It's been a year and a half since Indigo Paints listed. When the fifth-largest decorative paints manufacturer in India listed in January 2021, it had a blockbuster opening.
In a freewheeling interview with Moneycontrol’s Consulting Editor Anuradha Sengupta in an episode of the Life After Listing show, Indigo Paints’ Chairman and MD Hemant Jalan talks about the journey of the company, before and after listing.
Jalan says the current volatility in the market is due to factors that are beyond anyone’s control. “So there’s no point in worrying about things that you can’t control. The only thing we look at is how we are doing relative to other paint companies in the listed space,” he noted.
Edited excerpts from the interview.
Q: It's been a year and a half since Indigo Paints listed. What’s the last year been like? How substantially has life changed?
A: Managing investor relationships – it didn't exist earlier. We had only one investor, Sequoia Capital. Now there are dozens of existing investors and potential investors. So engaging with them becomes one added responsibility.
I think one has to be a little more mindful of what one says in public because there is more limelight on you. I remember our earlier board meetings. They were all only about discussing business strategy. And now 50 percent of the time, it’s about corporate governance, which the independent directors are naturally mindful of, and they should be.
One also has to be a lot more careful about sharing information, even with our own team. Previously, at the end of every month, we shared every little detail with our team of 70-80 people across the company. Now we can’t do that. It would be illegal. So we have to be sensitive about sharing unpublished price-sensitive information. So those are some of the restrictions that come on. Otherwise, it hasn't changed very much.
Q: The markets have been so volatile in the past few months… Most share prices have tanked. How do you, as founder, promoter and managing director, look at that? How do you look at this volatility? How do you look at valuation?
A: Well, I’d be lying if I said I didn’t have an eye on it. But do I check the share price of our company five times a day? The answer is no – I’ve never done that. And the volatility in the market is due to factors that are beyond anyone’s control. So there’s no point in worrying about things that you can’t control.
The only thing we look at is how we are doing relative to other paint companies in the listed space. Now, if everybody is going down because of some war in Ukraine or some global energy crisis or the Covid outbreak, there's no point in worrying. But if others start doing well and if our share price doesn't do well, then it becomes a point of concern. But fortunately, that has not been happening.
Q: Your market strategy was very different from the entrenched players, the peers. You accessed your customer not from the metros but from tier-3, tier-4 towns. You went the other way. What made you adopt this strategy?
A: When we were very small – and I'm talking about 15 to 20 years ago – one didn't really have the luxury of sitting around the table and saying, let's draw up a strategy. You're more in the survival stage at that time. So luxuries like strategy come more as anecdotal things that you pick up along the way. One realised by firsthand experience that selling in the metros and the large cities was very difficult because we had zero brand equity – nobody knew our brand. We found from experience that the moment we ventured out of the big cities, selling was not as difficult.
Q: So dealers will play a bigger role there.
A: The influencing role of the dealer is much more than the requirements of brand equity. So we said okay, if that is what works for you, you go and work there and focus your attention there. Over time, that became a very conscious strategy. It didn't take more than a couple of years to understand that that was the only way to go. However, is that going to carry us for the next 15 years? Probably not.
Q: And you're making that pivot now?
A: We are making that pivot now. Strategy can never be something constant in the entire length of a company's journey. It needs to be tweaked every now and then. So now, the attention is shifting away to the more larger cities than the ones that we had been servicing up till now.
Q: When you want to reach out to these markets – and that is the focus area now for further growth – what more will have to be done?
A: Different kinds of engagement with the influencer community has to be done. So, the painters and the contractors play a very important role in influencing the choice of the brand. As you move to larger and larger cities, the role of the dealer gets less and less and the role of the influencer becomes stronger and stronger. So it is completely reorienting the focus of the company.
The low-hanging fruits in the smaller towns are done, which was the more difficult part because you're talking about accessing the hinterland of India and setting up networks there. Now, you're talking about a comparatively lesser number of cities, which are more hospitable to travel to and to work around.
I would say the hard part is done. But you have to completely change the focus of the entire sales force to these towns where you were not focusing on and slight changes in the manner in which you work.
Q: Would you be able to illustrate that?
A: The challenges of working with an influencer in a big town – and when I say big town, I’m not talking about a Mumbai or a Delhi as yet – you’re talking about towns with a population in the range of 50,000 to 10 lakh as opposed to towns that we were servicing, which were generally less than 50,000 population by and large.
The challenges are different. The behavior of dealers is slightly different, the behavior of influencers is slightly different. So, it’s just working with the influencers, explaining our schemes to them, the way we have done it in the smaller towns, and –
Q: Building relationships...
A: Absolutely. And a relationship has many dimensions. One is the financial part, the incentivisation. The other is a conviction about quality, which is very important. No influencer is going to recommend your paint just for financial incentives. Financial incentives are more of hygiene. The necessary condition is a conviction about your quality, where we think we are on a very strong wicket.
I think we’ll manage to make that pivot quite successfully. It won't happen in a month… We've been trying it for the last two, three months. We're beginning to see success. It may take another few months before that complete change in focus in the sales force comes about.
Q: What are you personally focused on, hands-on, right now? When we met you a little bit earlier, were you having a sales meeting?
A: So, there’s been a lot of turmoil in terms of raw material prices and selling prices in the paint industry. I was just communicating to the senior people in the marketing side as to what the latest costing structure of the company is and how far they can go as far as offering schemes etc., are concerned. And that's about it. And after that, they will design their schemes and do all that.
Q: You mentioned raw material prices, commodity prices, inflation – it’s affecting every aspect of life today. What’s the headroom there? How do you accommodate this in your growth plans, this kind of inflation we're seeing?
A: It’s tough. It makes the whole environment a little unpredictable because when raw material prices go up, traditionally, the price increase of raw materials would get passed on almost immediately to the customer. In this particular scenario, last year was the first time in the last 20 years that we saw the price increase on the selling side... It was long overdue and therefore the volume of that price increase was very sudden and very high.
But since then, we have seen a return to the earlier regime of having minor price increases of half percent, once every two months or something as and when raw material prices go up. So I think all that volatility seems to be behind us.
Q: How do you see the current economic environment impact consumer sentiment?
A: So far, it’s okay. The brunt of inflation, I think consumers have taken it in their stride, at least as far as paint consumption is concerned. If inflation continues to be at a high level in the next one year or something, at some point in time, will it start affecting demand? It probably will. We are hoping that that would not happen. We are hoping that with the monetary steps the RBI is taking and interest rates moving up… inflation will start moderating sooner than later. And as long as that happens, we don't foresee any great upheaval in terms of the demand trend.
Q: If someone looks at your CV – IIT, Stanford, Booth, MBA, Master’s in Chemical Engineering. It’s a CV, which in the time that you went to the US to study, would have meant that you would have probably been picked up by one of the Fortune 500 companies and stayed on and gone on to have a very, very high-profile career. What made you want to come back to India?
A: I guess I was never comfortable about settling down in the US. I mean I saw many Indian families who are settled, you know, financially. Standard of living and quality of infrastructure – all that was great and all that was fine, but somehow deep down you felt that you would always be a second-class citizen.
Let’s say that I just yearned for India, I missed India. And I enjoyed living in India. It was great to have a paid vacation for three years where the university is funded and gave me the best possible education that I could hope for, but was never really tempted to settle down.
And I knew that if I had to come back, it was now or never. So that was 42 years ago. There's not been a single day in my life when I've thought back and said, did I do the right thing or not? That never came to my mind.
Q: Tell us about Sequoia Capital’s entry as equity partners. How did that happen because that really was a pivotal moment in Indigo Paint’s journey?
A: Much more so than probably the IPO, it was a major turning point and a very, very major milestone in the history of the company. We'd never planned it that way. A small investment banker kind of ferreted us out. He heard something about us from some of our major raw material suppliers for whom he had been working. And he just made a cold call and said he wanted to meet and help us raise equity. So I said, that's not what we were planning to do, but no harm in meeting.
We were amazed at how much background research he had done on us. He said, you can raise private equity from a VC fund or something. And at that time, the thought of partners, you know, partnering with whatever 20 percent, 25 percent, 15 percent of ownership just sounded so horrendous, you know? Why would I do that? He kept coming back – he was a persistent guy and tried to explain to us that we had great, ambitious plans and this would help compress the timeframe to achieve them.
I talked to some of my friends who had raised capital and they said if things work out well, there is so much money to be made that the percentage doesn't matter. And if things don't work out well and if the company goes down the tube, then whether you own 70 percent or 100 percent, it still doesn't matter. So take it, it's a good opportunity, they said.
And Sequoia was such a big brand name that the decision was easy. We kind of had instant chemistry… It's been eight years and there's never been a single moment of mistrust on either side. They've just been fabulous partners.
Q: I think you’re No. 5 now, Indigo Paints, in terms of market share? How do you see this strategic shift from the hinterland in the context of the competitive landscape? Because this is where your competitors are even better entrenched, isn't it?
A: You know, I would openly tell our team that the desire is to get to No. 1, or as close to it as possible. And at that time, there was complete laughter in the audience. What is this crazy guy talking about?
I guess, now, when we talk about it, it is no longer greeted with laughter but greeted with wide smiles. Okay, the guy is very ambitious. So what I mean, that's what you live for. I mean, what else do you work for? Certainly not for personal money or wealth anymore. And I mean, you've crossed that stage long ago.
Otherwise, at the age of 64, I should have retired a few years ago. But I don't feel like doing that for maybe another 10 years at least.
No matter how difficult it sounds, the paint industry was very competitive. So yeah, at that time, when we were a Rs 5 crore company, we were competing with Rs 10 crore and Rs 15 crore companies. We never thought about the big players.
Q: And now you're a Rs 900 crore company.
A: Yeah, we were Rs 900 crore last year. Maybe this year will be, you know, 40 percent more or something like that? So, at least you're in the big league. You're a smaller player in the big league, of course…
A: What's your goal for the next 10 years? What is that burning desire that keeps you coming to work?
A: You will laugh, if I tell you. I will hesitate.
Q: No, no, please, I will not laugh.
A: No, definitely, the desire is always to be the largest. Now, whether that can happen in 10 years? Unlikely. But can you get close to that in 10 years? Possibly.
Q: What significance does wealth have when you are wealthy? And when companies go public, that's when you actually know how much somebody is worth, right?
A: It means a lot at an earlier stage, it doesn't mean anything now.
Now, I think one crossed that stage at least five, six years ago, where there was nothing material in life that one desired, which one could not already afford. After that, further accumulation of wealth is just adding some zeros onto your personal balance sheet. It doesn't mean anything. And I don't think any sensible entrepreneur, after reaching that stage, works keeping that in mind or that ever crosses your mind in the course of the working.
Frankly, no, it doesn't mean anything at all. You have to work for a challenge. You want to create a legacy. You want to create wealth for all stakeholders around you. Now, the stakeholders are varied, of course. They are your employees, they are your shareholders, your customers, your suppliers and a whole lot of other people who are connected with you. That starts giving you a much, much greater kick in life than any personal material acquisition.
Q: So wealth is the ability to continue to make wealth for others, to spread it?
A: And have one less thing to worry about.
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