Meghraj Bharuka is a qualified Cost Accountant. He holds a qualification of B.Com, A.I.C.W.A., with a varied experience of around 33 years.

Mr. H.M Bharuka has a well experience in Engineering And Paints. He is also expertise for Business Strategy.

His remuneration for FY 21 was Rs 734.60 Lacs i.e. 0.14% of Net Sales and ~1.40% of Net Profit.

(ii) Mr. Anuj Jain - Executive Director

Mr. Anuj Jain is 52 Years old. He holds qualification of B.Sc., and MMS (Marketing). Mr. Anuj Jain has a good knowledge in paints and its components. In Company, He is responsible for managing Sales and Marketing.

His remuneration for FY 21 was Rs 187.61 Lacs i.e.  0.04% of Net Sales and 0.36% of Net Profit.

(iii) Mr. Pradip Panalal Shah - Chairman

Mr. Pradip Panalal Shah is the current Chairman and independent director of the Kansai Nerolac Paints Limited. He is 68 years old and holds qualifications in B. Com, Chartered Accountant, Cost Accountant and MBA from (Harvard Business School).

Mr. P. P.  Shah has a well experience in Finance, Investments, Projects and Consultancy. His expertise is Business Strategy, Financial Analysis.

His remuneration for FY 21 was Rs. 43 Lacs i.e. 0.01%  of Net Sales and 0.08% of Net Profit.

Kansai Nerolac Paints Limited-Mr PP Shah other Directorships

(D) Shareholding Pattern - Kansai Nerolac Paints

Kansai Nerolac Paints Shareholding
Kansai Nerolac Paints - more than 1%

(E) Group Structure of Kansai Nerolac Paints Ltd

Kansai Nerolac Paints Limited-Subsidiaries

Kansai Nerolac Paints Ltd, is a subsidiary of Kansai Paint Co Ltd, Japan. It was founded by Katsujiro Iwai in Japan in May 1918. Kansai Paint is a comprehensive manufacturer of paints and coatings.

Further, the Product include- Automotive Coatings, Industrial coatings, Decorative coatings, Protective coatings and Marine Coatings. They are also present in U.K, Turkey, U.S, Canada, Mexico and UAE.

(F) About Holding Company

Kansai Paint Co. Ltd.

Kansai Paint Co. Ltd., is a Japanese, Osaka-based paint and coatings. Company's main products are automotive, industrial and decorative coatings. The company was founded in 1918.

Moreover, It is one of the world's top eight paint manufacturers with manufacturing sites in over 43 countries and has presence in over 66 countries across the world.

Also, recently the group has been accelerating the pace of globalization and expanding its business activities throughout the world with multiple mergers, amalgamations and greenfield initiatives.

Indeed, it is among the top 5 global automotive paint companies. Also, Kansai Paint Co Ltd is also an industry leader in the research and development of new paint and coatings technologies.

The company has more than 150 subsidiaries and affiliates across the globe.

Kansai Nerolac Paints Ltd - about Holding company

(G) Product Segment and Categorization

Kansai Nerolac Paints product segments

(i) Decorative Segment - Kansai Nerolac Paints

Decorative segment Product offerings include Interior Range, Exterior Range, Designer Range, Enamel, Primers, Wood Finishes, Water-Proofing, Adhesives and Soldier Paints. Namely, decorative paint are used in House, Corporates, Offices, etc

Kansai Nerolac Paints products
Kansai Nerolac Paints industrial coatings

(ii) Industrial segment - Kansai Nerolac Paints

Industrial segment Product offerings include Automotive Coatings, Powder Coatings, Performance Coatings Liquid (General Industrial + High Performance Coating) and Auto Refinish.

Consequently, Industrial Paints are used in Automotive Companies, manufacturing units, Electronic appliances manufacturing company, etc

Moreover, Kansai Nerolac Paints is Leader in Automotive Coatings in India and known for providing complete range of products and solutions for 4-Wheeler, 2-Wheeler, Commercial Vehicles and Tractor Industry.

Further, Under Performance Coatings, the Company offers liquid and powder coatings.

In Powder Coatings the Company has brand NEROCOAT. Further, in this category, the Company renewed its focus on high-end functional powders like Rebar Coatings, heat resistant powders, super durable powders and powders for pipe coatings

In Protective Coatings the Company provides solutions for the unique high-technology requirements of the oil & gas industry, power infrastructure companies, chemical & fertilizer applications, etc.

Further, over the past few years, KNPL had forayed into Coil Coatings in a big way.

Auto Refinish remains one of the key focus divisions under the Industrial Coatings Division.

Kansai Nerolac Paints Limited-Industrial segment

New product lines and segments in FY21

The Company has ventured into new segments, such as High-end Wood Coatings, Adhesives, Construction Chemicals and Hygiene Products.

During FY21, many products were introduced, and distribution strengthened as KNPL sharpened its strategic
focus in Decorative segment.

Also, for High-end Wood Coatings, KNPL had inked an agreement with the Italian company ICRO Coatings.

Additionally, KNPL launched India’s first anti-viral paint, Nerolac Excel Virus Guard, with Japanese Shiqui technology.
The product has antiviral properties and efficacy against different viruses.

Moreover, in Construction Chemicals, KNPL has strengthened its product range through the introduction of products such as Damp Protect, Magic Boost, Perma Super 2K and Waterproof Latex.

Further, in FY21, It entered into a strategic JV with Polygel to set up a new company “Nerofix” to tap the B2B and B2C adhesives markets.

During the year, Nerolac launched 2 new Products in Construction Chemicals Range PERMA Damp Protect - Exterior and Interior.

(H) Revenue Segmentation - Kansai Nerolac Paints

(a) Revenue Segmentation - Product wise

For FY21 the industrial segment contributed around 42% of the total overall sales, while the remaining was contributed by the decorative segment.

Kansai Nerolac Paints Revenue Segment 21

(b) Revenue Segmentation - Geography wise

(I) Manufacturing Facilities - Kansai Nerolac Paints

(a) Manufacturing Plants

The Company has six state-of-the-art facilities at Lote Parshuram (Maharashtra); Jainpur (UP); Bawal (Haryana); Hosur (Tamil Nadu); Sayakha (Gujarat) and Goindwal Sahib (Punjab). Further, each plant is dedicated for manufacturing of specific products/items.

Moreover, Company's Upcoming Plant is going to Setup in Andhra Pradesh.

Kansai Nerolac Paints manufacturing capacity

(b) Manufacturing Capacity

Kansai Nerolac Paints manufacturing capacity

Kansai Nerolac Paints has World Class Manufacturing Systems at its plant locations

During the past Years, Kansai Nerolac Paints Ltd (KNPL) has increased its manufacturing Capacities to provide optimum production of paints to fulfill the overall demand.

In FY21, Company's manufacturing Capacity is 547 million litres. During DY21 Increase in plant capacity is by 29 Million Litres i.e. ~5.5% increase from FY20.

Moreover, For the upcoming Year, Company had planned to increase its manufacturing capacities to 5,49,120 KL/MT.

(J) Distribution Network

Kansai Nerolac Paints Limited-Distribution Network

Kansai Nerolac Paints Limited (KNPL) established a well - Distribution Network. Company has a Pan-India presence in each n every city. In fact, the Company Caters its products through 99 sales locations and offers 29,500+ customers to reach out effectively across regions.

(K) CAPEX - Kansai Nerolac Paints

Kansai Nerolac Paints CAPEX

In Financial Year ending 31st March 2018 Kansai Nerolac Paints acquired 55% equity shareholding in RAK Paints Limited, Bangladesh, for an aggregate consideration of Rs. 42.17 Crores (BDT 50.41 Crores).

Subsequently, in FY21 the Company spent ~Rs 103.79 towards capital expenditure related to various projects. Further, the Capital expenditure (capex) is expected to be Rs 150-175 crore for fiscal 2022 (largely towards expansion of the water-based paint plant in Visakhapatnam, Andhra Pradesh), and is likely to be funded entirely through cash accrual. 

During FY21 the new capacities were commissioned. Specifically, the key capacity additions are as follows:

Kansai Nerolac Paints Capacity additions

IN FY 21 Capacities were added in several product lines viz. coil coating, CED, wood finish and powder coatings

(L) Operational Parameter - Kansai Nerolac Paints

(i) Distribution of income

Kansai Nerolac Paints Limited - Distribution of income

(ii) Advertisement Expense

Kansai Nerolac Paints advertisement expense as % of net sales

Over The Years, Company's Consistently spending on Advertisement and promotion to gain the market share and to build a Strong Brand in The Paint industry.

During the Covid times, It launched a series, of digital films titled ‘Aaj Careful toh Kal Colourful’ to spread the message that we need to stay home and be careful during the pandemic.

(iv) Salaries & Wages Expense

Kansai Nerolac Paints Employee expense

In FY21, Company's spent ~6% of Net Sales on Salaries, Wages And Bonus.

(iii) Cost of Raw Material Consumed

Kansai Nerolac Paints net sales

In FY21, Company's Raw material Consumption Increased to 56.54% of net Sales from the Previous year 54.04%.

Raw material prices were normal during the initial months of FY21, the second half of year saw inflationary pressures, mainly due to global supply-demand gaps and various other factors.

Furthermore, Pigments, binders, additives, and solvents are major components of input raw materials for paint manufacturing. Indeed, several raw materials are directly driven by crude oil.

(iv) Sourcing of Raw Material

Kansai Nerolac Paints Limited - Sources of raw Materials

(M) Financial Parameters

Kansai Nerolac Paints financial parameters

Net Sales grew at CAGR of 7% and PAT grew at CAGR of 8% from 2013 till 2021.

During FY 21, Kansai Nerolac Paints took major steps to reduce operating costs. For instance, Cost reduction was achieved through innovative ideas, renegotiations, and strong budgetary control. These initiatives resulted in improvement in the bottom line.

Moreover, Kansai Nerolac Paints is net debt-free and has sizeable liquid surplus of about Rs 792 Crore as on March 31, 2021. In fact, Capital expenditure (capex) is likely to be funded entirely through cash accruals. Also, the incremental working capital requirement and any capex will be funded entirely through internal accrual, keeping the group net debt-free over the medium term.

Raw material prices were normal during the initial months of FY21, the second half of year saw inflationary pressures, mainly due to global supply-demand gaps and various other factors.

(N) Management Discussion & Concall Highlights

Kansai Nerolac Paints operates in Nepal, Sri Lanka and Bangladesh through acquisitions and joint ventures.

KNPL market leader in the Powder Coating Segment and, the Company has further strengthened its share in segments like Auto Ancillaries and Electricals.

During the Years, KNPL has built organization capabilities to expand its horizons into new product segments and new regions.

In FY21, Hike in Crude and Raw material prices pinched the overall costs for the Company.

The Company has ventured into new segments, such as High-end Wood Coatings, Adhesives, Construction Chemicals and Hygiene Products.

During the year, KNPL gained market share among automotive customers within its existing customer base as well as through wins of new accounts.

Concalls Highlights - Q2FY22

  • Company's market share in auto is close to 60%.
  • Decorative segment contributes 55% of revenues.
  • In the Initial months of FY22 due to Covid and lockdown situation the Company had to suffer, but in Q2 FY22 the revival has been seen which picked the demands.
  • Prices of Crude Oil and Raw Material increased very rapidly which impacted the Cost of production.
  • Further, in Q2FY22, Emulsion Paints and Nerofix (Adhesive) did well; Increased focus towards premium emulsion categories as price hikes does not affect top end products demands.
  • Auto Business Declined due to Lesser Demand from Automobile Sectors/Industry. Thus, the Company has focus to drive segment revenue from non-automotive segment (powder coating, performance coatings).
  • In Industrial segment shortages of semiconductors resulted in production drop mainly in the passenger vehicles segment. This impacted negatively on Company's sale in this segment..
  • The Company has taken certain 6-7% prices hikes due to Inflation in raw materials.

(O) Future Outlook

  • The brand Soldier brand launched by Kansai Nerolac Paints (KNPL) a few years ago has gained good acceptance over the years and will prove to be a vehicle of future growth.
  • In Construction Chemicals and Adhesives, KNPL has a focus on strengthening the Brand and product range.
  • Similarly, in Wood finishes, KNPL entered into a tie-up with Italian company ICRO Coatings, which has a comprehensive
    range of products. KNPL has invested in branding, distribution and capacity to ensure that we are poised to benefit from opportunities in this market.
  • In Industrial, Kansai Nerolac Paints has entered the Sealants and Underbody segment in Automotive. KNPL has chosen to focus on the premium segment in powder coatings as well as functional coatings such as rebar, heat resistant powders and super durable powders.
  • Further, in Performance Coatings, the Company has focused on high end performance coatings in areas like Bridges, Metros and Pipes. KNPL's products have gained acceptance and poised to become growth drivers over the
    coming years.
  • The Paint Industry, is currently experiencing unprecedented changes. New entrants are making inroads. Smaller and niche players are stepping up their game. Private labels can be created by organised service players. New channel models are surfacing. Further, new regulations are increasing the burden on how companies conduct their business. Thus, all these factors as well as changes in consumer behavior necessitate alertness and rapid adaptation to these challenges.
  • The Company entered into Adhesives and Construction Chemicals in the mass market through acquisition of Perma Chemicals and Joint Venture with Polygel. Further, in FY21 the Company also expanded its portfolio of health & hygiene segments.
  • KNPL aims at exploring New Geographies beyond India through acquisitions in Nepal, Bangladesh and establishment of a greenfield JV project in Sri Lanka.

(P) Opportunities

(i) Infrastructure Thrust

The government is expected to continue its push toward infrastructure growth which will provide great impetus to the economy as a result which will boost the demand of paints.

(ii) Rural Thrust

Budget focused on increased spending towards agriculture and increase in income of rural consumer will result in increase in demand of paints.

(iii) New Market sectors

Forays into new opportunity areas with huge potential for growth such as Construction Chemicals, Adhesives, Coil Coatings. Company is expanding its origin in new markets to tap new opportunities.

(iv) Specialty Niches

Specialty products in the form of specialty coating represents an opportunity for the company to leverage its technical strength.

(Q) Strengths

(i) Leading position in the domestic industrial paint segment

Kansai Nerolac Paints Ltd (KNPL) has Strong presence in the domestic industrial industry. Also, the Company is sufficient on the basis of all technological aspects. Moreover Company have healthy relation with major OEMs across the automotive side. Nevertheless, Company's has strong support from its parent Group which helps in dominating in overall market.

(ii) Established position in the domestic decorative paint industry

The Kansai Nerolac group is the third-largest player in the domestic decorative paint segment, which forms 70-75% of the total domestic paint industry. Indeed, the company’s operations are supported by a strong network of 29,500 dealers, 20,000 Color-tinting machines and 99 depots.

The group focuses on premium and innovative brands, such as Nerolac Impressions, Beauty Gold, Suraksha Plus, Etc

(iii) Benefits derived from the parent

Kansai (parent company) is one of the leading paint manufacturing company and among the world's top 10 coating manufacturers. It produces automotive coatings, refinishes, industrial coatings, architectural and construction materials, and marine coating. It is particularly strong in the automotive paints segment.

Secondly, in a sector where technology is a key factor in sustaining market position and determining relationship with OEMs, Kansai has helped the Kansai Nerolac group attain market leadership, retain clients and win new ones.

(iv) Powerful Brand

Nerolac is a well reputed brand, being among India’s Top 40 brands. Moreover, it is established as an iconic and strong consumer brand, with several firsts in the Indian Paint Industry, propelled by sustained investments in brand building. The Company focuses on delivering long-term sustainable value.

(R) Risks/ Threats

(i) Hiked Prices

Raw material expenses in the paints industry account for 60-70% of the operating incomes of most players. Most of the raw materials, including solvents, phthalic anhydride and pentaerythritol, are petroleum products. secondly, the other important raw material is titanium dioxide, a vital pigment used in manufacturing paint and accounts for 20% of raw material cost.

Besides, the group imports some inputs to ensure superior quality. Thus, operating margin remains susceptible to fluctuations in raw material prices and foreign exchange rates.

(ii) Geopolitical

Various geopolitical issues and trade restriction by the Government can certainly affect the growth of the company if the restrictions are not in favor of the company.

(iii) Unpredictable Monsoon

Extended monsoon in India since past couple of years has affected the demand of paints as monsoon affects the paint industry.

(iv) Competition

There are various unorganized players in the paint industry in India and many people are still go to unorganized players and in organized sector there is tough competition between major players. However, Asian Paints is the market leader in decorative paint segment. Further, KNPL aims to drive segment revenue from non-automotive segment (powder coating, performance coatings). Also, its has a focus on improving product mix towards premium products would help drive profitability, going forward.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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