Brand building and distribution expansion are the focus for Berger Paints, as India´s fastest growing paint company aims for an increase in market share.
¨With new cities, structures will come up and there will be an increase in demand for paints.¨
- Abhijit Roy, Managing Director & CEO, Berger Paints
From obscurity to the heights of fame, Berger Paints India has a story to its name. At a wobbly position in 1991 - among the country´s smallest - to being among the largest today, this company has traced the arc of victory. In fact, since 1991, its market cap has risen 2,200 times to Rs 20,000 crore as on June 2016. India´s second largest, among Asia´s top six and among the world´s top 25, it has been felicitated for being the fastest growing paint company for consecutive years by CW. Incorporated in 1923 and headquartered in Kolkata, today the company has one of the largest paint distribution networks in India consisting of over 18,000 channel members and serviced through 150 stock points and 11 production units. With a consolidated revenue of Rs 5,111 crore in 2015-16, the company is present across all key verticals: Decorative (80 per cent of the business), protective, coil, powder and automotive coatings. An ISO 14001 company, its quality products have attained instant recognition globally and continue to exceed the quality requirements of the domestic market.
Launching no more than five to six products a year, Berger believes in introducing select products and communicating them correctly to the market.
It is credited with the proactive launch of new-generation products in various categories, making it one of the fastest growing paint companies in the world in the past decade. Recent successes include Weather Coat All Guard (silicon-enriched exterior emulsion that reverses the effect of rain); Easy Clean (the most washable paint in India with cross-linking polymers ensuring ´No Daag No Dhabba, only beautiful walls´); and Silk Luxury Emulsion. Flagship brands include Luxol Hi Gloss enamel and Bison distemper, which are household names in India.
Express Painting, among the company´s latest innovations, aims to upgrade the painting process with automatic painting machines. Calling it the new-age, end-to-end painting solution, KK Sai, Vice President-Marketing, Decorative Paints, Berger Paints, says, ¨It gives the consumer a faster, cleaner and better painting experience using mechanised tools and skilled painters.¨ For a country like India, where the painting process has typically been manual, dust-ridden and time-consuming, Express Painting is a game-changer. As Abhijit Roy, Managing Director & CEO, Berger Paints, explains, ¨The Express Painting tool set consists of new age painting tools like automatic sander, automatic roller, multipurpose mixer, etc. All the above mentioned tools run on electricity and require minimal manual intervention. Among these, the most widely used tool is the automatic sander, which has an in-built vacuum suction system, which prevents the dust from flying around.¨
What´s more, the company´s factories have received Green Pro Certification from CII and have been certified by the Indian Green Building Council. ¨This is an important landmark for our factories and products because our products are low-VOC and, along with other green practices, the innovative process conserves energy,¨ says Sai.
The company boasts of an R&D headed by personnel experienced in product and emulsion development. With multiple business lines in protective coatings, construction chemicals, etc, there is a dedicated R&D team for each of the businesses, and this becomes the basis of new launches. ¨The marketing team studies the market in terms of the need and discusses the same with the R&D team, and these result in products that meet customer requirements,¨ says Sai. So, the idea emanates from the marketing team, which then connects with the R&D division to work out a customer-centric product.
Berger Paints has 11 state-of-the-art manufacturing facilities across the country. As Roy lists, ¨We have plants in Jammu, Delhi, Gujarat, Goa, Hindupur (near Bengaluru), Pondicherry, one near Pune and the latest one in Mumbai, which is a small unit that came along with our acquisition of Sherwin Williams´ Decorative Plant.¨ All the facilities use the latest technologies to maintain highest quality standards. The latest factory in Hindupur epitomises the same with an automated production line, robotic Arms and Automated Storage and Retrieval System (ASRS) with minimal human involvement during production and storage.
Interestingly, the company has taken steps to cut down the price of its products by 2-2.5 per cent in FY2016. ¨In the last financial year, raw material prices as well as pigments like titanium dioxide were on the lower side,¨ elaborates Sai. ¨Hence, we were able to pass on the benefits to the market.¨ He adds that in the paint industry, the company has taken a slightly higher price cut in the economy segment compared to the average. However, the price cut along with revival in the market has led to a slight upswing in demand in the economy segment in the last quarter. With the prices of raw materials slightly climbing up again, Sai adds, ¨Normally, we have a stock of around three to four months. But if there is continuity in the price rise, there might be an upward rise in the product price towards the second half of the year.¨
Over the past three years, the company´s market cap has grow, taking it to the list of the 100 most valuable companies in India. The revenue from sales for the company for 2013-14 was over Rs 3,700 crore; for 2014-15, it was over Rs 4,200 crore. About FY2015-16, Sai says, ¨It was a challenging year for the entire paint industry. The growth was on the lower side compared to the previous year.¨ The company remains optimistic about a good monsoon in the current financial year. As for market share, Roy says, ¨We enjoyed around 17 per cent of the market share in 2014-15. Last fiscal, this improved slightly and we were at 17.4 per cent. This year, we hope to increase it further to around 18 per cent.¨ To achieve this, the company is focusing on brand building and distribution expansion.
Building the brand
Unlike FMCG where the consumer more or less consumes the product himself and there are intermediaries, in paints, there is an external influence in terms of the applicator. Hence, a paint company cannot shy away from brand building. ¨We have been investing in our brand and increasing our advertising spends every year,¨ says Sai. ¨We have segmented consumers into categories and developed products for each category.¨ Increasingly, the market is moving towards upper-end niche products and those that fulfil specialised consumer needs. In terms of investments, Sai says, ¨On an average, the paint industry spends around 4 per cent on its marketing budget.¨ And Roy shares, ¨Our activities on television and digital activities put together are substantial, an approximate spend of around Rs 100-odd crore.¨
Berger is also determined to pay it forward. A responsible corporate, the company proactively pursues strategies both within and without to bring societal and environmental benefits to all stakeholders.
Apart from its factories in India, Berger Paints India has an international presence in four countries (Nepal, Bangladesh, Poland and Russia). With employee strength of over 2,800 and a countrywide distribution network of over 25,000 dealers, the company has a portfolio of paints and tailor-made customer services in every paint segment. Abhijit Roy, Managing Director & CEO, Berger Paints, shares more on demand drivers and international presence in conversation with CW Group Managing Editor FALGUNI PADODE in his Kolkata office.
Tell us about the role you envisage in smart cities.
We have already supplied paint to the Gujarat smart city project at Dholera, which used certain types of paint products such as ´Weathercoat Kool and Seal´ for roofs, which reflect heat and seal the rooftop. These can be useful products for smart cities. And, we are in dialogue with government bodies, private players, etc, for the other new smart cities coming up in India.
What is your market in terms of Tier-II and Tier-III cities?
We are well-represented in Tier-II and III cities with a stronger presence in Tier-III cities. For example, we are a relatively stronger player in Bhubaneswar, which has made it to the first lot of smart cities. We also have a strong presence in Kochi and Lucknow. Among the metros, we are among the leaders in Delhi and Kolkata.
What has kept you ahead of the market?
I think, its innovation. Initially, we were much more focused on innovation on the product front. Now, we have also started focusing on service for customers. Also, within the company, we believe in an open culture and less hierarchy. This fosters collaboration rather than the fear of failure. This culture has also helped the company.
Tell us about your international presence.
In Poland, we have External Insulation Finishing Systems (EIFS), which have started doing well this year. We want to bring this technology into India as well as it would be useful for smart cities. We have a strong presence in Nepal, positioned at No. 2. We are also operating in a small way in Russia; it is a greenfield venture.
How do you view the opportunity graph for the company?
Today, urbanisation in India is only about 32 per cent. As new cities and structures come up, there will be an increase in demand for paints not only for painting it for the first time but repainting every four to five years. So at the next level - from developed to semi-developed - we will be at 55-60 per cent urbanisation, the level at which China is today. So, India is 10 years behind; hence we can expect robust growth in consumption of paint from current levels. Being a leader in the Indian Paint Industry, we are well poised to grab a large share of this expanding pie.
How do you see higher-end decorative paints being used instead of low-value products?
I see an increase in demand for Higher end products. Higher-end paints are being chosen only by individuals who can afford it. The paint cost is about 45 or 50 per cent maximum and the rest is all labour. Hence, while using a higher end product, you may pay an excess of 10 per cent for the overall job, which is affordable for the middle and upper middle class. In cities like Mumbai, our experience has been that almost 90 per cent of consumers go in for high-end products because, ultimately, they don´t want to repeat the job every two years. Also, in small towns, people can afford these products today. And, when given a choice where they can easily source them, they prefer these products over economy products.
What are your five-year projections?
We expect to grow faster than the industry growth rate. The industry growth has been good and Berger, of course, has been a standout performer. The return to investors has been more than 49 per cent CAGR for the last five years on the back of robust sales and profit growth. If we are able to generate sales the right way, a structural way, and yet grow profit, that is something that can be sustained over a period of time.
Sachin B Bobade, Research Analyst, HDFC Securities, shares his analysis of the company:
¨In the past three to four years, Berger Paints and Asian Paints are gaining maximum market share. Berger Paints, compared to Asian Paints, has a smaller share in the rural markets; the company does not have the required reach and hence does not have a large share in the economic segment. But in terms of volume growth, Asian Paints, Nerolac and Berger Paints all grow at the same level with the last quarter witnessing around 12-13 per cent growth and 14-15 per cent growth in the present quarter. This year, the paint industry is expected to grow at an average of 15 per cent in volumes.
Starting 2013, Berger began increasing its CAPEX for building new facilities because the paint industry´s growth was higher at that time. So CAPEX being high for most companies, the strategy was to build facilities for the next five years. Thus, Berger Paints is well-placed to capture future growth as well. While the growth will come from adding new distributors, there will be a market share gain too because unorganised players will lose market share.¨
- Shriyal Sethumadhavan