Berger Paints India Ltd:Annual Report 2023-24 Analysis

Berger Paints India Ltd.: A Comprehensive Overview #

About the Company #

• Year of Establishment and Founding History: Berger Paints India Limited was founded in 1923 as Hadfield’s (India) Limited, a subsidiary of Hadfield’s UK. In 1947, it was acquired by British Paints (Holdings) Limited. The name changed to Berger Paints India Limited in 1983 after the acquisition by the Dhingra family.

• Headquarters Location and Global Presence: The company’s headquarters are located in Kolkata, India. Berger Paints has a presence across India, as well as internationally in countries including Nepal, Bangladesh, Poland, and Russia.

• Company Vision and Mission: Berger Paints aims to be a leading and innovative paint company, known for its quality products, customer-centric approach, and sustainable practices. Their mission revolves around providing superior value to customers, shareholders, and employees.

• Key Milestones in Their Growth Journey:

  • 1923: Founded as Hadfield’s (India) Limited.
  • 1947: Acquired by British Paints (Holdings) Limited.
  • 1983: Renamed Berger Paints India Limited after acquisition by the Dhingra family.
  • Expansion into various product segments like decorative paints, industrial coatings, and protective coatings.
  • Strategic acquisitions to strengthen market position and product portfolio.
  • Continuous focus on innovation and technological advancements.

• Stock Exchange Listing Details and Market Capitalization: Berger Paints India Ltd. is listed on the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE).

• Recent Financial Performance Highlights:

  • FY23-24: Revenue from operations stood at ₹10,956.59 crore as against ₹9,081.07 crore in FY 22-23, with growth of 20.65%. Profit Before Tax for FY 23-24 was ₹1,250.53 crore as against ₹871.45 crore for FY 22-23, with growth of 43.50%.

• Management Team and Leadership Structure: The company is led by a Board of Directors with a mix of executive and independent directors. Key leadership positions include the Managing Director & CEO, and various functional heads responsible for finance, marketing, operations, and R&D.

• Notable Awards or Recognitions: Berger Paints has received various awards and recognitions for its quality, innovation, and sustainability initiatives.

Their Products #

• Complete Product Portfolio with Categories:

  • Decorative Paints: Interior wall coatings, exterior wall coatings, enamel paints, wood finishes, waterproofing solutions.
  • Industrial Coatings: Protective coatings, automotive coatings, powder coatings, coil coatings, high-performance coatings.
  • Construction Chemicals: Waterproofing compounds, tile adhesives, grouts, sealants.
  • Specialty Coatings: Wood coatings, glass coatings, automotive paints.

• Flagship or Signature Product Lines:

  • Easy Clean: A range of washable and stain-resistant interior paints.
  • WeatherCoat: A line of durable exterior paints designed to withstand harsh weather conditions.
  • BreatheEasy: Low-VOC paints that contribute to improved indoor air quality.

• Key Technological Innovations or Patents: Berger Paints focuses on developing technologically advanced products with features like anti-bacterial properties, heat resistance, and enhanced durability.

• Manufacturing Facilities and Production Capacity: Berger Paints operates multiple manufacturing facilities across India and internationally.

• Quality Certifications and Standards: Berger Paints adheres to various quality certifications and standards, including ISO certifications, to ensure consistent product quality and environmental compliance.

• Any Unique Selling Propositions or Technological Advantages:

  • Focus on innovative product development to meet evolving customer needs.
  • Strong emphasis on research and development to create differentiated products.
  • Wide distribution network across India and international markets.
  • Commitment to sustainability and environmentally friendly products.

• Recent Product Launches or R&D Initiatives: Berger Paints continuously launches new products and undertakes R&D initiatives to enhance its product portfolio and address emerging market trends.

Primary Customers #

• Target Industries and Sectors:

  • Residential construction
  • Commercial construction
  • Infrastructure projects
  • Automotive industry
  • Industrial manufacturing

• Geographic Markets (domestic vs. international): Berger Paints has a strong presence in the domestic Indian market and also exports its products to international markets.

• Major Client Segments (agricultural, industrial, residential, etc.): The company serves a diverse range of client segments, including residential, commercial, industrial, and infrastructure.

• Distribution Network and Sales Channels: Berger Paints has a wide distribution network that includes:

  • Dealers and retailers
  • Company-owned showrooms
  • Direct sales to large clients
  • Online sales platforms

Major Competitors #

• Direct Competitors in India and Globally:

  • Asian Paints
  • Kansai Nerolac Paints
  • AkzoNobel India
  • Indigo Paints

• Comparative Market Share Analysis: Berger Paints is one of the leading paint companies in India, with a significant market share.

• How they differentiate from competitors:

  • Focus on innovation and technology-driven products
  • Strong brand reputation and customer loyalty
  • Extensive distribution network
  • Commitment to sustainability and environmental responsibility

• Market Positioning Strategy: Berger Paints positions itself as a premium brand that offers high-quality products and innovative solutions to meet diverse customer needs.

Future Outlook #

• Expansion Plans or Growth Strategy: Berger Paints aims to expand its market presence through organic growth, strategic acquisitions, and expansion into new product categories.

• Upcoming Products or Innovations: The company is expected to launch new products in the areas of decorative paints, industrial coatings, and construction chemicals.

• Sustainability Initiatives or ESG Commitments: Berger Paints is committed to sustainability and has implemented various initiatives to reduce its environmental impact, including the use of eco-friendly raw materials, energy-efficient manufacturing processes, and waste reduction programs.

• Industry Trends Affecting Their Business: The paints industry is influenced by factors such as:

  • Economic growth and infrastructure development
  • Changing consumer preferences
  • Environmental regulations
  • Technological advancements

• Long-Term Vision and Strategic Goals: Berger Paints aims to strengthen its position as a leading paint company by focusing on innovation, customer satisfaction, and sustainable growth.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue from Operations: Shows a consistent upward trend, with a 6% growth from FY2022-23 to FY2023-24, reaching INR 11,199 crore. A more substantial growth of 20.61% was observed between FY2021-22 and FY2022-23.
• EBITDA: Increased by 25.1% year-on-year, from INR 1,538 crore in FY2022-23 to INR 1,925 crore in FY2023-24.
• EBITDA Margin: Improved from 14.56% in FY2022-23 to 17.19% in FY2023-24.
• Profit After Tax (PAT): Grew by 36% from INR 860.40 crore in FY2022-23 to INR 1,169.82 crore in FY2023-24.
• Return on Equity (ROE): Increased from 19.11% in FY2022-23 to 21.71% in FY2023-24.
• Debt-Equity Ratio: Improved significantly from 0.25 in FY2022-23 to 0.12 in FY2023-24.
• Cash Earnings Per Share: Showed Improvement from 9.65 in FY 2022-23 to 12.87 in FY 2023-24.
• Earnings per share - basic: Increased from 7.37 in FY 2022-23 to 10.02 in FY 2023-24.

Business Segment Performance #

• Decorative Paints: Volume growth was observed, but value growth was impacted by strong traction in the economy segment and an extended monsoon. Construction chemicals and waterproofing business performed exceptionally well.
• Industrial Paints: The Protective Coating business maintained market dominance with consistent growth and profitability. Automotive and General Industrial sectors saw improved performance, driven by demand in two-wheelers. The Powder Coatings business rebounded with significant profitability gains.
• Prolinks: Prolinks project sales division expaneded offerings with construction chemicals and waterproofing.
• Express Painting: Continued strong performance, with substantial improvements in reach and scale.

Major Strategic Initiatives and Their Progress #

• Capacity Expansion: Full-scale commercial operations achieved at the Sandila plant. Plans outlined for greenfield plants in West Bengal and Odisha. Upgrades and expansions were made at Hindupur, Jejuri, Rishra, and Vallabh Vidyanagar plants.
• Network Expansion: Added 14,552 retail touchpoints and approximately 8,000 Colorbank machines during the year.
• Product Innovation: Launched 43 new products during the year across all business lines, including Roof Cool and Seal, PU Elasto Shield, and Easy Clean Silky Touch.
• Digital Initiatives: Introduced salesforce for painters, implemented a Warehouse Management System for stock management, and enhanced the My Colour app with AI features.

Risk Landscape Changes #

• Industry Risk: Downturns in end-user industries could impact demand. The Company is mitigating this by strengthening its product portfolio across business segments.
• Competition Risk: Entry of new players may impact market share and profitability. Berger Paints is leveraging R&D capabilities and expanding capacity to address this.
• Reputation Risk: Negative publicity is being managed through social media monitoring and a dedicated customer care department.
• Counterfeit Risk: A dedicated team is working with authorities to identify and address counterfeit manufacturers.
• People Risk: Addressed via a people-friendly and empowering work culture, engagement initiatives, and rewards programs.
• Climate Risk: Addressed through energy conservation, waste management, water management, and the use of renewable energy.
• Financial Risk: Addressed through a healthy balance sheet and planned funding of capex mainly through internal accruals.
• Cybersecurity Risk: Addressed through investments in IT security measures and periodic IT audits.

ESG Initiatives and Metrics #

• Environmental:
  • Increased electricity generated from renewable energy to 19.59%.
  • Recycled 49,149 KL of water.
  • Reduced Total energy intensity to 552.95 MJ/KL-MT
  • Recycled 839 tonnes of waste.
  • Invested INR 3.43 crore in clean energy.
  • Conducted energy and water audits.
  • Implemented projects like ‘Sanchayan’ for yield optimization and resource efficiency, and ‘Project Jal’ to reduce groundwater intake.
  • Initiated ‘Clean to Green’ for heat recovery in chimneys.
  • Conducted awareness campaigns on environmental conservation.
• Social:
  • CSR expenditure of INR 20.79 crore.
  • Trained 1,24,158 painters through the iTrain program.
  • Implemented various initiatives like Streeshakti, WOW, Project JAL, Safety First, and Urja Shakti.
  • Focused on community development, health, hygiene, skilling, and water management.
  • Zero accidents reported in FY 2023-24
• Governance:
  • Maintained a Code of Conduct applicable to all Directors, senior management, employees, and business partners.
  • Upholding rigorous governance standards beyond legal compliance.
  • Board oversight with a governance framework that prioritizes an effective, informed, and independent Board.

Management Outlook #

• The Company anticipates a multi-decade growth cycle in India, driven by a young population, increasing per capita income, a strengthening manufacturing sector, a growing automobile segment, and government investment in infrastructure.
• Envisages 2X revenue growth over the next five years.
• Plans for reaching out to various stakeholders (retailers, distributors, contractors, painters, architects, and industries), and streamlining the transaction process.
• Aims to become the most innovative and competent paints, coatings, and construction chemicals company in the country.
• Will focus on enhancing digital capabilities in business intelligence, customer relationship management, supply chain management, machine learning, and AI.
• Strategic vision: to be the most innovative and competent paints, coatings, and construction chemicals company in the country, trusted by all stakeholders.

Detailed Analysis #

Financial Position: Balance Sheet Analysis #

3-Year Comparative Analysis (Consolidated, INR Crores) #

Significant Changes in Major Line Items (>10% YoY) #

• Goodwill: Increased by ‘22.97 crores (8.16%) in FY 2023-24, primarily due to translation differences.
• Right-of-use assets: Increased 32.99% from the previous year.
• Capital Work in Progress: Increased by 70%
• Borrowing: Current Borrowing decreased by 73.48%
• Lease liabilities: Increased by 24.8%

Working Capital Trends #

• The Current Assets have increased by 3.7%
• The Current Liabilities have decreased significantly by 20.58%.
• The Trade Receivables have increased slightly and inventories have decreased.

Asset Quality Metrics #

• Goodwill to Total Assets: 3.64% (2023-24), 3.54%(2022-23). A stable proportion, indicating that acquired intangible assets are a minor but material part of the asset base.
• Property, Plant and Equipment: Represent a significant portion of total assets, fairly constant.

Debt Structure and Maturity Profile #

• Debt-to-Equity Ratio:

  • 2023-24: 0.14
  • 2022-23: 0.26
  • Decrease indicates that the Company’s reduced reliance on Borrowings

• Maturity of Borrowings:

  • Long term borrowing constitutes very small portion, majority are working capital loans.

Off-Balance Sheet Items #

• Contingent Liabilities:
  • Claims not acknowledged as debts: Decreased from 114.71 crore to 97.4 crore
  • Outstanding bank guarantees remained relatively stable.
• Corporate Guarantees:
  • The Holding Company has provided guarantees for loans taken by subsidiaries.

Berger Paints India Limited: Financial Analysis of FY2023-24 #

Revenue Breakdown #

• Decorative Paints: Largest segment, including interior/exterior paints, construction chemicals, and Express Painting.
• Industrial Paints: Includes Protecton, Automotive General Industrial Coatings, and Powder Coatings.

Geographic Revenue #

• India: ₹10,427.38 crores in FY2023-24, a 6% increase year-over-year.
• Outside India: ₹672.83 crores in FY2023-24.

Consolidated Revenue #

• FY 2023-24: Increased by approximately 6%, from ₹10,567 Crores in FY 2022-23 to ₹11,199 Crores.
• Decorative business showed volume growth, impacted by the economy segment’s traction on value growth. The construction chemicals and waterproofing business performed exceptionally well.

Cost Structure Analysis #

• Cost of Materials Consumed:
  • Standalone: Decreased to ₹5,019.55 crores in FY2023-24 from ₹5,270.87 crores in FY2022-23.
  • Consolidated: Increased to ₹5,597.48 crore in FY 2023-24 from ₹5,852.62 crores.
• Employee Benefits Expense:
  • Standalone: Increased to ₹537.27 crores in FY2023-24 from ₹458.12 crores in FY2022-23.
  • Consolidated: Increased to ₹713.03 crore in FY 2023-24 from ₹609.19 crores.
• Other Expenses:
  • Standalone: Increased to ₹1,790.68 crores in FY2023-24 from ₹1,579.53 crores in FY2022-23.
  • Consolidated: Increased to ₹1,978.57 crores in FY 2023-24 from ₹1,740.93 crores
• Freight and Forwarding Charges: Increased, constituting a significant portion of ‘Other Expenses’.

Margin Analysis #

• Gross Margin: Material costs as a percentage of revenue show a decreasing trend on a standalone basis.
• Operating Profit Margin (EBITDA Margin):
  • Standalone: Increased to 17.29% in FY2023-24 from 15.03% in FY2022-23.
  • Consolidated: Increased to 17.19% in FY2023-24 from 14.56% in FY2022-23.
• Net Profit Margin:
  • Standalone: Increased to 10.15% in FY2023-24 from 8.75% in FY2022-23.
  • Consolidated: Increased to 10.45% in FY 2023-24 from 8.14% in FY2022-23.

EPS Analysis #

• Basic EPS:
  • Standalone: Increased to ₹8.71 in FY2023-24 from ₹7.11 in FY2022-23
  • Consolidated: Increased to ₹10.02 in FY2023-24 from ₹7.37 in FY2022-23
• Diluted EPS:
  • Standalone: Increased to ₹8.71 in FY2023-24 from ₹7.11 in FY2022-23
  • Consolidated: Increased to ₹10.02 in FY2023-24 from ₹7.37 in FY2022-23.

Risk Assessment Framework #

Strategic Risks #

• Severity: High. New entrants backed by conglomerates pose a significant threat to market share and profitability (page 43).
• Likelihood: High, given the low per capita paint consumption in India and the multi-decade growth cycle of the country, making the industry attractive to new players (pages 12, 43).
• Trend: Increasing competition. The repainting cycle is declining, which will put more pressure on revenue growth (page 43).
• Mitigation Strategies: Focus on product innovation, network expansion, and value-added services like Express Painting (pages 10, 11, 51). Investment in R&D for differentiated products, especially in the industrial segment.
• Control Effectiveness: Partially effective. The Company reported revenue growth, although at a slower pace, and an increase in EBITDA, as the raw material price moderated.
• Potential Financial Impact: Revenue in FY23-24 grew by 6%, down from historical rates (page 11). Profit After Tax (PAT) margins increased by 181 bps.

Operational Risks #

• Severity: Moderate to High. Counterfeit products can erode brand reputation and cause revenue loss. Dependence on raw materials exposes the Company to price volatility.
• Likelihood: Moderate. Raw material price moderation has reduced operational costs. The risk of counterfeit is always high, but mitigation steps are in place.
• Trend: Stable. The report indicates increased manufacturing capacities.
• Mitigation Strategies: Implementation of anti-counterfeiting measures and dedicated teams to work with authorities, as also new label designs. Digitization of supply chain, warehouse management system, and e-auction for raw materials.
• Control Effectiveness: Moderate. Capacity expansion and digital initiatives are operational, but their full impact is yet to be realized. Cost savings from raw material e-auctions were noted.
• Potential Financial Impact: Loss of sales and profit, lower margins and cost pressure. Raw material price fluctuation is considered a significant factor.

Financial Risks #

• Severity: Low. Healthy balance sheet, net cash surplus, and comfortable Debt/EBITDA ratio.
• Likelihood: Low. Prudent financial management and strong cash flow generation.
• Trend: Improving. The company turned cash positive in FY23-24, indicating better financial stability. The company has comfortable net cash surplus (page 53).
• Mitigation Strategies: Maintaining a healthy balance sheet, strong liquidity ratios, and conservative financial principles. Focus on internal accruals to fund capex.
• Control Effectiveness: Highly effective. The Company exhibits strong financial health with high Return on Equity (ROE) and Return on Capital Employed (ROCE), low Debt/EBITDA ratio, and increasing asset turnover.
• Potential Financial Impact: ROE: 23.7%; ROCE: 27.8% (page 58).

Compliance/Regulatory Risks #

• Severity: Moderate. The company is bound by the rules of multiple regulatory bodies.
• Likelihood: Low. The Company highlights a strong governance framework and regular reviews of compliance.
• Trend: Stable.
• Mitigation Strategies: Robust governance practices, adherence to a code of conduct, and internal audits.
• Control Effectiveness: Effective. The Report presents full compliance.
• Potential Financial Impact: Penalties, reputational damage (not quantified in the report).

Emerging Risks #

• Severity: Moderate to high. Cybersecurity attacks could disrupt operations and cause financial/data loss, while climate change can directly and indirectly affect business operations.
• Likelihood: Increasing, driven by global trends in cybercrime and climate change impacts.
• Trend: Increasing.
• Mitigation Strategies: Investment in IT security measures (MDR implementation), periodic IT audits. Climate change initiatives like zero liquid discharge, energy conservation, and use of renewable energy.
• Control Effectiveness: Developing. The Company is actively investing in mitigation strategies, but the effectiveness will depend on ongoing efforts.
• Potential Financial Impact: Operational disruption and financial loss from cyberattacks (Not quantified). Cost savings from energy conservation and renewable energy initiatives are noted. A 35% reduction in water consumption is reported.

Strategic Analysis of Berger Paints India Limited #

Long-Term Strategic Goals and Progress #

• Berger Paints aims to be the most esteemed Indian company specializing in paint and coating solutions, globally acknowledged for its exceptional competencies.
• The company envisions doubling its revenue over the next five years.
• Berger Paints is committed to building capacities; it started its largest-ever, fully-automated manufacturing facility in Sandila.
• Greenfield projects in West Bengal and Odisha are underway, with commissioning of the West Bengal factory expected by the end of 2025. Plans are to construct an additional greenfield facility in western India.

Competitive Advantages and Market Positioning #

• Berger Paints is the 2nd largest paint company in India, 4th largest in Asia, and 15th largest globally.
• It holds a 19.7% market share in the listed space and has shown a market share increase in the last financial year.
• The company is a leader in the Protective Coatings segment.
• Revenue growth of 6% in FY 2023-24 indicates a strong market presence.
• Company shows persistant growth, from 6th largest in india in 1923, to 2nd largest.
• Company successfully navigated trhough competition and economic changes, including entry of new competitors.

Innovation Initiatives and R&D Effectiveness #

• Berger Paints has a strong focus on R&D, reflected in the launch of 43 new products during FY 2023-24 across all lines of business.
• The R&D team works with industrial customers, using innovative materials such as nanomolecules.
• Company collaborates with global paint leaders, like Rock Paints Company Limited of Japan and Hesse Group of Germany.
• The company pioneered the concept of “Colour Bank” tinting machines and introduced the “Express Painting” service, demonstrating a commitment to customer convenience.
• The company emphasizes health and hygiene, evidenced by the revamp of its “Breathe Easy” product line.
• Investments in advanced machinery for R&D activities have been made.

M&A Strategy and Execution #

• Berger Paints has a history of successful acquisitions and joint ventures, including Bolix SA in Poland, and the decorative coatings business of Sherwin-Williams in India.
• Acquired STP Limited in 2019, adding six factories and expanding into construction chemicals.
• Acquired Saboo Coatings Private Limited (now SBL Specialty Coatings Private Limited) in 2017.
• Merged Rajdoot Paints with Berger Paints, to effectively serve specific market segments.

Management’s Track Record in Execution #

• Berger Paints has seen 81 times revenue growth in the past three decades.
• Sales more than doubled from H 1.15 Billion in 1991 to H 2.76 Billion by 1995-1996 after the Dhingra brothers acquired a controlling stake.
• The company achieved full-scale commercial operations at its Sandila plant.
• EBITDA for FY 2023-24 showed a 25% growth, and PAT increased by 36%.
• Low attrition rate, an industry-beating retention rate, and long tenures for senior leaders (average 15+ years) highlight management’s ability to foster a stable and engaging work environment.

Capital Allocation Strategy #

• The company plans to fund its capex requirements for the next five years mainly through internal accruals, indicating a conservative financial approach.
• Planned investments of H 2,700 Cr in capacity expansion are underway.
• Company has a net cash positive standing of H 362.2 Crores.
• A dividend of ’ 3.50 per share (350%) was declared for FY 2023-24.

Organizational Changes and Their Impact #

• The company has been working to make the organization more inclusive and gender-positive.
• The wood coating unit of the Jejuri plant is managed by an all-women workforce.
• Implementation of digital initiatives like salesforce for painters and the Warehouse Management System have enhanced stock management.

ESG Framework #

Environmental Metrics and Targets #

• The company achieved a 19.59% share of electricity generated from renewable energy.
• Water recycling reached 49,149 KL, a 45% year-on-year growth.
• Waste recycling totaled 839 tonnes.
• Total energy intensity was 552.95 MJ/KL-MT.
• Absolute excess giveaway was reduced by 0.03%.
• Renewable energy use increased by 30.69% of total energy use during FY 2023-24.
• Total water intensity was 0.56 KL/KL-MT.
• Water recycling and reuse increased by 35% compared to FY 2022-23.
• 57% of total water consumed was recycled.
• Washing solvent recovered increased by over 137 KL.
• Powder RM recovered had a y-o-y growth of 35%.
• There was a reduction of 7,213.6 MT of CO2 emissions through rooftop solar power plants in FY 2023-24.

• A 35% reduction in overall water consumption has been achieved across the company's units.
  

• Investments of ‘3.43 crore were made towards clean energy in FY 2023-24.

Social Responsibility Programs #

• CSR expenditure totaled ‘20.79 crore, a 7.8% year-on-year growth.
• 1,24,158 painters were trained through the iTrain CSR project.
• 153,972 individuals were reached through various CSR programs.
• The company’s “Stree Shakti” initiative focuses on empowering women in manufacturing.
• The iTrain program, since its 2014 launch, has trained approximately 1 million painters.
• Key CSR focus areas include education, health, sanitation, and addressing water scarcity.

Governance Structure and Effectiveness #

• The Board of Directors oversees the company’s management, strategic direction, and performance, supported by various board committees.
• The Board maintains sound corporate governance principles and reviews/benchmarks its governance practices against global standards.
• A code of conduct applies to all Directors, senior management, employees, and business partners, emphasizing zero tolerance for corruption and unethical behavior.
• The Audit Committee has the responsibility, among other things, of ensuring the integrity of the Company’s Financial statements.

Sustainability Investments and ROI #

• Investments of ‘3.43 crore were made towards clean energy in FY 2023-24.
• Savings of ‘8.53 crore were achieved in FY 2023-24 through solar power usage.
• Incremental savings from solar power were ‘2.76 crore in FY 2023-24.
• ‘3.41 Lakh was saved since November 2023 through the utilization of marine logistics.
• Project Sanchayan has optimized resource efficiency and minimized losses, reducing both carbon footprint and costs.
• The Sandila plant, with over ‘1,000 crore invested, is expected to boost profit margins.
• The “War on Waste - Sanchayan” project has resulted in significant material recovery, with 83,900 kg+ Powder RM recovered.

ESG Ratings and Peer Comparison #

• Berger Paints is the 7th largest decorative paints company globally and the 4th largest in Asia.
• Berger Paints is the 2nd largest paint company in India.
• The document benchmarked financial performance against that of competitors.

Regulatory Compliance and Future Preparations #

• The company maintains 24x7 continuous emission monitoring systems at process stacks to ensure compliance with emission standards.
• Half-yearly compliance reports are submitted to respective State Pollution Control Boards.
• The company is transitioning towards Zero-Liquid Discharge (ZLD) facilities across all units.
• The company adheres to Plastic Waste Management Rules, with an action plan in place for Extended Producer Responsibility (EPR) obligations.
• All decorative brands are Green Pro certified by CII.
• The Company’s factories have integrated management systems under ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018.
• The Naltali unit won the manufacturing award by Encon'23 (CII Eastern Region) for energy conservation.
• The Jejuri Plant won a Silver Award in the CII National EHS Circle Competition 2024.
• The Puducherry unit won 1st Place in Kaizen Competition, Large scale category, conducted by CII.
• The Company is investing in digital capabilities, including business intelligence, customer relationship management, supply chain management, machine learning, and AI, to enhance its future operations and competitiveness.

Future Outlook #

Management Guidance and Assumptions #

• Management guidance is focused on achieving double-digit revenue growth by FY28-29.
• Management assumes the Indian economy’s multi-decade growth cycle will lead to sustainable paint demand.
• Management’s assessment of its joint ventures shows no indication of impairment.

Market Growth Forecasts #

• The Indian paints and coatings industry is projected to grow at a CAGR of 9.38% between 2024 and 2029.
• Repainting cycle is expected to decline, from 6.9 years in 2019 to a projected 5.6 years in 2031.
• 42.5% of India’s population, or 164 million households, is projected to reside in urban centers by 2034.

Planned Strategic Initiatives #

• Establishment of two new paint factories in West Bengal and Odisha.
• Strengthening the positioning of the brand.
• Enhance digital capabilities in business intelligence, customer relationship management, supply chain management, machine learning, and AI.
• Targeting smaller urban projects with a dedicated team for painting and waterproofing services.
• Implement Salesforce for painters and a Warehouse Management System.
• Promote the My Colour app, featuring AI.
• Expand Express Painting service.
• Continue E-Auction for raw materials to reduce costs.
• Focus on water neutrality, zero liquid discharge, energy conservation, and use of alternative energy sources.

Capital Expenditure Plans #

• Planned investments of ~₹2,700 Cr in capacity expansion.
• Establishment of greenfield plants in West Bengal and Odisha.
• Commissioning of Panagarh, West Bengal plant, by the end of 2025.
• Potential construction of another greenfield facility in Western India.
• Funding of capex for the next five years primarily through internal accruals.

Efficiency Improvement Targets #

• Reduced absolute excess giveaway by 0.03% bps.
• Project Sanchayan implemented for yield optimization, resource efficiency, and waste minimization.
• Enhance stock management through the Warehouse Management System.
• Project EGA initiated to reduce excess giveaways at filling lines.
• 35% reduction in overall water consumption across our units by Project Jal.

Potential Challenges and Opportunities #

Challenges #

• Entry of new players impacting market share and profitability.
• Managing potential negative publicity.
• Ensuring supply chain efficiency and raw material procurement at competitive rates.
• Maintaining talent retention and attraction.
• Adapting to changes in climate conditions.
• Cybersecurity risks.
• Dependence on the railways industry.

Opportunities #

• Significant headroom for growth in the paint industry due to low per capita consumption in India.
• Buoyant real estate sector and increasing infrastructure creation drive demand.
• Growing demand for eco-friendly and innovative products.
• Expansion into allied segments like construction chemicals.
• Leveraging digital capabilities for business intelligence and customer engagement.
• Partnerships with global leaders for technology transfer.

Scenario Analysis and Sensitivity to Key Assumptions #

• Revenue Growth Sensitivity: Envisaged revenue growth of 2X over the next five years.
• Market Competition Sensitivity: The entry of new players may affect profitability.
• Raw Material Price Sensitivity: Raw material price moderation helped improve EBITDA margins by 25% in FY23-24.
• Economic slowdown: A slowdown can lower the demand of decorative and industrial paints.
• Interest Rate Sensitivity: Moderate impact on pretax profit and pre-tax equity due to fluctuations in interest.
• Foreign Exchange rate Sensitivity: 5% appreciation/depreciation in USD is predicted to have an impact of (₹7.71) crore/7.71 crore respectively.
• GHG Emissions Reduction Sensitivity: Successfully reduced 7,213.6 MT of CO2 emissions in FY23-24.
• Supply chain and operational efficiency: Project Sanchayan has helped to minimize losses in manufacturing.
• Project delays: Project completion is overdue in regards to an Emulsion plant.
• Climate risk Sensitivity: Changes in climatic conditions can adversely impact business operations.

Audit & Compliance Analysis #

Auditor’s Opinion and Qualifications #

• Standalone Financial Statements: The auditor’s opinion is unmodified, stating the financial statements give a true and fair view in conformity with generally accepted accounting principles in India.
• Consolidated Financial Statements: The auditor’s opinion is unmodified.
• Qualifications: The auditor presents certain observations, under the heading “Emphasis of Matter”, regarding the non-availability of some audit trail features. The audit opinion is unmodified.
• CARO Qualifications: Noted qualifications in CARO reports of the Holding Company and certain subsidiaries related to discrepancies in statutory dues, stock and book debts, and title deeds not being held in the Company’s name.

Key Accounting Policies and Changes #

• Accounting Standards: The financial statements comply with Indian Accounting Standards (Ind AS) and presentation requirements of Division II of Schedule III to the Companies Act, 2013.
• Revenue Recognition: Revenue is recognized upon transfer of control of goods or services to the customer, net of variable considerations like discounts and rebates.
• Policies for Inventory, PPE, and Intangible assets are provided.
• Changes: The Company applied amendments to Ind AS for the first time:
  • Accounting Estimates (Ind AS 8): Clarifies distinctions between changes in accounting estimates, policies, and error correction. No material impact reported.
  • Disclosure of Accounting Policies (Ind AS 1): Replaces ‘significant accounting policies’ with ‘material accounting policies’ disclosure. Impacted disclosures but not measurement, recognition, or presentation.
  • Deferred Tax related to Assets and Liabilities arising from a Single Transaction Amendments to Ind AS 12 : Narrow the scope of the initial recognition exception.

Internal Control Effectiveness #

• Internal Financial Controls: The auditor’s report states that the Company maintained, in all material respects, adequate internal financial controls with reference to the standalone and consolidated financial statements, and such controls were operating effectively as of March 31, 2024, based on established criteria.
• Audit Trail Weakness: The audit report specifically points out weaknesses in the audit trail features of the accounting software used by the Company.

Regulatory Compliance Status #

• Listing Regulations: The Company has complied with the Listing Regulations.
• Secretarial Standards: The Company has complied with applicable Secretarial Standards.
• Other laws: The company has generally complied with laws and regulations as per Secretarial Audit Report.

Legal Proceedings and Their Potential Impact #

• Contingent Liabilities: The Company discloses contingent liabilities related to legal claims, including sales tax, excise duty, service tax, customs, income tax, and other matters. The total amount of claims against the Company not acknowledged as debts is ’ 73.27 Crores for standalone and ‘97.4 Crores for consolidated. The ultimate outcome of these matters is deemed uncertain.
• The impact of pending litigations has been disclosed.

Related Party Transactions #

• Disclosure: The Company has disclosed related party transactions in Note 49 (Standalone) and Note 51 (Consolidated), including transactions with subsidiaries, joint ventures, key management personnel, and entities controlled by key management personnel.
• Compliance: Transactions with related parties were in the ordinary course of business and on an arm’s length basis.

Subsequent Events #

• There are no material changes and commitments affecting the financial position of the Company between the end of the financial year and the date of this Report other than those disclosed in the Report.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The unmodified audit opinion suggests good accounting quality. However, the identified weaknesses in audit trail features within the accounting software indicate areas needing improvement.
• Regulatory Risk: The company is exposed to risk related to pending litigations. While provisions have been made where appropriate, the uncertain outcome of these matters is a risk. The company has provided data of payables to MSMEs.