Raw materials, freight costs reduce Nippon Paint’s 2021 margins

One of the impacts of the Covid-19 has been the disruption in global supply chain, with prices of raw material (RM) as well as freight and logistics cost turning skywards over the last 28 months.

Nippon Paint India, a supplier of automotive paints to Indian OEMs and aftermarket, said its operating margins in CY2021 were impacted, despite four price hikes for its aftermarket product portfolio.

“RM costs rose to the tune of 200 percent in some cases. This hike is a combination of the price of the material itself, and higher freight charges. A container from China is up to seven times more expensive today than pre-Covid,” said Sharad Malhotra, president, Automotive Refinishes and Wood Coatings, Nippon Paint India told Autocar Professional.

“While we managed to build our supply chain to service market requirements in terms of volumes, rising input costs significantly impacted our operating margins last year,” he added.

The paint supplier’s CY2021 auto-refinish business revenues stood at Rs 300 crore, a 50 percent YOY growth on the back of a low year-ago base due to the heavily-disrupted CY2020.

De-risking supply chain

Nippon Paint has out in place a de-risking strategy to secure alternate suppliers outside China. “We have gone outside China to de-risk the supply chain, develop new suppliers, and localise our supply chain in India. As we use between 400 and 500 kinds of raw materials, we are still a long way off before we can confidently say that we are not dependent on any particular country for our raw material supply,” Malhotra said.

“We have making our supply chain planning more robust and intuitive by using tools like SAP and other forecasting methodologies,” he added.

Export growth

The pandemic, however, has opened another growth frontier for the company, which forayed into 15 markets overseas in two years with its aftermarket refinish paint products. “ We now export automotive refinish products from India to about 15 countries, with Indonesia, UAE, and Australia being in the top 3. We are also exporting to the Middle East and South East Asia region, and are now targeting Africa, ” Malhotra said.

CY2022 outlook

Despite Omicron wave, Malhotra says things on the business front look promising. He is hopeful of seeing a turnaround in the supply chain in 6-9 months, and is bullish about growth for this year.

“The growth in 2021 was on a very low base. Recording a similar performance this year would be much more challenging but we are setting ourselves up for it. We are looking at a 50 percent growth in 2022 as well,” Malhotra said.