New chief executive Sameer Nagpal aims to focus India's oldest paint company in the decorative paints market, where margins are significantly higher than in the industrial segment
It is early days still but Gurmeet Singh Narula, a Shalimar Paints dealer since 1970, has a spring in his step. For the first time in 20 years, his paint deliveries are on time, the quality of paint has improved over the last five months, and customers are asking for the paint by its brand name, says Narula, who averages a crore in monthly sales. His revenues haven’t gone up meaningfully, but he’s confident that it’s only a matter of time before they do. “In terms of product quality, you can now replace Shalimar with Asian Paints [market leader], and people won’t know the difference,” says the Delhi-based dealer.
Such high praise from one of the company’s largest dealers is an endorsement for the country’s oldest paint maker. Set up in 1902 in Calcutta, Shalimar was once India’s largest paint company. “It was the Asian Paints of the 1950s and 1960s,” says an analyst who tracks the sector. But its decline began in the early ’90s. Its shift in focus from the decorative paints (used in homes) space to the industrial market (paint for bridges, factories, automobiles)—where margins are low and business lumpy—reduced Shalimar to a shadow of its former self.
In the five-player paint industry (excluding regional companies), Shalimar is the smallest, behind Asian Paints, Berger Paints, Kansai Nerolac and AkzoNobel (formerly ICI Paints). It closed last year with Rs 483 crore in sales compared to Asian Paints’ Rs 10,418 crore, and its market cap is a paltry Rs 179 crore.
It’s little wonder, then, that Shalimar’s current owners—board members Ratan Jindal, who runs Jindal Stainless Steel, and Girish Jhunjhunwala of Hind Group—have put the company on the block several times in the last decade. But no deal ever took place. And now its board of directors is attempting one last shot at turning Shalimar’s fortunes. In May 2013, they roped in Sameer Nagpal, former vice president of industrial products company Ingersoll Rand (India), as CEO and managing director.
Nagpal, 45, has been a given a free rein to turn around Shalimar, and he’s not pulling his punches. He’s mapped out a risky strategy, because of which the company’s topline dropped by Rs 47 crore in 2013-2014. The slump was mainly due to write-offs and delay in product launches (as quality control protocols were being put in place). With his house now in order, Nagpal is chasing a 20 percent jump in revenues this year.
From Industries to Homes
Nagpal has inherited a company that was once at the forefront of technology: It was the first to paint a fighter aircraft for the Indian Army, and had also received a contract to paint the Rashtrapati Bhavan. Such work, however prestigious, has very low margins (of about 2 percent).
Nagpal has a clear mandate to increase company profitability and improve valuation for investors. To achieve this, he has shifted Shalimar’s resources to the more profitable and fast expanding decorative paints segment which, according to ratings company Nielsen India, is worth Rs 20,000 crore (out of the Rs 30,000-crore Indian paints market).
When he delved deeper, Nagpal found that Shalimar’s product mix was skewed towards the low-margin industrial segment (Rs 10,000 crore). Though it was a big player in the industrial coatings business, it was absent from the higher-margin oil and auto paints space. Shalimar, however, has no immediate plans to enter this particular segment. The CEO realises that muscling his way through the segment requires heavy investments and breaking long-standing customer relationships. Kansai Nerolac, for instance, has been supplying to Maruti Suzuki for over two decades. Instead of pouring money down lost causes, Nagpal started plugging the holes in Shalimar, the biggest of which was poor product quality and lack of brand recall.
Branding and advertising
(This story appears in the 19 September, 2014 issue of Forbes India. To visit our Archives, click here.)