Sirca Paints India Ltd Management Discussions

REPORT ON INDIAN ECONOMY

Current Performance (FY 2023-24)

The Indian economy exhibited strong growth in FY 2023-24, with a real GDP growth rate of 7.3%. This growth was primarily driven by robust domestic demand, significant contributions from the industry and services sectors, and substantial government capital expenditure. The economy showed resilience despite global uncertainties and adverse geopolitical developments. This performance exhibits robust private investment, which grew by 10.6%, and strong growth in the manufacturing and construction sectors, which expanded by 11.6% and 9.5%, respectively. Private consumption saw a modest improvement of 3.5%, while government consumption contracted by 3.2%. Exports grew by 3.4%, and a decline in imports due to falling crude oil prices helped improve net exports. The agricultural sector, however, faced challenges with a 0.8% contraction due to adverse weather conditions affecting crop production.

Key Economic Indicators

1. GDP Growth: Projected at 7% for FY 2024-25, reflecting strong domestic demand and investment.

2. Inflation: Inflationary pressures have moderated, thanks to proactive supply-side measures by the government.

3. Fiscal Deficit: The fiscal deficit is estimated to decrease to 5.1% of GDP in FY 2024-25, aligning with the governments goal of reducing it below 4.5% by FY 2025-26

Government Initiatives and Policies

1. Capital Expenditure: The government plans to increase capital expenditure by 11.1% to ?11.1 trillion in FY 2024-25, focusing on infrastructure development and economic growth

2. Taxation: There are no significant changes in tax rates. Tax benefits for start-ups and certain investments have been extended until March 2025

3. Foreign Direct Investment (FDI): FDI inflows have doubled compared to the previous decade, supported by bilateral investment treaties and a stable economic environment

Strategic Priorities for FY 2024-25

1. Resilience and Inclusivity: Building a more resilient and inclusive economy capable of absorbing external shocks.

2. Infrastructure Development: Increasing resources for capital expenditure to sustain infrastructure development.

3. Fiscal Federalism: Enhancing public infrastructure through coordinated planning and state-level support

Macroeconomic Stability

India has maintained macroeconomic stability with a significant reduction in the current account deficit and a revival of capital flows. The foreign exchange reserves provide a buffer, supporting the stability of the Indian rupee.

Global Perspective

According to the International Monetary Fund (IMF), India is poised to become the third-largest economy by 2027 in USD terms. Indias contribution to global growth is expected to rise significantly over the next five years

Conclusion

The Indian economy is on a strong growth trajectory, supported by strategic government policies, robust domestic demand, and significant capital expenditure. The focus on macroeconomic stability, infrastructure development, and fiscal consolidation positions India for sustained growth in the coming years. Despite global challenges, Indias economic fundamentals remain robust, promising a resilient and inclusive growth path.

( source : Ministry of Finance & Press Bureau of India )

PAINTS AND COATING INDUSTRY OVERVIEW

The Indian paint and coatings industry has experienced significant growth and transformation, driven by various economic and demographic factors. The industry has seen robust growth driven by increasing urbanization, rising disposable incomes, and government initiatives such as "Housing for All" and "Smart Cities". The Indian paints and coatings market is projected to grow from USD 9.60 billion in 2024 to USD 15.04 billion by 2029, at a compound annual growth rate (CAGR) of 9.38%.

The Indian paint industry is categorised into two segments - decorative paints and coatings, and industrial paints and coatings. Decorative paints and coatings continue to dominate the market, accounting for 74% of market value and 85% of market volumes, while the industrial segment takes up the remaining share. The decorative paint category has witnessed tremendous growth, with consumers shifting their preference from traditional whitewash to premium quality emulsion and enamel paints. This segment includes a wide range of products such as interior and exterior paints, design range, premier, enamel, wood finishing, and waterproofing. In the industrial paints and coatings segment, products such as automotive paints, performance coating liquids, powder coating, marine coating, and refinishes are included.

Key Drivers of Growth

1. Urbanization and Infrastructure Development: The Indian governments initiatives such as "Housing for All" and "Make in India" have spurred urbanization and infrastructure projects, boosting the demand for paints and coatings. These projects drive significant consumption in both residential and commercial construction

2. Increasing Disposable Income: As disposable incomes rise, consumers are investing more in home renovation and decoration, leading to increased demand for premium and branded paint products. This trend is particularly evident in urban areas, where the repainting cycle has shortened from 7-8 years to 4-5 years

3. Industrial Growth: The automotive sector, a major consumer of industrial coatings, has seen substantial growth. India has become the third-largest automotive market by sales volume, and this sectors expansion directly boosts the demand for automotive paints and coatings

Challenges and Opportunities

While the industry faces challenges such as fluctuations in raw material prices and regulatory changes, it also has significant opportunities for growth. The rising trend towards environmentally friendly and sustainable products is pushing companies to innovate and offer eco-friendly paint solutions. Additionally, advancements in technology and the increasing use of digital tools for marketing and sales are opening new avenues for growth

Innovation and Sustainability

The IPA emphasizes the industrys move towards sustainable practices. This includes the development of low-VOC (volatile organic compounds) paints, water-based formulations, and other green products. These initiatives are not only aimed at reducing the environmental impact but also at meeting the growing consumer demand for sustainable products

Future Outlook

The future of the Indian paint and coatings industry looks promising, with expectations of continued robust growth. Government policies, increasing urbanization, rising incomes, and the entry of new players with substantial investments are all set to drive the market forward. The industrys growth is strongly correlated with the overall economic activity, making it an essential barometer of Indias economic health

Overall, the Indian paint and coatings industry is poised for a vibrant future, supported by strong economic fundamentals and strategic investments from both established and new entrants in the market.

Wood Coating Industry Trends :

The Indian wood coating market is expanding rapidly, supported by the robust growth in the construction, furniture, and interior decoration sectors. Increasing urbanization and rising disposable incomes have led to higher demand for aesthetically appealing and durable wood finishes. According to market reports, the wood coating industry is expected to grow at a CAGR of around 7-8% over the next few years.

Key Drivers

1. Real Estate and Construction Boom: The growth in the residential and commercial real estate sectors significantly boosts the demand for wood coatings. New construction projects and home renovations increase the need for high-quality wood finishes.

2. Furniture Industry Growth: The Indian furniture market is expanding, fueled by increased consumer spending on home decor and the proliferation of online furniture retailers. This, in turn, drives the demand for wood coatings.

3. Consumer Preferences for Aesthetic and Durable Finishes: There is a growing preference for wood coatings that provide both aesthetic appeal and long-term durability. Consumers are increasingly looking for products that enhance the natural beauty of wood while protecting it from damage.

Segmentation

1. Product Type: The wood coating market in India includes various types of products such as polyurethane (PU) coatings, nitrocellulose (NC) coatings, acrylic coatings, and polyester coatings. PU coatings are particularly popular due to their excellent durability and finish.

2. End-Use: The market is segmented based on end-use into residential, commercial, and industrial applications. Residential applications dominate the market, followed by commercial spaces like offices and retail outlets.

Trends

1. Eco-friendly and Low-VOC Coatings: There is a significant shift towards eco-friendly and low-VOC (volatile organic compounds) coatings, driven by environmental regulations and growing consumer awareness about sustainability .

2. Technological Advancements: Innovations such as water-based coatings, UV-curable coatings, and nanotechnology-enhanced coatings are gaining traction. These technologies offer better performance, faster drying times, and reduced environmental impact.

3. Customization and Premium Products: The market is seeing increased demand for customized and premium wood coatings that offer unique finishes and enhanced protective qualities. High-end consumers are willing to pay a premium for superior quality and bespoke solutions.

4. Increased Use of Digital Tools: Companies are leveraging digital tools and online platforms for marketing and sales, making it easier for consumers to choose and purchase wood coatings. Virtual reality (VR) and augmented reality (AR) technologies are also being used to help customers visualize the finished look of their projects.

Conclusion

The Indian wood coating industry is poised for significant growth, driven by strong demand from the construction and furniture sectors, advancements in coating technologies, and a shift towards eco-friendly products. Despite challenges such as raw material price volatility and competition from the unorganized sector, the market offers substantial opportunities for innovation and expansion.

COMPANY OVERVIEW

Sirca Paints India Limited (‘Sirca) stands tall as a beacon of excellence in the Indian wood coatings industry, with a wealth of experience spanning over two decades. The Company is renowned for manufacturing and selling premium wood coatings and decorative paints, under its exclusively licensed brands such as Sirca, Unico, Oikos, and DuranteVivan. Furthermore, the Company has exciting plans to expand its horizons in terms of both product portfolio and geography expansion. Sirca has been making remarkable strides in the Indian market, particularly in North India, where it has established a dominant presence as a market leader in premium wood coatings. The Company is leaving no stone unturned to expand its reach in other regions of the country. With this goal in mind, Sirca is strengthening infrastructure in the East, West, and South Indian markets, to strengthen its position and cater to the growing demand for its products. The Company currently operates two stateof-the-art manufacturing facilities, one for mass-market wood coatings products in Sonipat, Haryana, and another for wall paints and putty in the NCR region. Sircas unwavering commitment to quality, innovation, and excellence has helped it carve a niche for itself in the Indian paint industry, and with its upcoming expansion plans, the Company is poised for an even brighter future.

Customer Segment Sirca has primarily divided the market into two major customer segments:

Retail: The retail customer segment, which constitutes almost 70% of the revenue stream, is served by Sircas strong and expanding distribution network of more than 2,346 dealers & distributors, supported by 11 branches & depots as well as 27 Sirca Studios across key markets. Sirca Studios offer an enhanced consumer experience giving customers and influencers a platform to better understand its products. The Company is expanding its dealer network in Southern, Western, and Central India, and strengthening distribution infrastructure to better serve these markets. To enhance brand recall, Sirca is increasing its advertising, marketing, and sales promotion spending, particularly in newly tapped territories, where it has developed a 360? marketing strategy. The Company has launched commercials on television in Hindi and other regional languages, as well as advertisements in various media. Additionally, Sirca is enhancing its outdoor presence by putting up shop boards at its dealer network, with over ~1,330 already installed.

OEMs : Sirca has been working with furniture and fixture manufacturers since its inception, providing premium wood coating solutions that have been widely adopted by OEMs. The OEM segment, which accounts for nearly 30% of the total revenue, has around 787 well-diversified clients, including Godrej & Boyce, Jindal Stainless, Indoline, Space Wood, Pyramid, MAS Furniture, Alsorg, and Soundarya Decorators, among others. Sirca has ensured utmost satisfaction and strong customer relationships by providing strong technical and after-sales support to OEMs, which has made it the primary, and often the only, choice for furniture manufacturers when it comes to wood coatings. The growing prominence of readymade, modular furniture over on- site furniture will increase this segments performance in the long run. This trend is fuelled by factors such as convenience, faster turnaround times, and a growing range of options. As a result of its ongoing innovation, new product introductions such as NC and Melamine coatings through the Unico brand, and excellent technical assistance, Sirca has become an essential vendor to OEMs and is well-positioned to take advantage of potential prospects in this area.

Recent Developments :

1. MOU with Oikos spa ( Italy ) : Under this agreement, Sirca will manufacture the five set high value products namely Ultrasaten, Supercolor, Rasokol, Il Primer and BLANKOR in India on the technology of OIKOS, Italy. These products are ultra-high-quality emulsions with A+ air quality standard, no smell, environmental friendly, and are the future products of decorative paint industry. With the increasing labor problems in India every year, these products will bring a revolution in Indian paint industry. Further, within six months from the date of signing of the above said MoU, both SPIL and Oikos shall form JV company in the ratio of 51:49 and will continue the above said arrangement of manufacturing high value paints and colors in India that shall be sold by SPIL in India and shall be exported to mutually agreed countries. Under this arrangement, SPIL not only will gain through by introducing high value added wall paints and colors in India but shall gain through by leveraging the presence of Oikos in 80 countries of the World.

2. Acquisition of Welcome Brand : New Wembley Products LLP is a thinner, reducer and retarders/ paint removers manufacturing entity. Under the trade name ‘Welcome makes a variety of interior finishing products for use on doors, windows, kitchen cabinets, and other interior surfaces for commercial, residential, and automotive applications. The acquisition enables the Company to increase its footprint in its line of business. The acquisition also provide benefits of synergy, growth, brand building and rapid increase in scale of business operations to SPIL. With the acquisition cost of INR 20 Cr, company aims to double the existing revenue of Welcome Brand in the coming years.

FY 24 Performance Review :

For FY 2024, Sirca Paints India reported significant growth in its financial metrics. Company has reported its high ever topline of Rs. 312 crores delivering a growth of 16% from last financial year and EBITDA growth of 12% and PAT growth of 12% as compared to last financial year.

EBITDA margin for the whole year stood at 22% and on the balance sheet front, continuous efforts are on reducing the working capital base. And we have also planned a CAPEX of Rs. 10 crores in this financial year, which will be done from internal accruals for the new plants for producing the OIKOS products.

Outlook :

Looking ahead, Sirca Paints aims to consolidate its leadership in the premium wood coatings market while exploring opportunities in related segments. The companys growth strategy includes expanding its distribution network, launching new products, and enhancing brand visibility. With a strong financial foundation and strategic initiatives ( JV with Oikos & Acquisition of Welcome Brand ), Sirca Paints is well-positioned to capitalize on the growth prospects of the Indian paint industry.

Internal Control System and Risk Management

Sirca has implemented an effective internal control system designed to protect against unauthorised use or disposition of assets, ensure accurate reporting, and conduct business operations according to prescribed policies and procedures. The Audit Committee and management have reviewed the adequacy of the internal control systems and taken suitable steps to improve them. The Company recognises the importance of sound risk management and continues to strengthen its processes to identify, assess, and mitigate potential risks.

Human Resource

Sirca Paints India Limiteds HR domain is committed to delivering top-notch services to its stakeholders, empowering them with cutting-edge business tools, frameworks, and analysis for effective management of the workforce. Skilful management of the workforce is key to achieving transformational goals, enabling managers to tackle daily tasks, from recruitment to development, and furnishing senior management with insights that support strategy and decision-making. To this end, Sirca is continually investing in technology and modern infrastructure, expanding its stateof-the-art software for workforce analysis and planning, a strategic innovation that also supports the Companys innovation and digital agenda. Managers are equipped with people analytics and a workforce planning solution. The strategic planning process leverages workforce tools to create a holistically automated, cost-focussed workforce plan, fully integrated with the business-wide strategic planning process. Moreover, to support employee performance, Sirca India has already introduced the Sirca Parivar App, empowering them to track their performance. Sirca Paints India Limited is unwavering in its commitment to employee well-being, referring to its workforce as an ‘ASSET of the organisation. The company follows policies and procedures that promote better productivity and a positive work environment, ensuring that employees are valued and their contributions are recognised.

Cautionary Statement

The Management Discussion and Analysis and the rest of the annual report may contain forward-looking statements describing the Companys objectives, projections, estimates, and expectations. These statements are subject to various risks and uncertainties that may cause actual results to differ materially. Factors that could impact the Companys operations include economic and political conditions in India and other countries, interest rate volatility, changes in government regulations and policies, tax laws, statutes, and other incidental factors. The Company does not undertake to update these statements.