This is Rakesh and today on this edition of Digging Deeper with Money control, we will talk about Shalimar Paints, a company that more than a hundred years after its inception continues to evaluate its place in shifting business scenarios. And explore various fundraising and course correcting opportunities
As for the Rang Desh Ka tagline, no other paint company can claim it because without Shalimar paints, the walls of the Rashtrapati Bhavan and Parliament House in New Delhi, Salt Lake Stadium, All India Institute of Medical Sciences, and the magnificence of Howrah Bridge in Kolkata would remain bereft of their distinct character. And oh, the Royal Palace in Nepal also is adorned in the colours of Shalimar.
The prestigious responsibility to paint Rashtrapati Bhawan fell upon the brand when President VV Giri chose the paint over its competitors; the company also has an uninterrupted track record of painting the Howrah Bridge since 1948/49. The bridge is painted every eight or 10 years and it takes almost a month-and-a-half to finish painting the aluminium pillars of the bridge.
Post the nineties, Shalimar Paints Ltd foresaw changes in a fast-growing market and according to a 2003 report in Financial Express, it began to set an agenda to put a new professional core management team at its helm, and to stake its claim upon what was then a Rs 5,500 crore paint market in India.
The emphasis according to the piece was to be on a stronger supply chain management, quality control, efficient service standards, a wider array of products and strategically located manufacturing plants in all four corners of the country.
The company was hoping to capitalise on the decorative segment and exponential growth in rural and semi-urban markets. An outreach program with painters meeting in rural areas to drive sales and spread information was also on the anvil.
And in keeping with its credo of ‘desh ka apnawala’ paint, Shalimar was also counting on its road-marking paints business to grow with a spurt in the country’s expressway and highway projects. Shalimar then was the sole maker of road marking paints in the organised sector, having perfected the road paints technology capable of drying paint in just five minutes.
According to the Financial Express report, Shalimar had also forayed into manufacturing automotive paints in the late 1970s and early 80s and had been the sole paint supplier for Rover cars sold in India. And it also had a tie-up with the iconic Standard Herald.
But over time it became increasingly hard to compete with players like Goodlass Nerolac, Asian Paints and Berger Paints and more. Even as the company tried to reclaim its space in this segment, it hoped that the decorative paints business would drive its growth.
In keeping with more evolved colour palettes, Shalimar had also begun to offer a colour tinting service called Color Space via a state-of-the-art machine computerised to mix and match imported colourants with high-quality bases.
Before we tell you how these plans panned out, let us go back in time a bit and narrate the story of the birth of Shalimar Paints.
It is ironical of course, that the paint of Indian aspirations was not ideated by an Indian family empire so yes this deep dive is not about an Indian business clan as much it about a brand that is now part of the great Indian family of painters, dealers, consumers and contractors.
In 1902, two British entrepreneurs AN Turner and AC Wright ideated and set up Shalimar Paints Colour & Varnish Ltd right on the banks of river Hooghly, near the Botanical Gardens. It was the first paint manufacturing plant in South East Asia.
This move demanded some amount of luck as there were no raw material suppliers or distributors at the time. Still, for over a decade, Shalimar remained a solo Indian player and continued to thrive despite two world wars and the entry of other foreign players like Elephant Oil Mills, Goodlass Wall, British Paints and Jenson & Nicholson and more.
With time, multinationals began to show interest in buying the company.
In 1928, the ownership changed hands and went to Pinchin Johnson & Associates of the UK who bought the company and assimilated it into their marine division called the Rod Hand Composition Co.
In 1963, management control of Shalimar went to Turner Morisson & Co. The company was then given the name it is known by today. Shalimar Paints Ltd.
By this time, the company had begun to dominate the industrial paints segment especially in marine paints, aviation coatings and large scale painting of thermal power plants.
In 1964, another shift happened when Shalimar became a part of the Courtalds Group of US with a 40 percent holding while another 20 percent was held by the Mehtas of Jardine Henderson.
Foreign ownership of Shalimar was diluted in the seventies when the Foreign Exchange Regulations Act, or FERA, was passed and commanded that foreign companies could only be minority shareholders in Indian firms. Because of this move, many foreign firms like IBM and Coca-Cola shut down their India operations and Shalimar, too, was at the crossroads. Shalimar then tapped the capital market and the foreign holding in the company was reduced to 60 percent. It was during this period that many competitors zoomed ahead.
During the years spanning between 1985 and 1990, the Courtaulds equity shares were sold to SS Jhunjhunwala of Hong Kong’s Delta Nominees and OP Jindal of the Jindal Group bought out the 20 percent stake from the Mehtas of Jardine Henderson.
The interesting trivia related to the ownership of OP Jindal Group is that once the Shalimar lunch served by the company was fit enough for kings with eleven sumptuous courses complete with drinks and desserts!
In 1972 Shalimar went public and in 1989, the company was acquired by the OP Jindal Group and the Hong-Kong based SS Jhunjhnuwala Group. From May 2015, the company is being managed by Mr Surender Bhatia as whole time director. Over the years companies like the Kansai Nerolac, US-based Sherwin Williams and even Asian Paints have eyed Shalimar Paints for a buyout.
As we said before, the company began to think forward in terms of new strategies in 2003. By then Shalimar had already set up its first plant outside Kolkata in 1992 at Nashik, Maharashtra. Then, in 2003, it acquired a plant in Sikandrabad near Delhi. In 2008, it entered into technical collaboration with KCI, Korea for pre-coated metal coatings.
In 2013, Shalimar Paints began what it called a “journey of strategic transformation” to aim at the top spot in the decorative paints segment. The company has figured decisively that today, it is key to become more consumer-centric and to offer more options by growing its decorative paint options.
Shalimar Paints today, Wikipedia informs, is present in over 2,000 cities and towns of India through a network of more than 8,000 dealers. The company has three manufacturing units in Howrah, West Bengal; Nashik, Maharashtra; Sikandrabad, Uttar Pradesh and a new plant is coming up in Goomidipoondi, near Chennai, Tamil Nadu. It has two Research & Development centres in Howrah, West Bengal and Nashik, Maharashtra, focusing on technology, product and process innovations. The company has a continuously expanding range of products in decorative paints and industrial coatings in both interior and exterior paints.
The company’s fortunes saw a resurgence in the early 2000s when the sector housing and infrastructure projects began to boom.
A future-forward vision
In 2014, Forbes India reported though that the company’s over-reliance in the past on the industrial market where, and we quote, “margins are low and business lumpy—reduced Shalimar to a shadow of its former self.”
According to this report, in 2014, in the five-player paint industry (excluding regional companies), Shalimar was the smallest. The company, said Forbes, was behind Asian Paints, Berger Paints, Kansai Nerolac and AkzoNobel (formerly ICI Paints). It closed in 2013 with Rs 483 crore in sales, compared to Asian Paints’ Rs 10, 418 crore.
The Forbes report narrates how subsequently board members Ratan Jindal, who runs Jindal Stainless Steel, and Girish Jhunjhunwala of Hind Group hired Sameer Nagpal, former vice president of industrial products company Ingersoll Rand (India), as CEO and managing director. The move was in the hope of increasing company profitability and improving valuation for investors. This is also when the company intentionally focussed its resources on the more profitable and fast expanding decorative paints segment.
We quote Forbes, “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. His initial research threw up many interesting insights, the most important of which was the discovery that it’s not always the customer, but the painter, who decides what brand to use. Painters care about timely availability and quality; it is their credibility at stake. Simply put, if they run out of paint in the middle of painting a wall, they need a replenishment of the exact shade of paint, otherwise they have to repaint the entire wall. It was here where Shalimar had stumbled: Even though it never stopped manufacturing products such as emulsions, protective coating and top coats, its quality diminished with each passing year.”
Nagpal also found that in the absence of quality checks and late payments to suppliers, the raw material was not up to the mark. He enforced a new quality control policy, to ensure that every product was put through new checks and balances.
He also noticed issues at the distribution level and says Forbes and we quote,” he pushed for the streamlining of depots that earlier worked with no strategic planning. He introduced one more layer in the form of a centralised distribution center to help declutter its depots. And, most importantly, he set up a forecasting cell to give the company an idea of how future demand will play out, which would enable factories to take decisions accordingly.”
Continues the Forbes report and we quote again, “Nagpal also had some cleaning up to do on the dealer front. Of Shalimar’s 8,000 dealers, 6,000 were doing business worth only Rs 10 lakh (or less) with them. Such small-scale of business leads to zero brand loyalty. To make matters worse, with slow sales velocity, dealers took as many as 90 days to pay Shalimar.
Nagpal decided, with his limited resources, to create some pull for the brand among dealers as well as painters. He regained lost ground with painters by holding regular workshops—a common practice among brands like Asian and Nerolac. Dealers were incentivised to recommend Shalimar, and were offered better terms of trade if they reached certain targets. This, along with dealer engagement, led to a 34 percent jump in decorative paints sales for its top 745 ‘club’ dealers.”
He also focussed on branding and advertising and Shalimar invested in an Rs 10-crore advertising campaign crafted by Wieden+Kennedy (the company that made Nike a household name and has worked with the homegrown Indigo Airlines and Forest Essentials).
What has held the company in the past through the various shifts in its fortunes, says the article, was that as an industrial paints company, despite its depressed profitability, it showed consistent top line and bottom line growth. We quote from the piece, “From 2002 to 2008, the stock even outperformed Asian Paints on the Bombay Stock Exchange. And in the last 10 years, it has given a compounded annual growth rate of 21 percent. Still, given its margin profile of 2 percent versus the industry average of 11 percent, its valuation is a fraction of its peers.”
So focusing aggressively on the decorative paints market has to be a well-calculated risk because it involves investment not just in new team leaders but also in the overhaul of the company’s IT back-end, depots and tinting machines.
In a 2014 interview to The Hindu, Nagpal seemed upbeat and we quote him, ” With focus only on the industrial segment and due to a combination of other factors, we missed the bus on consumer segment — decorative. We are now targeting growth and improvements in profitability to carve out a niche in this segment. We are now changing our strategy from industrial to decorative. We are working on the key success factors for this business. Now, we have articulated our positioning as “the art and science of paint”. Most of the other paint companies are focusing on emotion and colour, but we want to focus on paint and its quality. If we are able to successfully communicate the new positioning, our job will be done. So, our art and science strategy has two levels. First level is to offer good quality, and second level is to offer value proposition that others don’t. Why are we saying this? Shalimar was South-East Asia’s first paint company.”
So yes, in a way, the company has come full circle. As it colour corrects its course, it looks forward to reaffirming its place not just in history but in the future, and also show even big, storied companies need to alter their narratives with the changing times. https://www.moneycontrol.com/news/podcast/podcast-digging-deeper for more details on this.