The Directors of your Company are pleased to present the 103rd Annual Report and the Audited Financial Statements (Standalone and Consolidated) for the year ended 31st March, 2023 (“year under review / FY 2022-23"). The section on Management Discussion and Analysis includes a review of the financial performance of the Company -Financial Highlights of the Company’s standalone financial results, key financial ratios and the dividend recommended by the Directors. It also includes the particulars of the subsidiaries of the Company including overseas subsidiaries and their performance during the year under review.

1. MANAGEMENT DISCUSSION AND ANALYSIS

INTRODUCTION

Established in 1920, Kansai Nerolac Paints Limited (‘KNPL’) is a subsidiary of Kansai Paint Co., Ltd., Japan (‘KPJ’).

Apart from its primary operations in India, KNPL operates in Nepal, Sri Lanka and Bangladesh through acquisitions and joint ventures. It is one of India’s largest Coatings companies with leadership in industrial coatings. We have a sizeable market share in Performance coatings and a strong leadership position in Automotive and Powder coating businesses. In Decorative, we are the 3rd largest paint player in the country. In recent years, we have gained good traction in Auto Refinish, Wood finishes, Construction Chemicals and Adhesives.

KNPL’s strong position is due to its continuous intellectual and human capital investment. The Company’s access to global technology has helped provide Indian customers with products and solutions that are unique, environmentally friendly and cutting-edge.

KNPL, one of the industry’s most trusted brands, designs solutions that protect, inspire, and touch lives every day. Through our painting solutions, we provide ‘Beauty and Protection’ to everything that a household uses on a daily basis be it paints for homes (interior & exterior, wood finishes), automobiles (4-wheeler, 2-wheeler), consumer durables (fans, microwaves, refrigerators, washing machine), personal use articles (hair clips, artificial jewellery), transportation infrastructure (bridges, metro rail). This is why we say ‘There is a little bit of Nerolac in everybody’s life’.

People are at the core of KNPL’s strategy. KNPL prioritises its employees, creating a culture of openness, collaboration, and empowerment while emphasising employee well-being, growth, training, and engagement. It believes that happy employees create differentiated outcomes in the workplace and marketplace.

In the Industrial business, the strategy is profitable growth, premiumisation, network expansion and entry into new segments. We leverage our global collaborations and technology leadership to provide our customers with sustainable solutions with an enhanced value proposition. In the Decorative business, the strategy is to engage with all stakeholders to provide innovative solutions. The Company offers consumers technologically superior and differentiated products under the brand ‘Paint ’. This year the Company has embarked on creating a new services offering and has increased its connection with Influencers.

KNPL has been aggressively augmenting its capacity over the past few years to match the demands of its expanding product portfolio. The Company has committed investments for a new plant in Vizag and in augmenting capacities in existing plants.

We further plan to advance towards the future with the purpose, vision and the brand promise of KNPL. Aiming to

capture our customers’ admiration by diversifying our product range and showcasing our commitment as a responsible member of society through a strong focus on sustainability, we continuously strive to evolve into a superior company, shaping the future of Nerolac.

INDUSTRY PROGRESS

Over the years, the Indian paint industry has achieved remarkable advancements marked by substantial growth and progress. It has witnessed notable expansion in terms of market size and emerged as one of the leading paint markets worldwide. The industry has experienced a doubledigit Compound Annual Growth Rate (CAGR) in recent years, driven by various factors, including urbanisation, growing disposable income, and increased construction and infrastructure projects. This continuous expansion can be attributed to the dynamic landscape of the Indian economy.

India’s per capita paint consumption has been steadily increasing, driven by a growing middle class, changing lifestyles, and a shift towards better quality and decorative paints. The rise in urbanisation has also led to an increased demand for paints and coatings in both residential and commercial sectors. The Indian paint industry has embraced technological advancements, leading to improved product

quality, durability, and eco-friendliness. Manufacturers have invested substantially in research and development, creating innovative products such as low-VOC (Volatile Organic Compound) paints, eco-friendly coatings, high-performance solutions, and specialised applications. The Indian Government’s focus on infrastructure development has significantly boosted the paint industry. Initiatives like Smart Cities, affordable housing schemes, and infrastructure projects such as roads, bridges, airports, and railways have generated a surge in the demand for paints and coatings. Moreover, there has been a gradual transition from the unorganised sector to organised players in the Indian paint industry. Prominent paint companies have expanded their distribution networks, established manufacturing facilities across the nation, and implemented robust marketing strategies. This transition has increased organised players’ market share and raised the industry’s overall quality standards.

With a growing emphasis on environmental sustainability, the paint industry in India has been actively adopting eco-friendly practices. Manufacturers increasingly offer low-VOC, lead-free, and water-based paints, considered more environmentally friendly. Several companies have also obtained certifications for adhering to international environmental sustainability standards.

Revenue from Operations for the year aggregated to f 7,081.02 Crores as compared to f 5,948.90 Crores for the previous year, reflecting a growth of 19.0%.

Average Crude oil prices during the year increased from USD 79.8/bbl to USD 92.6/bbl, a jump of 17% over the last year. The currency further depreciated during the year, impacting raw material prices.

Inflation which was very high at the beginning of the year started tapering downwards towards the second half of the year, which helped in some margin improvement.

The Company continued its efforts to control overheads, and all departments worked on their tasks and achieved the result.

During the period, the Company granted 11,92,792 restricted stock units to eligible employees as determined by the Nomination and Remuneration Committee of the Company. Consequently, employee benefits expense includes a provision of f 3.75 Crores made towards Share-Based Payment Expense for the year ended 31st March, 2023.

PBDIT for the year was higher at f 793.89 Crores compared to f 647.34 Crores, reflecting a growth by 22.6%.

Depreciation for the year was f 164.63 Crores, slightly higher compared to the previous year.

Other income was lower at f 30.83 Crores as compared to f 32.86 Crores in the previous year.

PBT for the year was f 650.36 Crores as compared to f 516.51 Crores (before exceptional item) of the previous year, reflecting a growth of 25.9% over the previous year. PAT was higher at f 486.43 Crores compared to f 374.33 Crores, reflecting growth of 29.9%.

The Company did not accepted any deposits covered under Chapter V of the Companies Act, 2013, during the year.

There were no significant or material orders passed by any Regulators, Courts or Tribunals against the Company which could impact its going concern status and the Company’s operations in future.

There was no change in the nature of business during the year. There were no material changes and commitments affecting the financial position of the Company that occurred between the end of the financial year of the Company to which the financial statements relate and the date of this Report.

Dividend

The Board recommended a final dividend of 270% (f 2.70 per share) for the year ended 31st March, 2023, compared to a total dividend of 225% (f 2.25 per share) for the year ended 31st March 2022.

Bonus

The Board has considered and approved the issue of

1 bonus equity share of the face value of f 1 each against

2 equity shares of the face value of f 1 each. This is subject to shareholder’s approval.

Subsidiaries and Consolidated Financial Statements

In terms of the provisions of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI Listing Regulations”), the Board approved a Policy for determining material subsidiaries. The same is also available on the website of the Company at www.nerolac.com. Further, in terms of the said policy, the Company does not have a material subsidiary.

Indian Subsidiaries

Nerofix Private Limited

On 31st March, 2023, KNPL has entered into a Share Purchase Agreement with Polygel Industries Private Limited (Polygel), its Promoters and Nerofix Private Limited (Nerofix) for acquisition of the remaining 40% of the total shareholding of Nerofix from Polygel for cash consideration of f 37 Crores. The said shares have been transferred to the Company on the same date. Consequent to the said acquisition of shares, Nerofix has become a wholly owned (100%) subsidiary of the Company.

Nerofix has become a wholly owned (100%) subsidiary of the Company.

The turnover of Nerofix was at f 146.80 Crores compared to f 110.42 Crores in the previous year. EBDITA for the year grew to 3.7% as compared to 1.7% of the previous year. Nerofix achieved a profit of f 0.10 Crores as compared to a loss of f 3.69 Crores during the previous year.

Overseas Subsidiaries

Operations in Nepal

During the year, the turnover of KNP Japan Private Limited, the subsidiary of our Company in Nepal, was at f 81.16 Crores as compared to f 84.00 Crores of the previous year. EBDITA for the year decreased to 11.0% from 13.4% on Y-O-Y basis. Profit After Tax stood at f 7.04 Crores compared to f 9.08 Crores in the previous year.

Operations in Sri Lanka

The turnover of our subsidiary in Sri Lanka, Kansai Paints Lanka Private Limited, for the year was f 26.73 Crores compared to f 23.71 Crores during the previous year. The Company’s loss narrowed to f 3.48 Crores during the year compared to a loss of f 17.64 Crores in the previous year.

Operations in Bangladesh

The turnover of our subsidiary in Bangladesh, Kansai Nerolac Paints (Bangladesh) Limited for the year stood at f 239.48 Crores compared to f 230.54 Crores in the previous year. EBDITA for the year improved to 2.2% from -1.4% on Y-O-Y basis. The said subsidiary incurred a loss of f 13.27 Crores during the year compared to a loss of f 22.41 Crores during the previous year.

The consolidated financial statements of the Company as on 31st March, 2023, were prepared in accordance with applicable Accounting Standards and form a part of this Annual Report. All the subsidiaries of the Company as on 31st March, 2023, have been considered in the preparation of consolidated financial statements. Further a separate statement in Form AOC-1, containing the salient features of the respective financial statements of subsidiaries of the Company, forms part of this Annual Report. Also, Annual Audited Financial Statements of all subsidiaries of the Company are available on the Company’s website at www.nerolac.com.

SEGMENT-WISE PERFORMANCE

KNPL has only one segment of activity, namely ‘paints’, in accordance with the definition of ‘Segment’ covered under the Indian Accounting Standards (Ind AS) 108 on Operating Segments. The performance of the Company is discussed in this Report.

MARKETING

Decorative Business

Overview

During FY 2022-23, Nerolac adopted a comprehensive approach and invested in several initiatives to enhance its relevance to more customers as well as improve its value proposition. Premiumisation, Digitisation, Sustainability and Convenience are some of the key elements of the Company’s approach.

The Company’s growth strategy revolved around providing a unique customer experience by introducing NXTGEN painting and consultation services, enhanced engagement with painters, collaborating with Architects and Interior Designers, upgrading its digital infrastructure, expanding into smaller cities, network expansion and offering a new range of healthy home paints to enhance customer delight.

Product Proposition (Paint ) and New Product Launches

Through its Paint offering, the Company positions its offerings uniquely and identifies new product niches. Under Paint brand offering, the Company aims to offer customers the best-in-class experience and continuously develops innovative products to enhance its premium and luxury range. The unique offering can be in form of paint properties like sheen, stretch, durability, warranty or the price point at which it is offered.

New Launches in Premium Category:

The introduction of new products like ‘Impressions Kashmir’ and ‘Nerolac Excel Everlast 12’ in its healthy-homes portfolio has increased the growth in the Premium category. Impressions Kashmir is a high-end interior emulsion paint with a unique no-smell feature, ultra-luxury sheen finish, and HD colors. It uses Japanese technology and has high durability, making it an ideal choice.

Nerolac Excel Everlast 12 is a highly durable UV-resistant water-based exterior emulsion with a self-cleaning property that removes dust with rainwater. It resists diverse harsh weather conditions with excellent anti-algae performance and durability, fortified with ENCAP additives.

The emulsion top coat offer superior and long lasting whiteness, excellent coverage, protection and durability, while the base coat primer provides better hiding and adhesion to the surface. It is suitable for use on a variety of surfaces, including wood, metal, and plaster, and is available in both oil-based and water-based variants.

Marketing and Brand Building

We further built on our new brand expression Paint during the year by expanding the product portfolio with new launches. The products provided unique properties using Japanese technology. We brought to life our Nerolac jingle in our advertisements and communication to ensure consumers relate to our brand legacy.

The Company used various channels to reach its target audience, including TV commercials, print advertisements, radio advertisements, outdoor hoardings, OTT platforms and other online advertising. It also had a presence on marquee events like IPL and Asia Cup on Star Sports, Indian Idol on Sony TV and other regional properties to showcase its products, building relationships with customers and ensuring high brand visibility across key markets. The Company launched a new TV commercial with Brand Ambassador Ranveer Singh to promote Impressions range of products.

Social media platforms like YouTube, Facebook, Instagram and Linkedin were leveraged to reach out to a larger and relevant set of audience. Digital marketing was rightly used to reach out to a large set of consumers at the country level as well as to a very specific set of consumers in a particular locality.

The Company’s website underwent a changeover to guide the visitors better with improved SEO (Search Engine Optimisation) capability. Detailed product portfolio and offerings are available on the Company’s website and continuous social media presence to engage with customers and build brand awareness.

Consumer Services

NXTGEN programme is the Company’s move ahead to touch base with the customer to offer superior painting experience. The Company aims to provide a hassle-free and seamless painting service, ensuring customer satisfaction. NXTGEN Painting Services offers a range of services, including expert visits, site preparation, colour consultation, and application, all delivered by a team of experienced professionals. The services are now present in large number of cities in the country and consumers can avail this just by placing a request on our website or any of our ad campaigns on social media platforms. During the year, the number of houses painted were more than 20,000.

Nerolac’s NXTGEN Paint Consultancy services are one of its kind in the industry. It provides professional advice and guidance on painting to customers. KNPL NXTGEN Paint consultants have extensive knowledge and experience and work closely with customers to provide tailored solutions that meet their specific needs. Additionally, they offer guidance on application techniques and post-painting maintenance as well. The service was launched in one of the metro cities and received quite a good response and positive feedback from consumers who availed this service.

Nerolac’s NxtGen shoppe provides a unique and immersive experience for consumers, catering to all their home painting needs. This experiential centre offers a comprehensive range of painting solutions, including an extensive selection of paints, wood coating finishes, wall design inspirations, and waterproofing solutions. The aim is to assist consumers in making informed and efficient decisions when it comes to choosing the right paint and colour for their walls. The store features a personalised colour preview service, allowing customers to visualise and select colours for both their interior and exterior walls. We have more than 40 stores nationwide and plan to expand this network further in the upcoming year.

Influencer Engagements Influencer Management Team:

During the year, the Company significantly grew its headcount of Demand Generation Assistants (DGAs) covering a large number of cities. The DGAs are the first point of contact for painters and play a pivotal role in creating awareness of product schemes and benefits. They played a critical role in expanding the Company’s reach to individual painters with customised value proposition. The sales structure to manage the influencer programme at city, State and country level was put in place.

Launch of Nerolac NXT Range:

This range of products was designed and launched exclusively for NXTGEN dealers. During the year, 4 products were launched in Nxt series in top coat and base coats:

Pragati Program for Painters

This is Nerolac’s flagship programme to engage with painters and contractors. The Company offers several benefits and schemes to painters through this programme. It has been made more attractive with the DBT initiative, a Direct transfer of rewards to painters’ bank accounts in real time. This has attracted more painters to this programme. During the year, the Pragati app was enhanced with more features and ease of use.

Also, more than 61,000 painters were imparted advanced training in paint application through classroom sessions or by using a Mobile Training Academy.

Illuminati Program for Architect & Interior Designer

Nerolac launched its first edition of ‘Illuminati’ programme

to capture the interest of leading professionals i.e., Architects and Interior Designers (AIDs) vital to the industry. It promises to offer professionals future-ready technology in paints as well as outstanding customer services. Best-in-class AIDs were invited to be a part of this club. Members receive on-site consulting regarding paints and best practices for its application online with their project requirements. The Company has also developed an app (LEAD) for this. Through the app, the user can get details about products and schemes, and register themselves and their site.

The programme has received a very good response from the Architect community.

Wood Finishes

The Wood Finish business did extremely well during the year and more so in the premium segment. The wood finish portfolio was expanded through the launch of a specialised paint product called Nerolac Termiprotect, which provides long-lasting protection to wooden surfaces against termite infestation. This easy-to-apply product is suitable for both interior and exterior surfaces. In addition, specialised products such as Bio Coatings, which have Green Guard certification, were also launched.

The ICRO range, a premium wood coating range comprising Polyester, Acrylics and Water-Based PU range, has now been launched in South and East markets. The introduction of ICRO colour dispensing and mixing machines has enabled the promotion of pigmented products to end-consumers as well as Architects & Interior Designers.

Construction Chemicals

The construction chemicals category witnessed excellent growth during the year. The key growth drivers were distribution network expansion, deeper engagement with influencers and demand generation team for retail marketing. A dedicated technical support team was put in place for the project business. On the product side, the Company launched Damp Lock and NoDamp under the Perma range. Nerolac Perma Damp Lock is one component ready-to-use pre-putty application product that provides solution to waterproofing problems like efflorescence and dampness. NoDamp is a PU Hybrid high-strength fibre reinforced elastomeric waterproof membrane coating which provides up to 12 years of waterproofing and up to 14^o of surface temperature reduction.

KNPL also forayed into the tile adhesive and customised admixture category this year which has started to reap good results.

Adhesive

KNPL was present in the Adhesive business through its subsidiary Nerofix. During the year, KNPL acquired the balance 40% of equity shares of its subsidiary company Nerofix. With this, Nerofix became a wholly owned (100%) subsidiary of the Company. The subsidiary has an adhesive portfolio catering to the market’s retail and project segment.

During the year, the Adhesives business grew briskly, with network strategies and person-power deployed starting to reap results. Nerolac AquaSmart was launched in select

markets to establish KNPL’s presence in the premium adhesive category. Strong carpenter-level activations have helped improve preference for the brand. Our carpenter application, which was launched in the previous year, has helped us identify the right set of carpenters and have a more focused approach towards each market. During the year, 50% more carpenters were registered on our application compared to the previous year, with a more than 80% retention rate.

Projects

KNPL’s Projects business witnessed significant growth during the year. We expanded our reach to more cities. The Government, builders, and CHS segments have emerged as the main contributors to B2B opportunities. KNPL has increased its on-ground team presence to identify and create a demand pipeline. They connect with contractors & customers across markets and establish strong relationships with them. The team is equipped with various tools to drive conversions. On the product side, the Super series range of products was suitably modified to meet the customers’ specific requirements. Also, there was synergy created with the industrial products like floor coating and epoxy products, wherever required. The integration of the construction chemical and projects teams has positioned Nerolac as a complete solution provider with customers.

Distribution Network

Numerous initiatives were undertaken to strengthen the distribution network, effectively enhancing market penetration and serviceability. The Company has opened new dealerships and expedited the installation of CCD machines to expand its presence in the market, particularly in rural areas. In the financial year, the Company successfully established a network of 31,000 dealers. Additionally, the distributor model employed by the Company enables further market penetration by allowing distributors to appoint subdealers directly and install CCD machines. These measures collectively contribute to the Company’s increased market presence in Tier II, Tier III, and rural markets, consequently improving long-term serviceability and ensuring long-term success.

Digital Ecosystem

KNPL has implemented a digital ecosystem, a web of applications specially designed for all internal and external stakeholders. The set of applications provides visibility across the value chain. This visibility in real-time help us improve our processes and drive efficiency to reach out to our consumers. For example, an expression of interest generated online by

a consumer is tracked across all stages of the lead life cycle on the app.

We are also developing several tools to help our customers make the right choice - be it product selection, and scheme enrollment, among others.

Industrial Business

Overview

This year has been outstanding for our industrial coatings business segment, witnessing tremendous growth and success. Our unwavering focus on quality, cost, and delivery has made us the preferred supplier among major OEMs and ancillaries. We are proud to say that our industrial business segment has excelled in all segments, including automotive, performance coatings, and auto refinish. This remarkable growth was achieved on the back of high industry demand, aggressive targeting of new businesses, premiumisation of the product mix and expansion of the body shops network.

However, the cornerstone for any business and organisation is the leadership team’s vision, which has to formulate a business strategy by integrating macroeconomic and market inputs with Company strengths and delivering products and performance that translate into profitability.

We at KNPL have strengthened our leadership position in the Industrial segment by investing in state-of-the-art R&D facilities, identifying multiple technical collaborations to augment skills and capabilities, and expanding our body shop network. We believe that these strategic initiatives have enabled us to meet the industry’s growing demand and maintain our market leadership position.

In the recent years, due to unprecedented material price inflation, the profitability of this business has taken a severe hit. Collaborative approach with customers to ensure price increases and a profitable product mix helped us improve our profitability. We worked with customers to provide solutions based on different technology platforms like High Solids, Monocoat and Low Bake. Such technology platforms help customers reduce their carbon footprint and move them closer to their decarbonisation target.

As part of our commitment to sustainable solutions inline with global trends in green manufacturing, we have developed innovative products that reduce our carbon footprint and improve our customers’ environmental performance. Many of our products are first in their class and serve as benchmarks in their segment, thereby consolidating our leadership position in the Industrial segment. We are proud of our accomplishments and believe our sustainability commitment sets us apart from our competitors.

As we move forward, we are excited about the opportunities that lie ahead. Our branding and marketing efforts have also emerged as a key area of focus. We participated in the 15th CII India Surface Coating show as the principal sponsor, which allowed us to highlight our products and services alongside other paint, chemical, and equipment manufacturers. We plan to continue to leverage our Japanese association for access to superior technology, and also continue our investments in R&D, technical collaborations, and marketing efforts to maintain our market leadership position and meet the evolving needs of our customers.

Automotive Segment

Business Overview:

KNPL paints and coatings have the unique position of featuring extensively across multiple vehicle segments, including passenger vehicles, two-wheelers, and commercial and electric vehicles, thereby reinforcing leadership position. Our competence to promptly align with and respond to strong market demand in the automotive industry has been a driving force behind KNPL’s impressive performance this year, contributing to its exceptional performance. We have been awarded the best supplier title from various OEMs customers for our high service orientation and constantly meeting customer expectations on quality. Also, KNPL’s focus on sustainable solutions and the development of environmentally friendly products has earned its recognition as a responsible industry leader committed to developing safer and sustainable products. With continued investments in R&D and technical collaborations, KNPL remains committed to maintaining its market leadership position and further expanding its presence in the automotive sector.

Passenger Vehicles:

As a market leader in the automotive industry, KNPL achieved impressive growth in the passenger vehicle (PV) segment this year. With a healthy double-digit growth in value and volume, KNPL gained market share in this highly competitive segment, supported by a record number of production by OEMs.

KNPL’s advanced R&D capabilities and numerous technical partnerships have enabled the Company to offer innovative solutions for meeting the evolving needs of the automotive industry.

KNPL’s leadership strategy in the passenger vehicle segment is centred on innovation, sustainability, and strategic partnerships. KNPL’s recent foray into new segments such as seam sealer, underbody blacks, and alloy wheels, as well as its alignment with Kansai Helios for entry into the fasteners coatings segment, has further bolstered its position as a market trailblazer-leader. The Company has also successfully introduced a tin-free CED coating (heavy metal free) in the PV segment, furthering its commitment to providing green and sustainable solutions to its customers.

Two Wheelers:

In the two-wheeler segment, KNPL has achieved unprecedented growth in FY 2022-23, which has enhanced its market share and established the Company as a trusted supplier for its OEM customers. To meet the evolving needs of its customers, KNPL introduced innovative coating solutions that comply with E20 and E30, ensuring the coating’s resistance to 20-30% ethanol blending in petrol, which is a formidable achievement laying the foundation for many future innovations in this segment.

KNPL’s commitment to sustainability is evident in its enhanced focus on the development of technologies to support green products and services, and significant investments in R&D capabilities back this commitment to provide innovative solutions in line with global trends for the changing needs of the automotive industry. The Company launched energy-efficient products that reduce the carbon footprint during the use/application phase at the customer end. The Company’s two-wheeler segment leadership strategy focuses on maintaining its position as a market leader by providing high-quality products and excellent customer service.

Commercial Vehicles and Tractors:

In addition to the remarkable growth achieved in the two-wheeler segment, KNPL’s automotive business also witnessed significant contributions from the commercial vehicle and tractor segments. We have strengthened our position with major key accounts in these segments due to our advanced R&D capabilities and numerous technical partnerships. Under this category, the Company launched energy-efficient products that reduce the carbon footprint of its products during the use/application phase at the customer end.

Electric Vehicles:

As a significant player in the high-growth EV segment, KNPL has established a substantial presence across major OEMs and gained significant traction in market share. The Company has also focused aggressively on market penetration and expanding its portfolio by introducing vibrant colours to stay ahead of colour trends and meet its customers’ changing preferences in the electric passenger vehicle and twowheeler segments.

Performance Coatings Segment

Business Overview:

KNPL had a remarkable year, achieving substantial business growth during FY 2022-23. The Performance Coatings division of the Company expanded its basket of products and now provides a comprehensive range of coatings suitable for varied applications such as Powder Coatings, General Industrial, and High-Performance coatings. KNPL caters to customers across all market segments, from premium to popular and economy. The Company’s diverse client base includes industries such as Drums & Barrels, PEB, Electrical appliances, construction equipment, and helmets. With a wide range of coatings in its portfolio, KNPL ensures that it can offer its customers an extensive selection of options that meet their unique needs and preferences through its focus on research and innovation.

Powder:

KNPL achieved impressive business growth by focusing relentlessly on the premiumisation of its products and services and incremental sales despite facing an aggressive market landscape. The Company’s commitment to quality and customer satisfaction has enabled it to enter new and competitive businesses, drive healthy sales numbers, and enhance profitability.

With a formidable presence in OEMs, KNPL is now focussing on securing more approvals. The Company has a resolute commitment to delivering sustainable and environmentally friendly products, and it is pursuing a focused strategy on premium products to achieve a profitable product mix.

KNPL has the unique privilege of its products being used in some marquee projects, including the Mumbai Coastal road, Bullet train, and Mumbai Trans Harbour Link, where it uses a cutting-edge fluoro polymer-based system.

Liquid:

KNPL achieved impressive traction and success in the liquid performance coating segment by delivering high-quality products catering to a wide range of industries, including construction, architecture, packaging coating, bridges and pipe coating, and transformer coatings. This year, KNPL introduced tinting machines and focused on premiumisation. In parallel, the Company also constantly focussed on je-jigging its product portfolio by exiting nonprofitable segments with a singular focus on improved profitability. KNPL’s B2B distribution channel played a key role in driving sales in this segment, allowing the Company to reach a wider range of customers and deliver its products with greater efficiency.

KNPL’s innovative product, Neropoxy Solvent Free Coating for Water Pipeline Internal coatings, launched recently has already shown remarkable success, driving increased sales in the business segment. With its strong foothold in this segment and technological synergy with KPJ & Group companies, KNPL is well-positioned to maintain its growth trajectory and continue to meet customers’ evolving needs.

Auto Refinish

Business Overview

Despite being a late entrant in the Auto Refinish business, KNPL has witnessed rapid growth over the past few years, and the Company’s key focus now is to gain market share and continue its strong growth trajectory. To achieve this, the business strongly emphasised its body shop and retail channels. The Company expanded its body shop network through new wins and retention strategies. It also established a strong presence for its PU and alkyd range of products in the retail channel through dealer engagement programs and secondary channel activities.

Focus areas and achievements:

KNPL introduced eight new products to address unmet or untapped market segments and expand its range of offerings. The division now has a complete range of products to address the varying needs of the market, with a focus on launching new products and staying in sync with the latest technological and usage trends to improve and expand distribution.

KNPL has developed two fully operational training setups at Hosur and Bawal. The training facility enhances the skill set of body shop technical personnel, and the internal team. This initiative will help to develop and maintain a high standard of technical knowledge with organised training programs. KNPL has also improved its reach to customers through undertaking Digital initiatives. The Company is committed to providing a digital experience to its customers to enhance the overall customer experience. KNPL revamped the packaging across its range of products to improve visibility and create a more cohesive brand identity. KNPL has sustained and augmented its leadership position in the Industrial coatings segment backed by the Company’s market penetration focus fuelled by innovation and training.

RESEARCH & DEVELOPMENT (R&D)

Overview

KNPL’s R&D team is focused on developing innovative solutions that cater to its customers’ dynamic needs while aligning with the organisation’s sustainability objectives. During the year, we have been granted 2 patents and submitted 4 research papers. KNPL has consistently provided its customers with a range of new and unique shades and environmentally friendly products that offer the best value.

Along with its technical expertise, KNPL also possesses a keen understanding of the constantly evolving preferences of consumers. To facilitate the development of new colour options, the Company has established a dedicated colour design studio that features over 7,400 innovative shades. This space is utilised for design research, enabling more effective trend analysis and reporting. Additionally, the studio serves as an ideal setting for customer presentations and shade selection, ensuring a seamless experience for all involved. Silicon-PU Acrylic hybrid technology, Tin Free CED, Low-density PVC sealant were some of the key technological advancements during the year.

Collaboration with Kansai Paint, Japan, Kansai Paint Group Companies and other Partner

KNPL has sustained its technological dominance in industrial coatings by staying ahead of the competition with assistance and technical guidance from Kansai Paint Co., Ltd., Japan (KPJ), a leading global player in the field with years of experience in designing and developing technology. KNPL works hand in hand with KPJ to create customised paint and resin formulations for Indian customers. They also provide customers with knowledge of emerging colour trends worldwide and offer first-class technical assistance to Indian clients based on their experiences across the world. KNPL also collaborates with Kansai Group companies across the globe to offer Indian customers differentiated technologies across a spectrum of end-user industries in the areas of industrial coatings, coil coatings, ARF and decorative paints.

? Two-wheeler Segment

KNPL achieved significant milestones in product innovation and sustainability efforts during the year. To cater to the evolving needs of its customers, KNPL provided a major breakthrough product by converting all shades of fuel tanks for two major OEM manufacturers to be compliant with E20 and E30, ensuring coating resistance to 20-30% ethanol blending in petrol.

Additionally, KNPL introduced low-bake products that reduce baking temperature requirements and energy consumption. This has been achieved by converting the thermosetting acrylic (TSA) coatings into Polyurethane (PU) coatings. It also launched a thermal hard coat for twowheeler headlamps with superior functionality. Furthermore, KNPL launched a ROHS compliant uni-bake primer under its sustainable coatings’ portfolio.

? Commercial Vehicle Segment

KNPL commercialised 3 shades with superior functionality by using 3C-1B technology and low bake PU system. These coatings helped reduce the baking temperature requirement from the previous 140oC to 80oC. Additionally, low solids TSA product was converted to high solid PU product, aiding in 15% reduction in VOC emissions and 60oC reduction in baking temperature requirement for CV segment.

Key Developments in Decorative Paints:

KNPL launched several new and improved offerings, all certified for low VOC and heavy metal free as per IS standards. For interior applications, a superior functionality product was launched to address dampness problems, while for exteriors, we offered extended service life with a 12-year warranty. In the construction chemicals category, KNPL launched a product with a unique feature of 700% elongation, which reduces the concrete surface temperature up to 14^o C during peak summer. The R&D Team also introduced customised admixtures for concrete. In wood coatings, termite-resistant product was launched, as well as 2K PU interior (sealer, matte & glossy) and high solid NC sanding sealer. Also, KNPL developed and commercialised an anti-carbonation coating specifically for the Samruddhi Express Highway.

Key developments in Performance Coatings:

The Company developed and commercialised 2K High Weather resistance PU System for Agricultural & Construction equipment manufacturer developed jointly with KPJ. A 5-coat system for Bridges of High-Speed rail Project with Fluro Undercoat & Flouro Topcoat is also commercialised.

During the year, KNPL introduced a range of High Gloss Clear PU products in the Economy range and will further expand and strengthen this portfolio in the near future. The R&D team has also developed a range of cost effective direct shades that eliminates the outlet’s tinting process.

Instrument analysis and analytical

capabilities

Thermal Imaging Camera: A thermal camera is a noncontact device that detects infrared energy (heat) and converts it into a visual image. This instrument will help us with a site inspection and recommend correct product for waterproofing and suitable product for roofs that can reduce surface temperature. Further this will help provide reports to customers (e.g., Co-Operative Housing Society’s) better with evidence.

SUPPLY CHAIN

Macro environment

FY 2022-23 was an extremely challenging year. Global issues like cost inflation, war in Europe, shutdowns in China, and local issues like extended monsoon critically impacted the

supply across the value chain. These challenges, however, sharpened the focus on creating more value for customers and delivering results for our stakeholders. The year’s theme was finding the right balance between adapting to external challenges and the agility required to run our businesses.

Cost efficiency measures

One of the key successes in the year was the Company’s ability to offset the impact of raw material partially and freight cost inflation with a strong cost reduction programme along with our parent Company Kansai Paints, Japan, our local R&D, and our vendor partners. We also introduced cost and working capital reduction measures in late 2022, which will remain a priority throughout 2023.

Service level

Customer-focussed and data-driven planning processes drive KNPL’s Supply chain towards excellence to help fuel our and our customers’ growth. On the service front, KNPL ensured continuity of operations for all its Industrial customers despite the challenges. On the decorative front, we increased our service points, and reduced service lead time to further improve the response time and ensure velocity in our service to market.

INFORMATION TECHNOLOGY

Information Technology is a key enabler for Nerolac, helping the Company to achieve its business objectives by enhancing its productivity, efficiency, and customer engagement. The Company adopted a both outside-in and inside-out approach.

Under outside in, we focussed on ‘Go To Market’ initiatives to create a digital ecosystem for connecting with external stakeholders. For the Architects & Interior Designers, we developed a new application. It provided information about organisations, their strengths, product portfolio and loyalty programme. We upgraded the Pragati app for the painter and contractors for deeper connection with the Company. We extensively used digital initiatives to provide Painting as a service to the consumers. We created a digital platform to help consumers make better choices.

Under inside out, we focussed on digital initiatives that would drive internal efficiencies. KNPL migrated its sales team from the existing tabs to a mobile platform for enhanced user experience and anywhere access. A mobile app was launched to track market visits based on Geo-Location. The DGA app was upgraded and enhanced to provide end-to-end visibility from lead generation to lead conversion and completion. This created a user-friendly interface that provides necessary insights and dashboards on mobile screens, enabling faster access to real-time data. On the logistics side, we have leveraged digital to provide real-time visibility into shipment status, delivery times, and vehicle locations, allowing for quick and informed decision-making.

The digital initiatives have allowed us to become more agile, efficient, and responsive to our customers’ needs. We will continue to invest in and embrace digitisation as an integral part of our growth strategy.

Business Continuity

In FY 2022-23, KNPL made significant strides to upgrade the IT infrastructure and enhance our business continuity measures. KNPL has strengthened disaster recovery capabilities for its IT systems by establishing a Far Data Recovery (FDR) centre to minimise any impact that unexpected events or disasters might have on its business operations. These data centres are designed to ensure business continuity by providing seamless access to critical data and applications in the event of any unforeseen disruptions.

Cyber Security

As digitisation continues to increase, KNPL recognises the heightened risk of cyber threats. To mitigate these risks, the Company regularly conducts vulnerability assessments, penetration testing, and security audits to identify and address potential security risks.

KNPL also has a well-defined information security policy that outlines the standards and procedures for protecting the Company’s information assets. This policy is regularly reviewed and updated to ensure its effectiveness in the face of evolving security threats and technologies. Additionally, regular training and awareness sessions are conducted for employees on cyber security to promote a culture of security within the Company and ensure that everyone plays a role in safeguarding the Company’s information and assets.

PEOPLE

Our philosophy at KNPL centres around building a culture that nurtures collaboration, innovation, and empowerment. We strive to offer our employees a unique and fulfilling experience by creating a sense of belonging and purpose. Over the course of the year, we have placed great emphasis on our employees’ well-being, recognising that a healthy body and mind are critical components for achieving outstanding results.

Our people are our most prized asset, and we are dedicated to investing in their growth, learning, and overall well-being to create an exceptional workplace. We are committed to offering diverse role opportunities that provide structured and immersive learning journeys, enabling our employees to take on new responsibilities through on-the-job mentoring and development interventions. During the year, KNPL was also recognised as ‘Dream Employer of the year - 2022’ under the Category ‘Dream Companies to Work For’ by Times Ascent World HRD Congress.

As of the end of FY 2022-23, we had a total of3,379 permanent employees who embody our core values and proudly identify themselves as part of the ‘I AM Nerolac’ family.

People Centric Approach

Under the leadership of the Managing Director, the organisation took an approach to create a work environment that considers and fulfils the needs of one of the organisation’s most important assets, its employees. The underlying belief is that success of the organisation is strongly connected with its employees’ well-being and growth. The approach revolved around creating a culture of openness, collaboration and empowerment. Special efforts were made for employee well-being, training and development and ensuring high engagement levels. Employee surveys conducted at the start and end of the year reflected a clear positive shift in organisation culture regarding openness and empowerment.

Innovation, Collaboration, Empowerment

Innovation, Collaboration and Empowerment were key thrust areas for the Company. During the year, we had multiple innovation drives, wherein, employees participated across the organisation to generate ideas that will bring value to the organisation. We had atleast 3 such innovation drives with more than 500 idea submissions by employees across functions and levels. The ideas ranged across diverse areas such as topline growth, improving bottom line, operational efficiency, and sustainability. These ideas were reviewed by a cross-functional team, wherein, ideas were evaluated basis of a set of criteria, including benefits envisaged, uniqueness, feasibility and resources required for implementation. This multi-disciplinary approach and teamwork ensured a collaborative approach and alignment across functions. There was positive interdependence created during collaboration and it also opened up hidden opportunities or challenges.

During the year, several important projects of strategic nature were given to employees. The approach was to empower employees with delegation, autonomy, key decision making and provided required resources. During the process, both the individual employee as well as the team of employees had an experience which capitalised on their expertise and judgement, increasing their sense of commitment to the organisation and aiding them to feel empowered and motivated.

Learning & Development

KNPL has launched its digital academy called Percipio, which provides access to upskilling opportunities. Our L&D teams have ensured that our employees receive the necessary opportunities by leveraging virtual mediums. Our employees have remained connected throughout the year through planned events such as seminars, learning programs, and self-learning modules.

Our Product Master Class is another initiative that focuses on our employees’ continuous learning and upskilling. Our subject matter experts come online once a month to share their views on technical subjects, making the learning experience interactive and engaging for our employees.

Competency & Capability Building

At KNPL, we are committed to providing our employees with the necessary training and development opportunities to help them grow and succeed within our organisation. Structured training is also provided to various employee groups to enhance leadership capabilities.

One of our key initiatives is our campus collaboration programme, through which we hire fresh talent from reputed management and technical institutes. We believe in hiring the best talent and providing them with the right opportunities to grow and succeed within our organisation.

Employee Engagement

KNPL aims to create an open, transparent work culture and improve employee engagement platforms. It has established effective employee connection and communication platforms to foster a strong relationship between employees and the organisation. These include the MD’s Townhall, Coffee with HR/Works Manager, Annual Learning Conference, and much more. These initiatives encourage employees to stay informed, participate actively, and feel valued and involved.

Diversity & Inclusion

KNPL understands that diversity and inclusion are both moral imperatives and critical components of our business strategy. We believe that a diverse workforce brings a variety of perspectives, ideas, and experiences that enhance our ability to innovate and solve challenges. Our permanent female employees are 3.9% of our total employees (excluding workers).

As an employer that provides equal opportunities, we are focused on attracting, retaining, and nurturing talented individuals without discrimination based on gender, race, religion, caste, creed, disability, or any other characteristic. To ensure that our work environment is inclusive and welcoming, we have conducted assessments at our Mumbai head office to identify and address any potential infrastructure issues that may hinder inclusivity. We will be performing such assessments in the upcoming year at our other locations.

Employee Wellbeing

At KNPL, employee wellness is highly valued, and several initiatives have been introduced to support it. These initiatives include wellness sessions that focus on topics related to health and safety, aimed at raising awareness among employees and their families about key areas related to their well-being.

One of the initiatives introduced this year was the Wellness Corner, which is a customised wellness app that provides employees with access to a doctor on call with over 30,000 specialists available for consultation through video or in person. Additionally, a Step Challenge was launched to encourage physical activity and camaraderie among employees. The Company also extended the benefit of discounted gym memberships to its employees, showing its commitment to providing them with the resources they need to maintain a healthy lifestyle and achieve their personal fitness goals.

We will continue to invest in initiatives that support our employees’ physical, mental, and emotional health, creating a safe, engaging, and productive workplace where our valued employees can thrive.

For the first time, KNPL provided its employees with a sense of ownership and a stake in the Company’s success, incentivising them to work harder and more effectively by announcing restricted stock units (RSUs). It also helps retain top talent and aligns employee interests with the company’s long-term goals.

Our performance management process encompasses setting goals, mid-year check-ins and annual performance evaluations. Our performance dashboard provides timely feedback on key performance indicators, empowering employees to remain on track and make any necessary adjustments.

Rewards & Recognition

We recognise and reward our employees based on their contributions to our business objectives, adherence to our values, and demonstration of leadership and teamwork.

COMMUNITY DEVELOPMENT

KNPL’s commitment to social responsibility extends beyond the confines of its operations, radiating outwards to benefit society as a whole. Guided by a philosophy of being a conscientious and compassionate neighbour, KNPL strives to contribute meaningfully to the betterment of humanity. In line with this, KNPL has linked its CSR programmes to the United Nations’ Sustainability Development Goals (UNSDGs), emphasising the organisation’s dedication to sustainable development and social responsibility.

The current fiscal year saw KNPL enhance its efforts, with a focus on 17 of the identified 121 aspirational districts by the Government of India. These initiatives have been designed to benefit the underprivileged sections of society and enhance KNPL’s reputation as a responsible corporate citizen. Through these actions, KNPL also aims to encourage individual employees to embrace their societal duty, developing a sense of compassion and awareness towards those in need.

KNPL’s CSR initiatives are varied and multifaceted, encompassing everything from rural and community development to promoting education, ensuring environmental sustainability, and providing preventive healthcare and sanitation. With more than 22% of KNPL’s employees volunteering for such activities in the previous year, it is clear that the organisation is succeeding in fostering a culture of social responsibility amongst its workforce.

Through its ‘Women Empowerment in farming through livelihood intervention’ project, KNPL has significantly impacted the lives of 20 women farmer families, encompassing approximately 120 members. This project has inspired these families and mobilised 54 additional families to participate actively in agriculture as an entrepreneurial pursuit. As a result, the project is now selfsustainable, with women cultivating 5 acres of land. The cultivation area has increased by more than five-fold, and agricultural production has increased by nearly six-fold.

During the year, steps were taken to address human health issues through the Company’s CSR initiatives. The Company has initiated and planned specific activities in the areas of HIV/AIDS, tuberculosis, and malaria. Awareness-building workshops and skits were also organised with NGOs in villages near the plants. Informative posters displayed at various locations, such as hospitals and Gram Panchayat, as well as other public places near all KNPL plants. Booklets in local languages were created in consultation with medical authorities and distributed in villages near the plants to increase awareness about these diseases. KNPL provided necessary equipment and support to nearby hospitals to aid in the treatment of related diseases.

In the pursuit of environmental sustainability, KNPL has taken a proactive approach by implementing various initiatives such as planting trees, harvesting rainwater, conducting cleanliness drives, and promoting the use of solar energy. These efforts have contributed to improving the quality of life on land and paved the way towards a greener future.

ENVIRONMENT, HEALTH & SAFETY

KNPL is dedicated to maintaining a safe and healthy workplace, complying with regulations, minimising environmental impact, and promoting sustainable practices.

Climate Change

In response to the pressing environmental challenge of climate change, KNPL has adopted the Task Force on Climate-related Financial Disclosures (TCFD) framework in FY 2022-23 to assess and quantify its risks and opportunities. We have integrated the identified risks with our Enterprise Risk Management strategy. KNPL is committed to setting and submitting science-based emission reduction targets to the Science-Based Targets initiative (SBTi) for validation. We have estimated our current carbon footprint for Scope 1, Scope 2 & Scope 3 and actively working towards lowering our carbon footprint. We are implementing energy-saving measures, using affordable, eco-friendly solutions such as solar and wind power, and exploring bio-based and recycled materials. We also undertake tree-planting activities both inside and outside our factory premises, planting 6496 trees within the factory boundaries and 600 trees outside in FY 2022-23. We strive to be environmentally responsible by mitigating our impact and taking steps towards a sustainable future.

Water Management

We recognise our responsibility towards promoting a sustainable ecosystem and ensuring responsible resource usage. We have implemented various water management practices and initiatives to ensure water stewardship and reduce water usage throughout our operations, including recycling wastewater, using low-flow fixtures, and collecting rainwater. We engage with local communities to understand their water needs and concerns and have taken measures to restore ponds and replenish water. Our efforts have resulted in becoming water neutral by replenishing 100% of water withdrawal across our operations. Despite commissioning inhouse resin manufacturing, we have reduced specific water consumption by 1.7%. We prioritise rainwater harvesting and obtain 23% of our water supply from recycled sources while maintaining our ZERO Liquid Discharge status at all major plants.

Our waste management practices are guided by the principles of reduce, reuse, and recycle, as we strive to minimise our environmental impact. We have optimised our production methods to reduce waste production, including eliminating paint losses during production and recycling solvent waste. The leftover paint from manufacturing is recycled and used as a raw material to make low-grade paints, demonstrating our commitment to circular economy principles.

We are constantly working towards enhancing our waste management procedures. We aim to reduce the amount of hazardous waste generated at our manufacturing locations, which saw a 7% increase in the specific hazardous waste generation during the reporting period due to the increase in effluent generation from recently commissioned in-house resin manufacturing units. We remain committed to using responsible waste management techniques and promoting sustainable resource usage.

Plastic Waste Management - KNPL has taken steps to meet its EPR obligations for plastic waste through collection and recycling. The Company has set up pre-consumer plastic sheet take-back programmes to ensure they are recycled at the end of their useful lives. KNPL engages with its suppliers to ensure that they follow the PWM guidelines set forth by the CPCB, as part of its commitment to promoting a circular economy for plastics. For the reporting year, KNPL collected and recycled 7,421 MT of pre- and post-consumer plastic, fulfilling its EPR obligation as a brand owner. The Company has also eliminated the use of single-use plastic and is increasing the use of recycled content in its packing materials.

Further details on our efforts to reduce climate impact, water consumption, waste generation and disposal are outlined in the Natural Capital Section of our annual report.

Safety

Every individual has the right to a safe and healthy workplace, and KNPL is dedicated to ensuring this is a reality for everyone. All major factories are ISO 45001 accredited, ensuring a reliable environmental and safe working conditions. Several activities, thematic safety training, competitions, and evaluations are regularly conducted to enhance emergency readiness and build a safety culture amongst our workforce. Details of the initiatives undertaken are covered in the Occupational Health and Safety section of Human Capital.

RECOGNITION IN ESG

KNPL’s continuous efforts and proactive measures towards Environmental, Social, and Governance (ESG) have significantly improved its position in the global Chemical ESG sector.

OPPORTUNITIES AND THREATS

Information for this section can be found in the ‘Opportunities and Threats’ section of the Corporate Overview.

RISKS AND CONCERNS

Information for this section can be found in the ‘Risks and Concerns’ section of the Corporate Overview.

OUTLOOK

The Indian paint sector presents significant opportunities for growth. The Government’s emphasis on infrastructure development, affordable housing schemes, and smart cities is expected to drive demand for paints. We aim to create value for all stakeholders in the medium to long term by outpacing market growth and maintaining modest margin expansion.

The entry of newer players in the industry is expected to increase competition and drive innovation, which is positive for the industry as a whole. Secondly, as consumers are also increasingly aware of their choices’ impact on the

environment, there is a growing demand for sustainable and eco-friendly products in both decorative and industrial coatings landscape.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

KNPL’s Internal Control Systems are designed to track and report on its day-to-day operations to monitor and control them. These systems also effectively monitor compliance with numerous concepts, regulations, and norms and adhere to methodology requirements.

The Company has implemented an Internal Financial Control system in compliance with the provisions of Section 134(5) (e) of The Companies Act, 2013, to improve internal control systems and give the Board of Directors additional capacity to review internal controls. Implementing these systems has been guided by the framework suggested in the Guidance Note on Audit of Internal Financial Controls in Financial Reporting issued by The Institute of Chartered Accountants of India, to address the Company’s operational and financial risks. In addition, the statutory auditors test the Company’s systems using automated techniques.

Control Efficiency Index and Robust Control Index

The Control Efficiency Index (CEI) and the Robust Control Index (RCI) are still used by the Company to track its internal audit success. KNPL’s control measures are benchmarked against industry standards for effective control mechanisms. The Company’s internal audit programme focuses on determining whether gaps exist due to control design, policy design, control or process deviation, IT or regulatory compliances. It also considers which controls are capable of automation. The Company then uses the results of the audit to improve its internal controls.

Compliances

KNPL has developed a dashboard of key legislation changes that are notified by various Government authorities and tracked by the management regarding requirements and implementation. The Company tracks all regulatory compliances online through the Legatrix system. The system is updated regularly with all the changes in compliance as they occur. Online tracking and tracing of completion help ensure strict adherence to regulations. In addition, the Company also tracks any legal cases through the Roznama system.

CAUTIONARY STATEMENT:

Statements in the Management Discussion and Analysis section of this report describing the Company’s objectives, estimates and expectations may be ‘forwardlooking statements’ within the meaning of the applicable laws and regulations. Actual results might differ materially from those either expressed or implied.

2. Directors’ Responsibility Statement

As stipulated under the provisions contained in Section 134(3)(c) read with Section 134(5) of the Companies Act, 2013, (“the Act”), the Board of Directors, to the best of its knowledge and belief and according to the information and explanations obtained by it, hereby states that:

i. in the preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures;

ii. the directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period;

iii. the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv. t he directors have prepared the annual accounts of the Company on a going concern basis;

v. the directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and

vi. the directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

3. New Projects

During the financial year 2022-23, the Company has commissioned the resin plant at Sayakha. It has initiated expansion of its water-based paint units at Jainpur and Hosur plants. Further, a plant for water-based paint and other products is being set up at Vizag.

4. Land Monetisation

The Board of Directors has approved a proposal for monetization of idle land parcels of the Company not being put for productive use. The Board of Directors of the Company has approved a proposal for sale of the Company's land at Kavesar, Thane to Shoden Developers Private Limited, a group company of House of Hiranandani group (hereinafter referred as the “Purchaser”) for consideration of ' 655 Crores for an area admeasuring 96,180 sq. mts. The Company has entered into an Agreement to Sell with the Purchaser. The sale is subject to completion of procedures and approvals as may be necessary in this regard.

All the Independent Directors on the Board have given a declaration of their independence to the Company as required under Section 149(6) of the Act and Regulation 16(1)(b) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI Listing Regulations”). In the opinion of the Board, all the Independent Directors possess integrity, expertise and experience including proficiency required to be an Independent Director of the Company. They fulfill the conditions of independence as specified in the Act and the SEBI Listing Regulations, comply with the Code for Independent Directors as prescribed in Schedule IV of the Act and are independent of the Management.

The Company has a Code of Conduct for Directors and Senior Management. All the Directors and Senior Management have confirmed compliance with the Code.

Details with respect to the composition of the Board, the meetings of the Board held during the year and the attendance of the Directors thereat have been provided separately in the Annual Report, as a part of the Report on Corporate Governance.

6. Key Managerial Personnel

In terms of Section 203 of the Act, the Company has the following Key Managerial Personnel: Mr. Anuj Jain, Managing Director, Mr. P. D. Pai, Chief Financial Officer and Mr. G. T Govindarajan, Company Secretary.

7. Meetings of the Board

The Board met 7 (seven) times during the financial year ended 31st March, 2023. The meeting details are provided separately in the Annual Report, as a part of the Report on Corporate Governance. The maximum interval between any two meetings did not exceed 120 days, as prescribed in the Act and the SEBI Listing Regulations.

8. Board Evaluation

In terms of the applicable provisions of the Act and the SEBI Listing Regulations, Nomination and Remuneration Committee and the Board of Directors have approved a framework, which lays down a structured approach, guidelines and processes to be adopted for carrying out an evaluation of the performance of the Directors, the Board as a whole and its Committees. The evaluation process has been separately explained in the Annual Report, as a part of the Report on Corporate Governance.

For the year under review, the Board carried out the evaluation of its own performance, its Committees and individual Directors. Evaluation results as collated and presented, were noted by the Nomination and Remuneration Committee and the Board.

9. Audit Committee

In terms of the provisions of Regulation 18 of the SEBI Listing Regulations read with Section 177 of the Act, the Audit Committee is constituted as follows:

* Mr. Bhaskar Bhat was appointed as a member of the Audit Committee with effect from 10th August, 2022. Mr. N. N. Tata ceased to be the member of the Audit Committee consequent to his resignation as a Director of the Company with effect from 10th August, 2022.

The recommendations made by the Audit Committee to the Board, from time to time during the year under review, have been accepted by the Board. Other details with respect to the Audit Committee such as its terms of reference, the meetings of the Audit Committee and attendance thereat of the members of the Committee, are separately provided in the Annual Report, as a part of the Report on Corporate Governance.

10. Statutory Auditors

At the 99th AGM of the Company, the Shareholders had approved the appointment of S R B C & CO LLP, Chartered Accountants (Firm Registration No. 324982E / E300003) as the Statutory Auditors of the Company, to hold office for a period of 5 (five) years from the 99th AGM of the Company till the conclusion of the 104th AGM of the Company, in terms of the applicable provisions of Section 139(1) of the Act read with the Companies (Audit and Auditors) Rules, 2014. Details of the remuneration paid to S R B C & CO LLP, Chartered Accountants, Statutory Auditors, during the financial year 2022-23 are disclosed in the Financial Statements of Company, which are part of the Annual Report.

The Auditors' Report on the Financial Statements (Standalone and Consolidated) of the Company for the year under review, is clean and there are no qualifications in the said Report. Also, no frauds in terms of the provisions of Section 143(12) of the Act have been reported by the Auditors in their Report for the year under review.

The Notes to the Financial Statements (Standalone and Consolidated) are self-explanatory and do not call for any further comments.

11. Particulars of Loans, Guarantees or Investments under Section 186 of the Act

Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Act, are separately disclosed in the Annual Report, as a part of the Notes to the Financial Statements.

12. Related Party Transactions

The Company has in place a Policy on dealing with Related Party Transactions and on Materiality of Related Party Transactions which is available on the website of the Company at https://www.nerolac.com/financial/policies.html. In terms of the same, a statement in summary form of transactions with related parties in the ordinary course of business and arm's length basis is periodically placed before the Audit Committee for its review. Omnibus approval was obtained for transactions which were repetitive in nature. Transactions entered into pursuant to omnibus approval were placed before the Audit Committee for its review during the year. Related party transactions have been disclosed in Note no. 38 to the Standalone Financial Statements.

In terms of the provisions of Section 188(1) of the Act read with the Companies (Meetings of Board and its Powers) Rules, 2014 and Regulation 23 of the SEBI Listing Regulations, all related party transactions that were entered into, during the year under review, were in the ordinary course of business of the Company and on an arm's length basis. There were no material related party transactions during the year. Accordingly, Form AOC-2, prescribed under the provisions of Section 134(3)(h) of the Act and Rule 8 of the Companies (Accounts) Rules, 2014, for disclosure of details of Related Party Transactions, which are “not at arm's length basis” and also which are “material and at arm's length basis”, is not provided as an annexure to this Report as it is not applicable.

13. Corporate Governance

The Company is in full compliance with the requirements and disclosures that have to be made in terms of the requirements of Corporate Governance specified in the SEBI Listing Regulations.

In terms of the provisions of Schedule V(C) of the SEBI Listing Regulations, a detailed Report on Corporate Governance forms part of the Annual Report. Further, a Certificate from the Statutory Auditors of the Company confirming compliance with the requirements of Corporate Governance as specified in the SEBI Listing Regulations is provided together with the Report on Corporate Governance, the same shall be considered to be an annexure to this Report.

14. Remuneration Policy

The Board of Directors has adopted a policy which deals with (i) criteria for determining qualifications, positive attributes and independence of Director and (ii) remuneration for Directors, Key Managerial Personnel and other employees (“Remuneration Policy”).

The features of the Remuneration Policy are as follows:

• The Company, while constituting the Board shall draw members with appropriate skills, experience and knowledge from diverse fields such as finance, law, management, sales, marketing, architecture, administration, research, corporate governance,

operations or other disciplines related to the Company's business. There shall be no discrimination on the basis of gender, race, ethnicity and nationality while determining the Board composition.

• A Director shall be a person of integrity, who possesses relevant expertise and experience. He shall uphold ethical standards of integrity and probity and act objectively and constructively. He shall exercise his responsibilities in a bona-fide manner in the interest of the Company; devote sufficient time and attention to his professional obligations for informed and balanced decision making; and assist the Company in implementing the best corporate governance practices.

An Independent Director should meet the requirements of the Act and the SEBI Listing Regulations, concerning independence of directors. The Company shall also obtain certification of independence from the Independent Director in accordance with the Act and SEBi Listing Regulations.

• The remuneration paid to Whole-time Directors is subject to the limits laid down under Section 197 and Schedule V to the Act and in accordance with the terms of appointment approved by the Shareholders of the Company. The remuneration of the Whole-time Directors is determined by the Nomination and Remuneration Committee based on factors such as the Company's performance and performance/ track record of the Whole-time Directors. The remuneration consists of Salary, Commission, Company's contribution to Provident Fund and Superannuation Fund, House Rent Allowance (HRA), Leave Travel Allowance (LTA) and other perquisites and allowances in accordance with the rules of the Company, applicable from time to time.

• The Non-Executive Independent Directors are paid commission within the ceiling of 1% of net profits of the Company as specified in Section 197 of the Act. The commission payable to Non-Executive Independent Directors is decided by the Board, on recommendation of the Nomination and Remuneration Committee, based on a number of factors including number of Board and Committee meetings attended, individual contribution thereat etc. The Non-Executive Directors are also paid sitting fees for attending the meetings of the Board or Committee thereof within the limits prescribed under the Act.

• The objective of the policy is to have a compensation framework that will reward and retain talent.

• The remuneration will be such as to ensure that the correlation of remuneration to performance is clear and meets appropriate performance benchmarks.

• Remuneration to Key Managerial Personnel, Senior Management and other employees will involve a balance between fixed and variable pay reflecting short and long term performance objectives of the employees in line with the working of the Company and its goals. The short and long term performance objectives cover amongst various aspects industry performance, customer performance, overall economic environment, financial performance and performance on Environment, Social and Governance objectives.

• For Directors, the Performance Pay will be linked to achievement of Business Plan (achievement of short term and long-term business objective).

• For Heads of Department, the Performance Pay will be linked to achievement of functional plan which is derived from the business plan. The functional plan includes both, short-term and long-term objectives.

• For other management personnel, the Performance Pay will be linked to achievement of individual set objectives and part of this will also be linked to overall Company performance.

The Remuneration Policy is also available on the website of the Company at https://www.nerolac.com/ financial/ policies.html.

15. Risk Management Policy

The Company has identified the risk areas in its operations along with its probability and severity, department wise. An effective Risk Management Framework is put in place in the Company in order to analyze, control and mitigate risk. Risk profiling is also put in place for all the areas of operations in the Company and well integrated in the business cycle. The various risks to which the Company is exposed are disclosed as a part of Management Discussion and Analysis, hereinabove.

The Risk Management Framework of the Company comprises of Risk Management Committee and the Risk Officers.

In terms of the provisions of Regulation 21 of the SEBI Listing Regulations, the constitution of Risk Management Committee as on 31st March, 2023 is as follows:

* Appointed as the Chairman of the Risk Management Committee with effect from 1st April, 2022.

16. Vigil Mechanism - Whistle Blower Policy

The Company, pursuant to Section 177(9) of the Act and Regulation 22 of the SEBI Listing Regulations, has a Whistle Blower Policy to report genuine concerns and grievances. The Policy provides adequate safeguards against victimisation of persons who use the Whistle Blower mechanism. Details with respect to implementation of the Whistle Blower Policy are separately disclosed in the Annual Report, as a part of the Report on Corporate Governance. The same is also available on the website of the Company at https://www.nerolac.com/financial/policies.html.

17. Corporate Social Responsibility

In terms of Section 135 of the Act, the constitution of the Corporate Social Responsibility (“CSR”) Committee as on 31st March, 2023 is as follows :

* Ms. Sonia Singh was appointed as the Chairperson of the CSR Committee with effect from 1st April, 2022.

^# Mr. Bhaskar Bhat was appointed as a member of the CSR Committee with effect from 10th August, 2022. Mr. N. N. Tata ceased to be the member of the CSR Committee consequent to his resignation as a Director of the Company with effect from 10th August, 2022.

The functions of the CSR Committee are to:

(a) formulate and recommend to the Board, a Policy which shall indicate the activities to be undertaken by the Company in areas or subject, specified in Schedule VII of the Act;

(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

(c) monitor the CSR Policy of the Company from time to time.

There was 1 (one) meeting of the CSR Committee during the financial year on 27th March, 2023 which was attended by all members of the Committee.

The Board on recommendation of the CSR Committee has framed a CSR Policy and the same is available on the website of the Company at https://www.nerolac.com/ financial/policies.html.

The Annual Report on CSR activities as required under Companies (Corporate Social Responsibility Policy) Rules, 2014, as amended, including a brief outline of the Company's CSR Policy, is annexed to this Report as Annexure 1.

18. Particulars on the Committees of the Board

The details with regard to the composition of the Committees of the Board and the number of meetings held during the year of such committees, as required under the SEBI Listing Regulations, is separately provided in the Annual Report, as part of the Report on Corporate Governance.

19. Dividend Distribution Policy

The Dividend Distribution Policy of the Company has been formulated to ensure compliance with the provisions of Regulation 43A of the SEBI Listing Regulations. The Dividend Distribution Policy is also available on the website of the Company at https://www.nerolac.com/financial/policies.html.

The declaration of dividend by the Company is in compliance with its Dividend Distribution Policy.

bonus shares in the proportion of 1 (One) New Equity Share of ' 1 each for every 2 (Two) existing Equity Shares of Re. 1 each, subject to approval of the Shareholders. Approval of the Shareholders is being sought vide Postal Ballot Notice dated 8th May, 2023.

25. Restricted Stock Unit Plan

The Shareholders have approved the Kansai Nerolac Paints Limited - Restricted Stock Unit Plan 2022 (“RSU Plan 2022”) on 25th October, 2022 vide Postal Ballot and authorised the Board to offer, issue and provide Restricted Stock Units (“RSUs”) to such employees as may be determined by the Nomination and Remuneration Committee (“NRC”) in terms of the RSU Plan 2022. The RSU Plan 2022 has been introduced to attract, retain, motivate its employees and improve performance of the Company for ensuring sustained growth.

The NRC acts as the Compensation Committee under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 (“SEBI SBEB Regulations”) for the administration of the RSU Plan 2022.

The NRC, during the year under review, has granted 11,92,792 RSUs to selected employees of the Company as determined by the NRC, in terms of the RSU Plan 2022. NRC, at its meeting held on 8th May, 2023, further granted 24,786 RSUs to selected employees.

During the financial year 2022-23, there has been no change in the RSU Plan 2022. There was no RSU that vested or any share issued on vesting during the year. The RSU Plan 2022 is in compliance with the SEBI SBEB Regulations.

Information as required under the SEBI SBEB Regulations have been uploaded on the Company's website at https://www.nerolac.com/investors/financial-results.html and is annexed to this Report as Annexure 4.

26. Annual Return

Pursuant to Section 92(3) read with Section 134(3)(a) of the Act, the Annual Return as on 31st March, 2023 is available on the website of the Company at https://www.nerolac.com/our-financial-results.html.

27. Details of Unclaimed Suspense Account

Details pertaining to Unclaimed Suspense Account of the Company are separately provided in the Annual Report, as part of the Report on Corporate Governance.

28. Investor Education and Protection Fund (“IEPF”)

Transfer of Unclaimed Dividend to IEPF

During the year under review, dividend amounting to ' 12.48 Lakhs that had not been claimed by the shareholders for the year ended 31st March, 2015, was transferred to the credit of IEPF as required under Sections 124 and 125 of the Act.

Unclaimed dividend as on 31st March, 2023

As on 31st March, 2023, dividend amounting to ' 2.34 Crores has not been claimed by Shareholders of the Company. Shareholders are required to lodge their claims with the Registrar and Share Transfer Agents of the Company i.e. TSR Consultants Private Limited, for unclaimed dividend.

Pursuant to the provisions of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (as amended), the Company has uploaded the details of unpaid and unclaimed amounts lying with the Company as on 31st March, 2022, on the website of the Company at www.nerolac.com. The same are also available with the Ministry of Corporate Affairs.

Transfer of Equity Shares

As required under Section 124 of the Act, 86,731 Equity Shares, in respect of which dividend has not been claimed by the members for 7 (seven) consecutive years or more, have been transferred by the Company to the IEPF Authority during the financial year 2022-23. Details of such shares transferred have been uploaded on the website of the Company at www.nerolac.com. The same are also available with the Ministry of Corporate Affairs.

Nodal Officer

The Company has appointed Mr. G. T Govindarajan, Company Secretary as the Nodal Officer for the purpose of verification of claims filed with the Company in terms of IEPF Rules and for co-ordination with the IEPF Authority. The said details are also available on the website of the Company at www.nerolac.com.

29. Secretarial Audit

Pursuant to the provisions of Section 204 of the Act, the Company had appointed JHR & Associates, Company Secretaries, as the Secretarial Auditor for the year under review, to conduct the Secretarial Audit of the Company.

The Secretarial Audit Report for the year under review issued by the Secretarial Auditor is annexed to this Report as Annexure 5. There is no qualification or adverse remark in their Report.

Further, in terms of the provisions of Regulation 24A of the SEBI Listing Regulations, the Company has obtained the Secretarial Compliance Report for the year ended 31st March, 2023, confirming compliance of the applicable SEBI Regulations and circulars/guidelines issued thereunder.

The Company has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India.

30. Cost Audit

The Company has maintained cost records as specified by the Central Government under Section 148(1) of the Act. Further, the Company had appointed D. C. Dave & Co.,

Cost Accountants (Registration No. 000611), as the Cost Auditor to conduct an audit of its cost accounting records for the financial year 2021-22, pertaining to products of the Company as required by the law. The Cost Audit Report submitted by the Cost Auditor for the financial year 2021-22 was clean and there was no qualification in their Report. The same was duly filed with Ministry of Corporate Affairs on 21st October, 2022.

The Company had re-appointed D.C. Dave & Co., Cost Accountants, as the Cost Auditor for the financial year ended 31st March, 2023 and the Cost Audit Report when submitted by them, will be duly filed with the Ministry of Corporate Affairs.

Further, the Company has re-appointed D.C. Dave & Co., Cost Accountants, as the Cost Auditor for the financial year 2023-24, to conduct an audit of its cost accounting records pertaining to the products of the Company as required by the law, at a remuneration of ? 3,00,000 plus GST and reimbursement of out of pocket expenses. The Company is seeking the approval of the Shareholders by means of ratification, for the remuneration to be paid to D. C. Dave & Co., Cost Accountants, vide Item no. 4 of the Notice of the 103rd AGM.

Certificate from D. C. Dave & Co., Cost Accountants, has been received to the effect that their appointment as Cost Auditor, if made, would be in accordance with the provisions of the Act and Rules framed thereunder.

31. Business Responsibility and Sustainability Report

The Business Responsibility and Sustainability Report as required in terms of the provisions of Regulation 34(2)(f) of the SEBI Listing Regulations, separately forms part of the Annual Report.

32. Acknowledgements

Your Directors wish to express their grateful appreciation for the co-operation and continued support received from customers, parent company, collaborators, vendors, investors, shareholders, financial institutions, banks, regulatory authorities and the society at large during the year.

We also place on record our appreciation for the contribution made by our employees at all levels and for their commitment, hard work and support.

For and on behalf of the Board

P. P. Shah

Chairman

Mumbai, 8th May, 2023