Product Management at Asian Paints / Nerolac / Berger Paints and ICI India Ltd.
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CONTENT: 1. 2. 3. 4. 5. 6. 7. 8. 9. SUMMARY INTRODUCTION RAW MATERIAL & PRODUCTION PROCESS INDUSTRY CHARACTERSTICS CRITICAL SUCCESS FACTORS IN PAINT INDUSTRY POTER’S FIVE FORCES OF PAINTS DEMAND SUPPLY EMERGING TRENDS FINANCIAL RESULT
10. COMPANY PROFILE 11. COMPETATIVE STRATEGIES OF MAJOR PLAYERS 12. FUTURE PROSPECTS 13. IMPACT ON BUDGET 14. CONCLUSION
SUMMARY: The Indian paint industry worth Rs 43 bn has consolidated over the past four years with the organized sector taking away share from unorganized segment. The paint market is expected to grow at 8-10% p.a.over the next few years. The growth could be high if industrial activity picks up as the industrial paint segment is gaining more importance. Asian paints offer the best exposure being the market leader and an innovative marketing company. Paint can be broadly classified as decorative and industrial on the basis of the end use. The Indian market is dominated by the decorative segment, which comprise almost 70%of consumption as compared to developed countries where the segment is more dominated. The ratio is also likely to shift more towards industrial segments, especially with growth in the auto and white goods industry. The unorganized sector has historically been dominant due to high excise structure. Over the last five years, the excise rate has come down drastically from 40% to 18% resulting in erosion of unorganized sector share. The paint industry is characterized by low fixed asset intensity (As essentially it is mixing process). But the high working capital intensity (as the number of shades is large and there is seasonally in demand). The main investments are in brand building and distribution infrastructure. New trends are emerging in technology and marketing. Introduction of tinting machines at the dealer/retailer level will bring down working capital costs. Also new technology is being used for increasing the utility and life span of paints. Indian industry will have to keep pace with global technology changes to maintain their competitiveness. Already, a few alliances have entered into and the number is likely to increase in future.
Paint is a generic term for a range of chemical substances that help protect surface a keep them looking good.Paint is defined as a group of emulsion, consisting of pigment suspended in a liquid medium, for use as decorative or protective coating. Today, contemporary paints and coatings consist of countless compounds uniquely formulated to fulfill the varied requirements of hundreds of thousands of application. “paint” ranges from the broad group of environmentally-sound latex paint that many consumers use to decorate and protect their homes and the translucent coating that line the interior of food containers, to the chemically-complex, multi-components finishes that automobile manufacturers apply on assembly line. Though there are different types of paint for different surface, all paints are mixture of four elements- solvent which gives it its flow and enable it to brush on the surfaces, binders for cohesion as well as adhesion to the surfaces, pigments for colour and capacity, and additives which give paint certain special characteristics such as resistance to fungus, algae and rust. A variety of paint exist fir different purpose. Emulsion, Distempers, Lustre and matt finished and exterior finishes for walls; melanine based polyurethane metal and wood. This large number of paint type combine with the range of products manufactured within each type by any company constitutes a rather complex market.
The Indian paint industry worth Rs 43 bn has been consolidated over the past four years with the organized sector taking away share from unorganized segment. The paint market is expected to grow 8-10%p.a over the next few years. The growth could be higher if the industrial sector picks up as the industrial paint segment is gaining more importance. Asian paints offer the best exposure being the market leader and an innovative company. PER CAPITA CONSUMPTION OF PAINTS (KG): While high excise duties hindered the growth of the industry in the early 1990’s, growth picked up after 1992, mainly due to reduction of duties and acceleration of industrial growth. The growth of the paint industry is mainly attributed to urban markets. Consolidation is taking place in favor of large players; an increasing cost and intense competition afflict smaller companies. PER CAPITA CONSUMPTION (KG)
25 20 15 10 5 0 Developed South East Countries Asia India Series1
MAJOR PLAYERS: 1. ASIAN PAINTS LTD :
Asian paints are the largest player in India, and also the market leader in decorative paint, with a 41%market share. It has a domestic installed capacity of 1, 62,700 tpa for paint. With the government planning thrust in the housing sector, players like Asian paints stand for the benefit, as the demand for decorative paints will grow. Taking advantage of the increase in the automatic approval of overseas investment, Asian paints recently acquired the entire paint business pf pacific paints company pvt ltd. Australia for Aus $ 375000. Last year Asian paints had acquired the largest paint
company in Sri-lanka. Asian paints vision is to be among the top five decorative paint companies in the world by 2007.
2. GOODLASS NEROLAC PAINTS LTD:
Goodlass nerolac paint is the leader in the industrial paint segment. Earlier this year, kansai paint of Japan brought out the tata’s stake in goodlass nerolac paints, to raise its stake in the company to 65%. Goodlass nerolac paint manufacturing capacity is 88,140 TPA.
3. BERGER PAINTS LTD:
Berger paint ltd acquired Rajdoot paints ltd in FY 1999. Thus, it has consolidated its position within the decorative segments. Installed capacity is 56,420 TPA. In addition to focus on its existing industrial paints/protective coating business, the company is entering into a 50:50 joint venture with ICI India ltd, exclusively for automobile and industrial paints. Both companies will have equal representation of board of joint ventures.
4. ICI INDIA LTD:
ICI India, is a subsidiary of ICI plc of UK, has hived of its explosive division and is concentrating on the paints and rubber chemical business. MAJOR FOREIGN COLLABORATION OF PAINT COMPANIES: company collaboration Areas Of collaboration Asian paints PPG Ind.Inc Sigma coatings Nippon paints Automotive Paints Electro deposition Primers; performance coatings Powder coating high
BERGER PAINTS J&N ICI (INDIA)
Herberstone gmbh Val spar corp. Inc Teodur bv HerHerberstone gmbh ICI Plc
Auto coatings; Heavy duty coatings Powder coating Auto coating Auto refinish
Paint can be broadly be classified as decorative and industrial on the basis of end use. INDUSTRIAL PAINTS: This material can be further divided into following four sub-segments depending on end user profile. • • • Automotive paints Marine paints Powder coating
• • •
High performance coating Other general industrial finishes Coil coating
DECORATIVE/ARCHITECTURE FINISH PAINTS: This market can be further segmented on the basis of the following: • Customer’s type : institutional/retail or domestic use. • Product Features/Categories: Distempers, enamels, emulsion. • Price: Premium, medium, economy. The Indian market is dominated by decorative segment, which comprises of almost 70% of consumption as compared to developed countries where the industrial segment is more dominant. The ratio in India is also more likely to shift towards industrial segments, especially with growth in the auto and white goods industry. The unorganized sector has historically been dominant by high excise structure. Over the last five years the excise rates have come down drastically from 40% to 18% resulting in erosion of unorganized sector’s share. The paint industry is charatererised by low fixed asset intensity (as essentially it is a mixing process) but high working capital intensity (as the number of shades is large and there is seasonal demand). The investments are in brand building and distribution infrastructure. New trends are emerging in technology and marketing. Introduction of tinting machine at the dealer/retailer level will bring down working capital cost. Also new technology is being used to increase the utility and lifespan of paints. Indian industry will have to keep pace with global technological changes to maintain their competitiveness. Already a few alliances have entered and the number is likely to
increase in future. Asian paint is a market leader with 41% market share followed by Goodlass nerolac and ICI respectively. However, APL is primarily present in decorative segment. It has entered into joint venture with PPG of US to cater to fast growing industrial segment. The outlook for the industry is positive especially given the good prospect for automotive and white goods Industry. Moreover, housing is expected to grow rapidly on the back of rising incomes and government incentives. The supply situation remains a cause for concern and will keep prices under check. The key to success will be innovative marketing. Thus, we prefer Asian paints within the sector, which has proven track record in innovation and is indomitable in the decorative segments.
RAW MATERIALS AND MANUFACTURING FACILITIES: The companies paint manufacturing facilities are located at Bhandup (Mumbai), Ankleshwar (Gujarat), Patancheru (Andhra Pradesh) and Kasna (near Delhi).and Taloja (Thane). The company’s plant at Bhandup was, till the fire in 1996, the largest single paint manufacturing facility in south Asia. Located on a 34000 sq. meter plot, its production capacity was 30000 metric tones per annum. The second plant at ankleshwar has a production capacity of 80,000 M.T annually. The plant makes most products in company consumer range and also sophisticated automotive finished based on indigenous technology. The third plat set up at Hyderabad has a production capacity of 90,000 M.T.annually. The fourth paint plant set up at kasna (in U.P) has a production capacity of 45000 M.T>annually. The Bhandup plant has been resurrected with a production capacity of 20,000 M.T and production capacity at Ankleshwar, Patancheru and kasna are being scaled. There are two chemical factories producing phallic and penta two essential raw materials for paints. These factories are situated at Ankleshwar and Cuddalore respectively.
Industrial Paints Decorative Paints
Raw material shortage: Till sometime ago, the bete-noire of the Indian paint industry was the high excise duty. When the government was finally convinced that paints were a necessity and not a luxury, excise duty was slashed across the board from high of 60% excise duty reduced to around 20%of the benefits were passed on to the customers and there was a temporary surge in demand. But all this stopped when raw material prices took an upward sprint. Pthalic anhydride (PAN) prices all over the world started increasing.
This has resulted in high input cost. The other raw material in short supply in titanium dioxide. This has prompted many large players to integrate backward to hedge uncertainty of raw material costs.
Working capital intensive: The number of shades is very large and a sufficient stock of every shades has to be matained at all levels of the distribution channel, the working capital cycle is very high. The extent can be gauged from the fact that has a 12000 stronger dealer network selling more than 1500 shades through ‘Dealer Tinting Systems’. Also, the number of raw materials required can stretch upto 300, as majority of these raw material are either imported or sourced from small chemical manufacturers. A large stock pile needs to be maintained.
Low fixed asset requirement: A plant for manufacture of decorative paint can be set up with small capital investment. However major investment is in setting up distribution channels and building up a brand. Seasonal Nature of demand: The demand peak during festival season is very high especially for decorative paints, while is very lean during monsoons. Thus, a major part of the sales are achieved in the second half of the fiscal year Entry Barriers: • Huge investments are required for capacity creation and also to maintain the strong distribution network which is a critical success factor.
With the reduction in excise duties, the price advantage of unorganized sector is
being eroded. This has meant the reduction in the market share of unorganized sector. • The reputed paint companies have invariably collaborated with foreign
companies for technology support. For example, Asian Paints with Devoe marine (USA) and Nippon (JAPAN) Berger paints with Valspan Corporation (USA), Goodlass Nerolac with Kansai paints (JAPAN).
Critical Success Factors in the Industry:
1. Cost And Price Drivers:
The paint industry costs and prices are driven by raw material costs which constitutes about 57% of the costs of sales, and government levies which constitutes 38% of the cost of paints. There are more than 300 inputs going into the manufacturing of paints and about 70% of them are based on petroleum. The petroleum prices are therefore one of the most important cost drivers. The paint industry includes the extent of concentration in the paint industry which is very high. This lead to very low margin at each level with the final retailer as little as 4-5%.
Working Capital management: The industry has high raw material content; the number of finished product is also
large with varying pack sizes. Sales in decorative paint are seasonal with more than half of sales coming in September – November festival season. Debtor levels also rend to be high in this industry. • Distribution: Marketing of decorative paint requires extensive dealer networks, especially in the urban and the semi-urban markets. • Plant Location: Plant location helps service distribution network and bulk consumers. • Technology: Paint is highly raw material intensive commodity, which have protective functions in addition to decorative one. An average range of trade sale, industrial, automotive and maintenance coating employs well over 900 raw materials. This posses a constant challenge for research and development efforts in formulating and reformulating products for better performance, cost reduction, new application, shade development and exploitation of new materials. As the environment in which paint is used, keeps on changing with expanding problem of industrialization and attendant pollution, the expectation of paint performance keeps on changing , demanding evolution in paint technology. At a time the Indian paint industry was dominated by foreign paint companies of mostly British origin, Asian paint started operation as a wholly Indian company in small way with its own in house technology. Over the years, based upon its R&D efforts, the company has made tremendous progress and achieved leadership position in the country, which it has consistently maintained for over the years.
Asian paint has one of India’s largest paint research laboratories, recognized by the department of science &technology, Government of India. The R&D group is structured to provide separate focus to industrial paint technology and decorative paint technology. Our ‘firsts’ in the paint industry include specialized chemical resistant coating, computerized colour matching, thermosetting acrylic finishes and economic plastic emulsion paint. Naturally the company has always placed very high emphasis on its in house R&Dand built both, manpower resources and facilities commensurate with its requirements. The dependence on his R&D efforts has paid rich dividends, as the company was able to meet the market challenges with expansion of available market and penetration of new markets segments with the new products.
Five Forces in Present Paint Industry:
Supply exceeds demand in both decorative as well as the industrial paint. 2. Demand:
Demand for decorative paints depends on housing sector and good monsoon. Industrial paint demand is linked to users industries like auto, engineering and consumer durables.
3. role. 4.
Barriers to Entry:
Brand, distribution network, working capital efficiency and technology play a crucial
Bargaining Power of Suppliers:
Price increase constrained with the presence of the unorganized sector for the decorative segment. Sophisticated buyers of industrial paint also limit the bargaining powers of the suppliers. It is therefore that margin is better in decorative segments. 5. Bargaining Power of Customers:
Bargaining power of customers of paint products is high due to availability of wide choice. 6. Competition:
In both the categories, companies in the organized sector focus on brand building. Higher prices through product differentiation are also followed as a competitive strategy.
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A s i a n P a i a nss a B e r g e r I In d i a L td . K nt i IC N e r o la cP a i n t s P a in ts
Paint demand is intrinsically related to economic development. The demand for decorative paint in India mainly arises from two segments viz construction of new building and retail demand for refurbishment. While the demand for industrial paint comes from industries like automobile, consumer durable, shipping engineering etc. the demand for paint has grown at 10% for last five years. After the sluggish growth in late 80’s and early 90’s, industry grew at rapid pace of more than 12% from 1992-96. High excise duties and lack luster industrial growth resulted in low growth of 2-4% during 1987-92. After 1992, the industry picked up aided by improving economic condition and rationalization of excise structure. Almost the entire growth can be attributed to volume increase as price realization has increase at less than 5%p.a. over the last two years demand slows down due to economic slow down. According to Indian Paint Association, demand will rise from current 0.6mn tones per annum to 1mn tpa by 2003.demand from decorative paint will be led by the household construction industry which is expected to grow almost 8% over the next five years considering the extreme shortage of housing and the government thrust on encouraging the housing activity are also likely to shift more towards rural areas. The industrial segment will grow faster due to the lower base and fast growth in major users like consumer durable and automobile.
INTERNATIONAL SCENARIO: The global demand for paint is estimated at over 21mtpa. At valued at about $60 bn. The industry is expected to grow at 3% over the next few years. The high growth regions are the developing countries of Southeast Asia and Latin America. While the mature markets of North America and Western Europe are likely to witness very low growth. The share of industrial paint is 70% and rest is accounted by decorative segment. Also, almost 60% of the world market. The largest player is ICI of UK with a share of around 10% followed by Akzo-Nobel (Netherlands), PPG (US), NIPPON (JAPAN),
BASF (GERMANY), KANSAI (JAPAN). Over the last few years the industry has been consolidating with an objective to strengthen the product lines and distribution chains. This has led to series of mergers and acquisitions. India’s market is only 0.65 mn tones, roughly 2.7% of world demand, but is growing at annual clip of 10%. THE WORLD COATING SCENARIO: The total output of the world paint and manufacturing industry was valued at $54 billion in 1996. The industry supported some 12,250 active firms. This industry is expand to forecast 3.5 percent annually to nearly 26 million tones. By the year 2002 the valued will be $72 billion. Tonnage gains in the industrial coating segment will be constrained by a shift in trend towards higher solid coatings (such as powder coatings), which often weigh less per kilo than solvent brone coatings, and require generally fewer, thinner coats. On the other hand, the architectural segment is seeing a continuous shift towards water-based paints, which weigh more than their solventbrone counter parts, and will promote stronger tonnage gains. These trends have evident around the world but have had the most impact in more mature markets. Most of developed world has already effected such as switch to water-based formulations for most architectural applications. The developing world is also experiencing this trend- India included. The world paint and coatings industry is becoming increasingly dominated by a small group of highly focused, globally positioned firms. For many of these companies (E.g. Sherwin Williams, Kansai Paints, and Nippon Paints) coating represents the primary line of business. In other cases (e.g.; AKZO NOBEL, ICI, HOECHST DUPONT and COURTALDS) the firm strong position has arisen from involvement in various upstream petro chemical activities, including production of many of basic raw material used in coating production. The most rapid gain in paints and coatings production will be registered in the developing regions of Latin America and Asia-Pacific. Although the Asia Pacific region hold the long term prospects as a market for paints and coating, regional production has been lower, primarily due to financial crises has hit this region. However, India was not severely affected by this crisis.
The wave of currency devaluation and shape rise in interest rate will seriously dram pen spending in key paint sector such as construction and durable in short term, particularly in Indonesia, South Korea and Thailand. India, in a earlier budget have announce a new housing policy, which should result in boom for the construction sector, which will boost demand for architectural coatings. A very interesting trend is emerging in the architectural coatings segment, we are experiencing a shift from solvent based coating to water based coatings. Water based coatings now account for most of house-hold paint demand in developed countries and is gaining ground in developing countries too. During 1990’s, the drive has spread to industrial and specialty coatings segment. The higher performance standards for industrial coatings have necessitated intense product reformulation efforts, leading to a number of alternatives technologies. Meeting environmental regulation is another challenge for paint companies in developed world. Even companies in developed regions should be prepared in this area, as paint product as soon adopting global standards, hence all paint companies will have to comply the environmental regulations. Global trend towards free trade will have an impact on product mix, since exported goods must meet the environmental codes of the target market. The formation of trading blocks like NAFTA will involve the establishment of more environmental regulation of member nations. Global production of paint and coatings can be divided in two broad sectors: Architectural Paint and Industrial Coatings. In 1996 Architectural Paint accounted for 58% of the total output with the industrial coatings accounting for the remainder. However, the industrial coating segment is slightly larger in value (Dollar) terms because industrial coating trends to cost significantly more than architectural paint. In 1998, the worlds top ten Paint and coatings suppliers accounted for nearly 42 percent pf the market. The next ten producers accounted to additional 13 percent of sales, which gives a top 20 firms a collective market share of over 50 percent.
The most basic division is between architectural coating and industrial coating. AKZO NOBEL, the world’s top player has a strong presence in both the segments. (60:40 in favor of industrial coating) Sherwin William, ICI, Asian Paints, and Benjamin Moore focus primarily on architectural paint. Whereas PPG, KANSAI Paint, courtyards, NIPPON Paint and RPM focus heavily on the industrial segment. BASF, DUPOINT, LILY industries and DAI NIPPON focus entirely on industrial coatings. Globally Industrial paint are the major segment accounting for around 70% of the market, global trade is overall sparse, due relatively simple technology, and especially to maintain high inventory and the dealer level and high transportation cost. Per capita consumption is 26 kg in the USA, 4 kg in Philippines and 16 kg in Taiwan.
Emerging Trends and Opportunities:1) Technology:-The introduction of tinting machine has changed significantly changed marketing technology. These machines each costing approximately Rs 60mn are installed at dealer outlets and enable the customers to choose between any of several hundreds shades. These are then generated by mixing colourants with the base paint, and delivered almost instantly. The two major implications of these machines are differentiation on color ranges is reduced; prior to this technology, a major competitive advantage of a company was the range of color it offered. For instance, Asian Paints offered almost 150 shades in its synthetic enamel range, unmatched in the industry. This now stands changed as almost 2000 shades can be created in seven minutes through these machines. Simplified logistics management: with the machines generating shades instantly, dealer can now stock only the base material and thus save almost 20-25% in the working capital cycle. 2) Expansion of product profile:- The lowering of excise has opened the high volume but low value market is semi urban and rural areas, which is currently dominated by the unorganized sector. 3) Niche marketing: - By concentrating on certain niches, some companies have earned good result. For instance, good lass Nerolac paint found a lot of its in automotive paints for maruti.Nerolac has a lions share in the industrial market segment and virtual monopoly over the automotive paints. This however, does not mean that niche strategy is bound to succeed. ICL ended up raid in the faces with its niche marketing strategy with natural hints, a paint with a suitable fragrance. This brand received no more than lukewarm response in the market. This was sold along with a roller for the Venetian glass look. ICL is also hoping the duette will be used instead of wallpaper. The future of this brand is yet uncertain. 4) Increased thrust on brand creation and distribution: - The increase share of organized sector implies that brand awareness will be a thrust area. Also, strong brands are emerging as the most important entry barrier. The opening of rural market has also necessitated the expansion of distribution reach.
5) Industry consolidation: - The small scale industry is expected to witness a shake out as the share of organized sector increases. Also, outsourcing requirements are likely to be reduced as new capacities go on stream in the organized sector.
Fifty Two Week High Low ExchangeName FiftyTwoWeekHigh NSE 1,334.00 BSE 1,319.95 Yearly High Low : BSE Year Ending High 14/08/2008 1,319.95 31/12/2007 1,125.00 29/12/2006 790.00 03/10/2005 520.00 31/12/2004 352.00 31/12/2003 472.35 31/12/2002 399.00 31/12/2001 289.95 31/12/2000 501.00 31/12/1999 451.25 31/12/1998 370.00 31/12/1997 378.50 31/12/1996 480.00 31/12/1995 690.00 31/12/1994 640.00 31/12/1993 420.00 31/12/1992 515.00
HighDate 07/05/2008 31/01/2008
FiftyTwoWeekLow 903.00 875.00
LowDate 22/01/2008 22/01/2008
HighDate 31/01/2008 31/12/2007 07/02/2006 28/09/2005 23/01/2004 19/08/2003 25/07/2002 26/11/2001 27/01/2000 30/08/1999 22/04/1998 01/08/1997 17/06/1996 26/07/1995 01/08/1994 02/12/1993 09/06/1992
Low 875.00 642.00 501.10 302.60 245.00 257.00 250.10 229.00 205.00 195.00 198.00 265.00 250.00 256.00 340.00 245.00 255.00
LowDate 22/01/2008 05/03/2007 02/06/2006 06/01/2005 17/05/2004 22/08/2003 04/01/2002 12/04/2001 13/10/2000 26/04/1999 23/06/1998 25/11/1997 04/12/1996 23/11/1995 06/01/1994 10/03/1993 20/11/1992
FY 2007 – Annual Results of Asian paints:
Presentation structure • Results: Q4 – FY 2007 • Results: FY 2007 • Outlook: FY 2008 Highlights: Q4 – FY2007
Consolidated Net sales and operating income. Increased by 25.4 % to Rs. 9,589 million. Good growth witnessed by all business units. Volume growth has been impressive for the Quarter. -Net Profit has risen by 43 % to Rs. 666 mn. – Good performance by the Decorative Business Unit – Improved performance by International operations • Material costs have risen during the quarter • Operating margins have improved due toimpressive volume growth Consolidated P&L – Q4 FY07: Standalone P&L – Q4 FY07: EOI (Extra Ordinary Item) – Provision for diminution in value of Investment. Presentation structure • Results: Q4 – FY 2007 • Results: FY 2007 • Outlook: FY 2008 7. Highlights - Consolidated results –FY2007: • Paint volumes for the year including international increased by 18.7 % to 481,976 KL. – All three business units registered in excess of 15% volume growth. • Value Sales have grown by 21.5 % driven by – Good growth registered by Paints-India business and theMiddle East region • Material costs as a percentage to sales have gone up marginally • HR costs have risen by 17.4 % to Rs. 2621 mn • However operating margins have been maintained due to control on other overheads. 8 .Consolidated P&L –FY 2007 9 .50 % of Asian PPG Industries sales are included Consolidated Sales breakup: FY 2007 & Q4 FY 07 10 Asian Paints Consolidated Results FY2007 • Asian Paints Standalone Results • Decorative Business – India
• Industrial Operations – India • International Operations 11 Asian Paints - Standalone P&L : FY2007 EOI (Extra Ordinary Item) – Provision for diminution in value of Investment. 12 • Net Sales grew by 21.7 % due to strong growth by all segments of the paints business • Net profit has increased by 45.7% to Rs. 2720 mn – Due to the performance of the Decorative – India business – In FY’2006 results, Rs. 336 million was provided towards diminution in the value of investments in overseas units – Adjusting for EOI, Net profit has risen by 23.5 % • Chemicals business registered revenue growth of 12.9% to Rs. 961.5 mn (adjusting for inter segment revenue) – PBIT for this business increased by 105.9 % to Rs. 246.3million Asian Paints - Standalone P&L : FY2007 Environment – FY2007 • India • GDP growth at 9.0 % for FY07 – Estimated at 9.2 % for FY 08 aided by a surge in industry and services sector – Higher growth than FY07 predicted for services and industrial sector • Inflation and rising interest rates are a cause for concern • Manufacturing, Capital goods, consumer goods,construction, cement, automobiles – all have registered good growth for FY2007 14 .Paint Industry – India : FY 2007 • Paints industry estimated between Rs. 112 and Rs. 115 billion for FY2007 – Value growth is estimated at around 18% in FY2007
• Decorative paints estimated to have grown by around 19 % in value • Industrial Paints is estimated to have grown by around 17 % in value • Demand conditions have been good in most segments of the paint industry • Input costs continued its upward trend during the year putting pressure on operating margins of paint companies. 15.Asian Paints Consolidated Results FY2007 • Asian Paints Standalone Results • Decorative Business – India • Industrial Operations – India • International Operations 16. Demand for decorative paints was good nearly throughout the year and in most parts of the country. – While Southern region of the country continues to do very well, the exceptions were Delhi and North East region • All segments for Decorative India registered double digit growth. • Excellent growth in all wall finish products – Impressive growth recorded by interior and exterior emulsions • 8500 Colour Worlds now installed in the country – Penetration into small towns continues. Paints : Decoratives India 17. Pricing FY 2006 – Four price increases effected during the year. – Overall prince increase in the year was around 4.25% – All price increases have been absorbed well by the market • New Products – Royale Play range expanded
– Luxury Ultra Gloss enamel launched in many markets • Colour Next 2007 launched – The company is beginning to be recognised as an authority in forecasting colour trends. 18.Paints : Decoratives India • Asian Paints Home Solutions – Added 2 cities in FY2007 i.e. Jaipur and Baroda – APHS is now present in 12 cities in the country • Manufacturing facility – Ankleshwar plant has received environmental clearance for 100,000 kl from 80,000 kl. 19. Paints : Decoratives India • Price of TiO2 have been fairly stable during the year • Prices of raw materials increased sharply in 2nd and 3rd quarter in FY 2007 – Major increases were in Xylene, Phthalic Anhydride and vegetableoil. • Prices of solvents have eased in Q4’FY07 due to lower crude oil prices
Asian Paints Limited Company Analysis 17thJuly2007 Price target-1,150 Shareholding Pattern (as on 31 March’07) Key Statistics (as on 16 July’07)
COMPANY OVERVIEW: Asian Paints is India's largest paint company and the third largest paint company in Asia today, with a turnover of Rs 36.7 billion(around USD 851 million). The company has an enviable reputation in the corporate world for professionalism, fast track growth, and building shareholder equity. Asian Paints operates in 21 countries and has 29 paint manufacturing facilities in the world servicing consumers in over 65 countries. Besides Asian Paints, the group operates around the world through its subsidiaries Berger International Limited, Apco Coatings, SCIB Paints and Tubman’s. INVESTMENT RATIONALE : The first phase of the Greenfield industrial liquid paints facility at Taloja, Maharashtra was commissioned during last quarter of FY06-07.The production is being ramped up at the facility and it is expected to reach the installed capacity of 14,000 KL by the month of September 2007.This will help the company to improve its service levels to Industrial customers and also bring about cost efficiencies Associated with manufacturing the bulk of industrial Products at a single location. The Company in order to meet market requirements is Planning to enhance the capacity of the plant at Sarigam. Plans are being drawn up and work on the civil structure is Expected to commence from October, 2007. The enhanced capacity will be available during the second quarter of the FY08-09. With these capacities at Baddi and Sarigam, APICL will be placed to service the powder coating requirements. During last year, the capacity of the Sriperumbudur plantwas raised to 50,000 KL per annum early in 2006-07. This capacity came in handy as emulsion paints sales grew well. The company is adding a polymer plant at Sriperumbudur which is expected to be commissioned in the first quarter of 2007-08. The plant at Ankleshwar has received environmental and other clearances to produce up to 1,00,000 KL, per annum. Some additional facilities, especially storage and handling, need to be installed at Ankleshwar as well as Patancheru and Kasna plant so as to produce at the rated capacity on consistent basis. COMPANY OVERVIEW
Rolta India Limited is an Indian Information Technology company with its corporate headquarter in Mumbaithe company operates through a network of 42 regional offices across India combined with its seven subsidiaries,located in USA, Canada, UK, Netherland, Germany, Saudi Arabia and the United Arab Emirates. Rolta is todaya market leader in Geospatial and Engineering segments with a unique combination of IT-based solutions and services, with wide array of multi-million dollar projects in over 35 countries. This combination of Geospatial,Engineering design, e-security services and solution is unique to Rolta because no other company is providingsimilar combination anywhere in the world. This combination provides Rolta with competitive advantage overother companies by being able to combine its domain knowledge to tailor solutions more precisely to itscustomer needs. ROLTA TO SET UP IT PARK IN KOLKATA Rolta India Limited has announced the setting up of Information Technology Park at Kolkata as a part of its expansion plan. This IT park will have facilities for delivery of Information Technology based Geospatial services, Engineering design services, Software development and ERP implementation services worldwide. This facility once completed will be providing employment to 5,000 technical professionals and domain experts from talent available in West Bengal. This facility will be set-up in phases with an investment of about Rs 2,500million. This Information Technology park will add another milestone to the success story of the Rolta India Limited and will intensify its competitive edge.
JOINT VENTURES Rolta India Limited joint venture with Thales, France, will be providing a broad spectrum of cutting-edge technologies, systems and solutions for developing state-of-the-art Command, Control Communications, Computers, Intelligence, Surveillance, Target Acquisition and Reconnaissance Information Systems (C4ISTAR) for the defense and homeland security sectors, both in the domestic and international markets. Rolta is a leader with a market share of over 85% in the Engineering Design Automation segment in India and one of the major
Plant Information Management Services providers worldwide. Rolta provides a complete range of advanced engineering design services, encompassing the entire product, plant lifecycle designing, modeling, detailing, analysis, tooling, manufacturing, operations, maintenance and simulation. Taking this leadership further, Rolta's strategic joint venture with Stone & Webster, Inc., provides high-quality cost-effective engineering, design and procurement management (EPCM) services to power, refinery and petrochemical projects worldwide. This partnership has evolved into an independent full service engineering and procurement operation, pursuing large contracts business.
FINANCIAL STATEMENT ANALYSIS Rs. mn Revenues Growth (%) Total Expenditure 17424.6 2 11.42 14729.2 19415.1 5 19.45 16477.3 23191.5 5 21.65 19672.3 28212.93
Operating Profit Growth (%) OPM Other Income EBIDT Interest Depreciation PBT Tax Adjusted PAT Growth (%) Adjusted NPM 2005 2005-06 2006-07
4 2695.38 8.99 15.47 216.77 2912.15 52.65 480.1 2379.40 835.54 1543.86 15.33 8.86
9 2937.76 19.79 15.13 316.14 3253.90 27.54 476.05 2750.31 969.84 1780.47 24.35 9.17
5 3519.2 19.84 15.17 359.26 3878.46 38.31 455.28 3384.87 1170.82 2214.05 21.91 9.55
14.95 359.26 4622.07 68.73 454.15 4099.19 1399.94 2699.25
For the financial year ended 2006-07 company has displayed good financial performance. The revenues for the Company stood at Rs 28,212.93 mn for the FY06-07 in comparison to the FY05-06 revenues of Rs 23,191.55 mn with the growth rate of 21.65%. The company reported the operating profit of Rs 4,217.56 mn for the FY06-07 Compounding at the growth rate of 19.84% against the operating profit of Rs 3,519.20 for the FY05-06. The EBITDA for the company rose to Rs 4,622.07 mn with the growth rate of 19% in comparison to FY05-06 EBITDA of Rs 3,878.46 mn. The company net profit is up by 22% to stand at Rs 2,720.48 mn for the FY06-07 in comparison to FY05-06 net profit of Rs 1,867.80 mn. Research
The company has reported the EPS of Rs 28.10 for the FY06-07 in comparison to FY05-06 EPS of Rs 23.10 with the growth rate of 22%. This has been followed by rising return on net worth .of the company. The company has reported the 36% return on net worth for the FY0607 in comparison to FY05-06 return of 34% on the net worth. Therefore company has been consistently generating good return for its shareholders and in future it is likely to add more to the wealth. VALUATION The stock of Asian Paints appears to be a good addition to the portfolio for conservative investors. Strong growth prospects for decorative paints arising from the higher pace of construction activity and a ramp-up in revenues from international operations could aid sales growth over the next couple of years. Profit margins may receive help from moderating input prices and an appreciation in the rupee. At the current market price of Rs 872, the stock trades at a price earnings multiple of about 25 times expected FY08 earnings. Therefore, we recommend the stock for the long term investment with price target of Rs 1,150. Disclaimer: This document is prepared on the basis of publicly available information and other sources believed to be reliable. Whilst we are not soliciting any action based on this information, all care has been taken to ensure that the facts are accurate and opinions given fair and reasonable. This information is not intended as an offer or solicitation for the purchase or sell of any financial instrument. Hem Securities Limited, Hem Finlease Private Limited, Hem Multi Commodities Pvt. Limited and any of its employees shall not be responsible for the content. The companies and its affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities there of, company (ies) mentioned here in and the same have acted upon or used the information prior to, or immediately following the publication.
GOODLASS NEROLAC PAINT LTD:
GNPL was established in 1920, by Tata steel in collaboration with goodlass, of UK, a part of cookson group. The tata’s had 40% stake in the company through group company Forbes Gokak ltd. In 1983, the company entered into technical cum financial collaboration with kansai paints, Japan. Kansai who currently has a stake of 40% is the other major shareholder. Manufacturing activities began with the establishment of paint unit at parel in 1920. In 1971 another plant was established at Thane. The Thane plant had also facilities of manufacturing pigments, one of the indegredents in paint manufacture. In FY92 the company made a right
issue for funding its new Kanpur plant, which was commissioned in august 1993. Last year Kansai brought over stake of Tata’s, thus making GNPL its subsidiary. KANSAI PAINT COMPANY: Kansai Paint Company is the largest company in Japan and among the top ten in the world with 1991 consolidated sales of $2bn. It has 21 subsidiaries in 12 countries. Kansai has its 45% sales coming from automotive coating, 26% from decorative paint and 29% from containers, marine, metal, and heavy duty coatings. Last year company spends close to Rs 2.4bn on R&D with the thrust being on high technology, environment friendly products. India accounts for 40% of kansai investment subsidiaries. • BUSINESS: GNPL one of the oldest paint manufacturing companies, has concentrated on the industrial paint segment. Its product range also includes decorative paints and organic and inorganic paint. GNPL has technical collaboration with a number of manufacturers that gives it a competitive edge over the competitors in the industrial paint segment. Its collaboration with different companies to cater to different segment as follows.Kansai paint co ltd, Japan – for all automotive coatings.Nihon Parkerizing co ltd, Japan- sealands and underbody compounds. Nihon tokushue toryo, Japan- for pretreatment chemicals. Valspar Corporation, USA- powder coating. Ameron coating Inc, USA- high performanance coating.
INDUSTRIAL PAINT: GNPL is the market leader in the industrial paint. With a 43% share. GNPL dominates
the OEM share with the 70% of share of passenger cars OEM market, a 40% share of two wheeler and 20% share of commercial vechicles OEM market. It has a major share of alkyd and amino paints, which are rapidly replacing NC lacquers, traditionally used for automotive coatings. GNPL has almost all the major automotive OEM as its customers except the Korean ones. Other key accounts are Bajaj Auto, Whirlpool, Hero Honda etc. suppliers to maruti 70% of
maruti’s paint requirements account for 12% of sales. In the automotive segment, GNPL has launched low brake ED primers and common base coats to remove body and lumper colour mismatch. GNPL is also trying to regain its market supremacy in markets like General industries and Auto ancillaries, which it had exited due capacity constraints. • DECORATIVE PAINTS: GNPL has a stronger presence in distempers and emulsions. Emulsions are the fastest growing segment in the decorative paints. It has alls capes as a premium segment product. Its super acrylic distemper is claimed to be the first water-based, any-surface, environment friendly painting segment. It has recently launched acrylic system. It has recently launched paint excel to counter competition in exterior paint segment. GNPL has launched three technology led products namely Zola coat (multi-colour designer finish paint) satin emulsion (acrylic emulsion for premium silky finish) and nerosign (colour specifically for sign board painting). However, it is a distant #2 in the decorative paint segment, way behind industry. • MANUFACTURING FACILITIES:
GNPL has plants at Lower Parel (MUMBAI), lote Parshuram (RATNAGIRI), and Dehat (KANPUR). Last year GNPL has expanded capacity at two its plants and set up new plant. All this has taken the total capacity to 101000 TPA from 57500TPA. For FY06/07. GNPL achieved sales of 61000 tonnes, up from 52057 tonnes. It also has two more plants through 100% subsidiaries at Madras (capacity 27,000 TPA) and vatva in Gujarat (9000 TPA). It has 62 sales offices and depots and more than 7000 dedicated dealers. Its paints are sold under brand name of Nerolac. The company has introduced VRS to employees of kavesar plant at Thane. • THRUST ON IT:
GNPL is planning a major push in the IT segment; in fact a major portion of its apex plan of Rs 400 mn is earned market towards IT. This includes implementing ERP program to improve it operational efficiencies and integrating all of its 60 odd depots.
Amalgamation of Polycoat Powders Ltd. with the Company Polycoat Powders Ltd. (PPL), a Company engaged in the manufacture of powder coatings, has been amalgamated with the Company with effect from 1st April, 2006, pursuant to the approval of the Hon'ble High Court of Judicature at Bombay. The amalgamation is expected to result in better internal economies such as reduction in administrative costs, exercise of effective control, synergistic operational advantages, better use of infrastructure facilities and increased productivity of the combined resources. The figures of PPL for the financial year ended 31st March, 2007 are included in the financial results of the Company for the current year. For the above reason, financial results for the current year are not comparable with those of the previous year.
Dividend The Company declared and paid an interim dividend of Rs. 11.50 per share (115%) in March 2007. The Directors recommend that this interim dividend already paid in March 2007 be confirmed as the final dividend. The dividend paid for the financial year ended 31st March, 2007 is the same as that for the previous year ended 31st March, 2006, though for the last financial year 2005-06 an additional special dividend of Rs. 8.50 per share (85%) had been paid, on account of extraordinary income recorded in that year from sale of investment in an associate company, Polycoat Powders Ltd.
Management Discussion and Analysis (A) Information about the Company:
Kansai Nerolac Paints Limited (formerly Goodlass Nerolac Paints Ltd.), established on 2nd September 1920, is an 86 years old company. Being India's second largest paint company, it enjoys clear market leadership in Industrial, Automotive and Powder Coating business. The main strength of the organization lies in its employees and the technological superiority of the products manufactured, which has enabled the Company to maintain a steady growth over the years. The Company has an open culture with transparency in operations and a professional approach. The stated purpose is Innovations for evolving surfaces. Innovation here means new ways of looking at business, which also implies innovation in products, work and processes. Evolving surfaces indicates future possibilities. The Company has a strong value system that serves as guidelines for exhibiting appropriate behaviour, internally and externally. This year, Kansai Nerolac Paints Limited (KNP) re-looked at the changing business environment and the organization's core values. The Company has 67 sales locations to serve its customers and is well supported by five strategically located factories. The proximity of plants to the customers' base offers logistical advantage and an edge over others, when it comes to service. The Company operates on SAP R-3 platform and uses Advanced Planning Optimizer for Demand Planning, Forecast and Demand Fulfillment. While Data Intelligence Warehousing supports day to day decisions within the Company, Knowledge Portal serves as repository of accumulated knowledge within the organization. Information Technology (IT) is centralized with online connectivity and security framework. The performance at all levels of employees is reviewed on the platform of the Balanced Score Card. Management Committee (MC) comprising of Top Management decides on broad policies and sets direction of organization and reviews results. Business Analysis Team (BAT) analyzes business problems, opportunities and supports MC. KNP has been consistently meeting challenges of the dynamic business, rising costs, industry demands and competitive scenario, in order to meet profitability objectives, by taking measures to increase productivity and manage the resources more effectively, meeting customers' expectations at the same time. (B) How the industry fared: Paint industry continues to do well riding high on the growth in housing and the automobile sectors. GDP growth of
8.5% for the year has been supporting and so has been the growth of 10.5% in Manufacturing and 3% in agriculture. These are the indicators of the buoyant economy. Only concern has been the inflation, which has been hovering around 6%. The Raw Material prices for the majority of the period in this year have been on a rise. The paint industry growth of 15% has not been surprising, thus taking the industry size to Rs. 10000 crores, both for organized and unorganized sectors put together. The share of the organized sector is estimated to be Rs. 7400 crores. Sales growth for KNP is in line with the industry growth. The growth this year is led by decorative business and within the decorative business, by Interior and Exterior emulsions. The paint industry is likely to do well in the next two years as well. The management therefore looks to the future with confidence, even though there is increasing competition from international paint companies. (C) Marketing initiatives: The Company went though the exercise of new brand architecture as a part of its Corporate Identity (CI) initiative. Products were re-branded as per new classification/brand architecture and the pack designs changed. The new product packs now look more contemporary, futuristic and have been well accepted by the consumers. Continuing to take the platform of Innovation, new products have been launched in the decorative business like Nerolac Impressions Metallic and plain finishes, Excel Total with seven years warranty for exterior application, Suraksha Advanced with four years warranty for exteriors. Beauty Flexi Coat, a crack free finish Emulsion in premium range for the interiors has also been launched along with Designer finishes. The back end support service, under Nerolac Assured Paint Service (NAPS), in select towns, is doing well with more and more consumers passing on supply & apply contracts to KNP's trained applicators. The Company's Institutional cell has also done extremely well by lapping up more contracts. Setting up an Impressions Experience Center, at the Company's Head Quarters has been another major initiative to provide touch & feel facility for the consumers and serve as a learning centre before this concept is taken to the retail market. In Industrial business, General Industrial, High Performance Coatings and Powder coating business has done extremely well. The growth in automotive business has been in line with sector growth. The new technology introduced of three coats - one bake has been well accepted by the automobile industry, resulting
into high productivity and savings in power cost at the customers' end. UV cure technology has been introduced in the market paving the path for KNP to make rapid strides into the futuristic technology. Multiple CED lines have been awarded in this year at the new and existing plants of the Automobile manufacturers, thus further strengthening the Company's position in this area. (D) Opportunities & Threats: The Company continues to identify gaps in the customers' needs and the products available and has been expanding its brand portfolio. The current customer is well enlightened, demanding, is clear on the choice of finishes unique to his personality and is open on experimentation. More over, customer is looking for a back end support. The Company is geared up to exploit these opportunities and grow its business. Value additions, customer responsiveness and satisfaction are keys to performance and for retaining the market shares. Delivering the products at the prices which are competitive, inspite of rise in raw material cost and still maintain profitability is an ongoing challenge requiring a continuous working on improving internal operational efficiencies. KNP has been therefore continuously working in the areas of product improvements, innovation in products and services. Various products and finishes have been offered both in decorative and industrial business, addressing the needs of customers both on quality and price. There is a growing competition visible with more and more international players entering the industry and the way business is being transacted getting redefined. (E) Segment wise performance: The Company has only one segment of activity namely paints, in accordance with the definition of Segment as per the Accounting Standard 17 issued by the Institute of Chartered Accountants of India. The performance of the Company is discussed separately in this Report. (F) Risks & Concerns:
The Company has identified risk areas along with its probability and severity, department wise. The Company has in place, a detailed Enterprise Risk Management (ERM) framework to mitigate the risks. A detailed Risk Register is maintained functionwise to monitor and mitigate risks. Macro economic conditions do affect the Company operations as is the industry. Low demand, political instability, crop failures, natural calamities may affect the business. Business, therefore, cannot be risk free. What is important is to correctly assess risks area wise, understand the impact and initiate action to mitigate the risks. General Risk areas are classified under heads like statutory compliances, economy, financial, government regulations and policies, market related, operational, products and technology, intellectual property. The technology provides a cutting edge to offer products innovatively and at a competitive price, thus improving sales. Availability of raw material at the right price and at the right time is crucial for maintaining steady supplies to the customers. Rising prices of crude oil and its derivatives could be a cause of concern and similarly for Forex. Getting into new areas of business, products would carry the associated risk. The Company has not been significantly affected on account of these risks due to proactive actions against anticipated hindrances. The Company enjoys strong brand equity amongst consumers, is known for superior technology and service backup, has a strong distribution network and follows systems and processes. Efficient materials and foreign exchange management is followed and statutory compliances are proactively auctioned upon. (G) Research & Development (R&D) and Technology: Research & Development department of the Company continued carrying out research in specific areas like development of new coatings/paints, quality upgradation of existing products, development of resins and polymers for paints, value engineering, process development and import substitution. The benefits derived as a result of R&D have been in development and commercialization of new products. This year, developments have been: * 3 wet coat automobile coating system. * Hybrid Technology for Automotive metallic base coats * Glass clear lacquer
* Premium Exterior Architectural Paint. * Advanced Economy Exterior Emulsion. * Interior Flexi Stain Resistant Architectural Paint. * Premium Interior Water Borne metallic finish Architectural paint. R&D has played a crucial and a supportive role in KNP maintaining leadership in Industrial/automotive coatings and making inroads in the decorative sector. (H) Financials: Gross sales for the year aggregated to Rs. 1484 crores reflecting a growth of around 21% over the previous year. During the year, Polycoat Powders Ltd. (PPL), a 100% subsidiary of Kansai Paint Co. Ltd., Japan was merged with Kansai Nerolac Paints Ltd. Thus current year's sales includes sales of PPL. The growth on a stand alone basis is at 14.9%. Raw material inflation during the year was high at 7% impacting profitability of the Company. Overheads were kept under control. Overall overheads as a percentage to sales, dropped from 13.3% to 12.4%. Profit Before Depreciation, Interest and Taxes (PBDIT) (without other income) for the year is higher at Rs. 171.44 crores as compared to Rs. 157.14 crores of previous year reflecting a growth of 9.1%.
Depreciation for the year is slightly higher at Rs. 33.56 crores as against Rs. 31.78 crores of previous year. Other income is lower at Rs. 24.05 crores as compared to Rs. 75.01 crores of previous year. Previous year's other income includes extraordinary gain of Rs. 50.40 crores by way of profit on sale of shares of Polycoat Powders Limited to Kansai Paint Co. Ltd., Japan. If this is excluded, then other income for the current year is more or less at the same level as the previous year. Profit Before Tax is at Rs. 160.97 crores as compared to Rs. 149.20 crores (normal profit) of the previous year which is a growth of 7.9%. (I) Collaboration
The Directors record their appreciation for the contribution made and support provided by Kansai Paint Co. Ltd., Japan (Kansai). Kansai continues to provide support on process design, quality improvement, world class technology, which has helped the Company in maintaining market leadership in the industrial business including automotive coatings, by servicing existing customers better and adding new lines. Kansai also provides technology for manufacture of architectural coatings. The Company also has Technical Assistance Agreement with Oshima Kogyo Company Ltd., Japan for manufacturing heat resistant paints, Dupont Performance Coatings GmbH & Co. KG, Germany, for Anodic Electrodeposition Coating System and PPG International Performance Coatings and Finishes, USA (formerly Ameron International Performance Coatings and Finishes) for high performance coatings. The Directors record their appreciation of the cooperation from these collaborators.
(J)Directors In accordance with the Articles of Association of the Company, Dr. J. J. Irani, Mr.Y. Kawamori and Mr.Y.Tajiri retire by rotation and being eligible, offer themselves for re-appointment. Mr. Pradip P. Shah was appointed as a Director of the Company with effect from 30th January, 2007, in the casual vacancy caused by the resignation of Mr. K.C. Mehra. Pursuant to Section 262 of the Companies Act, 1956, Mr. Shah holds office upto the date of the Annual General Meeting, but being eligible, offers himself for re-appointment. The Directors have placed on record their sincere appreciation for the valuable services rendered by Mr. K.C. Mehra during his Directorship with the Company. None of the Directors of the Company is disqualified under Section 274(1)(g) of the Companies Act, 1956. As required by law, this position is also reflected in the Auditors' Report.
3. Further Plan of Action: - Development of eco-friendly coating products. - Development of UV curable plastic coatings. - Development of water borne tile coatings. - Development of Waterborne Exterior Metallic finish Paint
ICI IANDIA LTD:
• BACKGROUND: ICI’S presence to India dates back to 1911, when brwnner mond &co. one of the four companies that combined to form ici in uk in 1926, opened a trading office to sell alkyls and dyes in Calcutta. In 1929 companies name was changed to Imperial chemical industry (INDIA) ltd. ICI began with manufacturing chlorine and caustic soda at Rishra, West Bengal. The site was later expanded to manufacture paints and rubber chemicals and fibers of India ltd. (CAFI) were incorporated to manufacture polyester operations in panki at Kanpur. In the early 1970’s IcI established additional manufacturing capacity for paints at Hyderabad and in 1978, ici diversified into crop protection chemicals and pharmaceuticals at Ennore near Chennai. In 1976 a research facility was established at Thane, now known as ICI India research and technology centre. In 1984, the ici companies in Indian merged. In 1987, ICI
formed Nalco chemical ltd. With Nalco company USA with each holding 40% of the equity. In 1989 specialty chemical plant was commissioned at Thane. In 1993, the first phase of ICI India’s restructuring was completed with the disinvestment of the fibers, fertilizers and seed business. In 1995 agrochemical business was transferred to a joint venture with Zeneca limited in UK. In1996, ICI established a joint venture called initiating explosive system India ltd. In 1997 the new paint plant and polyurethanes systems house were commissioned at Thane. In 1998 ICI acquired the nitrocellulose business of asha nitrochem industry ltd at valaspar, Gujarat. Another paint plant was commissioned at mohali near chandigharh and the surfactants innovation centre opened at Thane. IcI also exited from its joint venture with Nalco chemical company, USA and Zeneca, UK. Plant locations are;
LOCATION ROURKELA, ORRISA SINGRAUIL, MO GOMIA, BIHAR VALSAD, GUJARAT HYDERABAD, AP MOHALI, CHANDIGARH ENNORE, CHENNAI
PRODUCT MANUFACTURED Bulk explosive Bulk explosive Bulk explosive Catalysts Nitrocelluse Paints Paints
• BUSINESS: ICI’s main business is of paints, specialty chemicals and materials.Paints ICI has around 35% of its turnover from paints. Of these Decorative paints contributes 55%, Autorefinish 30%, Motors and Industrial 15%. ICI major brands in decorative paints are Terrene, Deluxe. ICI launched new products “Wasr Swear” and “Supercote Textured finish” and also expanded its colour solution to 200 outlets.Honda and Tafe. Major brands are Duco for automotive refinish and In industrial paints segment the client list include Fiat, Daewoo,
Perspex for acrylic sheets. The newly commissioned plant at Mohali has pioneered the movable mixer manufacturing technology for Refinish paints and has also developed and implemented ACS Market mix system for Autocolour in India. Under its ICI has Permosel brand in solid and metallic colours. With the commissioning of the Chandigarh facility the total paint capacity has gone up to 6000 KL, ICI has four plans strategically located in four different regions Situated at Calcutta, Mumbai, Hyderabad and Chandigarh with the Addition of 1500 outlets. The total number of retail network hasBeen expanded to more than 6500. Rubber Chemicals: ICI India is a market leader in the rubber chemical in India at the new state of the art an horizontal plant set up in technical collaboration with sumita chemicals of Japan, at rishra, West Bengal. ICI manufactures a wide range of rubber chemicals acceletors, antioxidants, peptisers, retanders etc. used in wide variety of end products with around 50% consumed by tyre industry with other based products accounting for the rest. In year 2005 sales decline due to recession in automobile segment. The plant near Calcutta has been recently expanded and modernized at a cost of Rs 50 mn to manufacture products for domestic market and experts. • SURFACTANTS: (UNIQUEMA) The division has started operating by the name of uniquema. Starting with textile auxiliaries the surfactants business has developed and diversified portfolio for supply of products of textile, cosmetic and pharmaceuticals companies, pesticides industry and general industry sector. With its manufacturing unit and research and technology centre focused on textile auxiliaries has been put up at thane near Mumbai. ICI launched 200 new products in surfactants. Last year catalyst syntax is the new name of ICI’s expanded catalyst business formed by the merger of ICI katalca, unichema, crossfield, htc, and ICI tracerco. The manufacturing plant at Kanpur caters the supply of catalyst to the Indian customers and some of the catalyst. The Indian operations are covered under the global operations of ISO 9001 certification. The major customers are refiners and fertilizers • POLYURETHANE: ICI India set up the polyurethane business at Ennore, Chennai with the establishment of a 1000 TPA blending operation. Subsequently the main office was moved from Ennore to
Thane. The appliances, automotive, footwears, construction, furniture, CASE and ecoblinders sector offers major opportunities for the polyurethane business in India. ICI has set up plant at Thane to enhance value addition through tailor made products. • PHARMACEUTICALS:
While the pharmaceuticals business of ICI worldwide has been hived off into another company called Zeneca. In India it still operates under ICI banners. The pharmaceutical business is amongst the fastest growing and profitable one. The business portfolio includes both human and veterinary pharmaceuticals. In human pharmaceuticals there are three major portfolios cardiac, anesthetic and antiseptic. Most of the product being marketed is original ICI research product. ICI has a state art manufacturing plant at Ennore near Madras. In cardiac vascular main brands are tenormiu, Inderal and tetmosal. ICI India also exports to Europe and Middle East. It also acquires the businee of nitrrocellouse business of Asha ntrochem last year. Industrial nitrocellulose finds application into auto-refinish paints, wood lacquers, printing inks, leather finish lacquers, foil coatings, artificial jewelry etc. ICI acrylics are the world’s largest acrylic company with 55% of world volumes.ICI India mainly import product from the parent and market it. For this it has tied up with GSFC. ICI is the trading group of ICI India offering a wide variety of chemicals for import and export with the main focus on chlorine chemical and titanium dioxide. It sold up its 49%stake in Zeneca Agrochemical for Rs 194.7 mn. It receives Rs 911 mn net of its investments of Rs 76.4 as equity. It has also sold properties in Delhi and kolkatta for a total sum of Rs 840 mn. May 7, 2008 Financial highlights * Q1 ** 3,486 403 11.6 254 7.3 0.49 2007
In â‚¬ millions Revenue EBITDA EBITDA margin (in %) EBIT EBIT margin (in %) Earnings per share (in
Q1 2008 3,506 398 11.4 257 7.3 0.52
% change 1 (1) 1 6
â‚¬) Net income * Continuing
before incidentals Pro forma.
Operational highlights for the quarter
• • • • •
Ongoing trend of underlying growth, in local currencies, in most businesses Autonomous growth of 6 percent offset by currency headwind ICI integration and synergies on track Earnings per share of continuing operations up 6 percent Total net income â‚¬118 million, up â‚¬40 million
AkzoNobel today reported 6 percent autonomous growth for the first quarter of 2008, indicating a strong underlying trend. However, this was offset by a similar negative currency impact. Operational margins of continuing operations were flat. Although net income from continuing operations of â‚136 million was down 4 percent, earnings per share increased 6 percent, due to the share buyback programs .The company achieved underlying growth in local currencies in most of its businesses, reaching double digit levels in emerging markets. Autonomous top line growth of 6 percent was reduced to a positive benefit of just 1 percent due to the currency translation impact. AkzoNobel CFO Keith Nichols commented: I am pleased with the stable performance which demonstrates the strength of our transformed company. The testing environment continued in the first quarter, as expected. However, I remain confident for the remainder of the year that we will deliver on our promises of outgrowing our markets, and continuing with the successful integration of ICI .Looking at the results in more detail, Specialty Chemicals realized strong autonomous growth of 11 percent, supported by almost all businesses. Growth at Performance Coatings was offset by currency pressure, although Marine & Protective Coatings produced another strong quarter. There was double digit revenue growth at Decorative Paints in the emerging markets, but due to negative currency effects, total revenue was down 4 percent. The first quarter is not
traditionally strong within the decorative sector. This seasonality was compounded by the poor weather conditions and an early Easter holiday.
Total revenue developed as follows: In % versus Q1 2007 Total Volume Price Currency pro forma Decorative Paints Performance Coatings Specialty Chemicals AkzoNobel
Acquisitions/ divestments 1 2
(4) 1 5 1
(2) 2 4 2
3 2 7 4
(6) (6) (6) (6)
Decorative Paints The year began well, but adverse weather conditions in Europe and eastern Canada towards the end of the quarter resulted in a delay in market demand. Performance was strong in the emerging markets, with double digit growth in Asia and Latin America. Growth was also healthy in most Central and East European countries. In the US, the trading environment continued to be soft. In most mature markets, the trade business performed well, while the
retail segment faced weaker market conditions. Despite the significant currency impact on the top line, EBITDA and EBIT margins improved compared with the first quarter of 2007, benefiting from changes in product mix and a continuing focus on cost control. Performance Coating Although the achievement of 4 percent autonomous growth was encouraging, this was offset by the currency headwind of 6 percent, which was felt by all businesses. Acquisitions added 2 percent to revenue, resulting in flat total first quarter revenue. Despite the tough currency conditions, Marine & Protective Coatings delivered another strong quarter, with all activities contributing. Industrial Activities performance was impacted by currencies and the soft economic conditions in the US. EBITDA and EBIT margins were down compared with last year, mainly due to the impact of currencies. Specialty Chemicals It was another good quarter, with revenue up 5 percent on last year. Autonomous growth was 11 percent, indicating that most businesses have continuing high asset utilization. Higher raw material and energy prices were compensated by price increases of 7 percent. Before incidentals, EBITDA increased to â‚¬205 million (up 1 percent), while the EBITDA margin amounted to 17.1 percent, slightly below the first quarter of 2007. The Surface Chemistry, Polymer Chemicals and Chemicals Pakistan businesses in particular are operating at a clearly improved level. Net Income Net income from continuing operations before incidentals amounted to â‚¬136 million, down 4 percent compared with last year. During the quarter there were incidental charges of â‚¬151 million (2007: â‚¬90 million), largely related to ICI integration costs (â‚¬84 million), and an amortization of the step-up of acquired inventories totaling â‚¬42 million. Net income including incidentals from continuing operations was â‚¬36 million (2007: â‚¬78 million). Discontinued operations realized a net income of â‚¬82 million. Total net income for the first quarter of 2008 was â‚¬118 million, up â‚¬40 million compared with the previous year. Cash Position and strong financial position
On January 2, 2008, ICI was acquired for a gross price of â‚¬11.5 billion, of which 5 billion related to assets and liabilities held for sale. Prior to the Henkel on sale at the beginning of April “ for cash proceeds of â‚¬4 billion “ AkzoNobel concluded a legal restructuring of National Starch. This explains a relatively high cash and short-term borrowing position at the end of the first quarter of 2008. Invested capital increased due to the ICI acquisition and the related goodwill and intangibles of â‚¬8.1 billion. In mid-March, AkzoNobel embarked on a new â‚¬1 billion share buyback program as a first tranche of a â‚¬3 billion program. It is expected that the full â‚¬3 billion programs will be completed in approximately 12 months. Trading conditions
Despite softer economic conditions in the mature markets and the negative impact of currencies, AkzoNobel remains confident of outgrowing its markets and at least maintaining results in line with 2007.
BERGER PAINT INDIA LTD:
Profile Berger Paints is the third largest paint manufacturer in India with an overall market share of 19%. It is India's second largest decorative paint manufacturer (11% share) and also the third largest industrial paint manufacturer (14%). Over two-thirds of its turnover comes from decorative paints and the balance from industrial paints. 1923 - The Company was incorporated on 17th December, in West Bengal. The Company manufacture and sell paints, varnishes, dry colours, enamels, pastes, distemper, ships paints, boiler components and various other kinds of paints to meet the requirements of trade, commerce and industry. Some of the brands manufactured are Castle, Parrot, Duroglaze, Luxol, Murisan, Synthetic, Soligum, Apexior, etc. 2000 The Company proposes to expand its operation through acquisitions, both internally and externally, and strategic partnership, preferably with foreign firms. Crisil has upgraded the fixed deposit programme of Berger Paints from FAA to FAA+. 2001
Berger Paints India Ltd. has unveiled a new brand promotion Strategy which it claims to be the first of its kind in the industry. Despite a slight increase in sales, the net profit of Berger Paints India Ltd has dropped by around 10 per cent for the half-year ended September 30, 2001. Berger Paints Ltd and ICI Ltd, have formed a 50:50 joint venture to manufacture auto and industrial coatings at Rishra in West Bengal. 2002 Board decides to pay interim dividend @25% on the ordinary shares.Acquires 50% stake in Berger Auto & Industrial Coating Ltd. Signs term sheet for acquiring the entire paint business(including the entire intellectual property rights ) of Snowcem India Ltd. inducts Jalal Dani as the Chairman of the company , after buying out 50.1% stake in the Singapore based paints company. 2003 -BOD decided not to amalgamate Berger Auto & Industrial Coatings Ltd with the company.Board recommends a dividend @ 60% on equity capital of the company.Posts 54% growth in the net profit to Rs.14.14cr for the second quarter end. 2004 Delhi based Punjab National Bank (PNB) and Bangalore-based Vijaya Bank enter into a four-way partnership with Principal Financial of the US and Berger Paints to set up an insurance broking company 2006 Berger Paints India Ltd has entered into a Joint Venture Agreement (JV) with Nippon Bee Chemical Co Ltd of Japan for the purpose of formation of a Company for manufacture and sale of coatings for plastic substrates used in automobiles and parts thereof in India. 2007 Berger Paints India Ltd has entered into a Joint Venture Agreement (JV) with Nippon Bee Chemical Co Ltd of Japan for the purpose of formation of a Company for manufacture and sale of coatings for plastic substrates used in automobiles and parts thereof in India.
BERGER PAINTS INDIA LIMITED (BRGR) Price History ? Price ? % ch ? Cap ? Vol ? % ch week ? % ch Mkt Rs % Rs m '000 % Top 30.3 0.0 9,647.3 3.1 -1.3 ? P/E ? P/CF ? EPS (31/03/2008 ) ? Shares O/S ? % ch 1-month ? 52 week H/L X X Rs m % Rs 10.4 8.5 2.9 318.92 -5.9 68.6/25.8
% -36.8 12-month (Price History as on 05/12/08) Interim Results No. of Months Year Ending NET SALES Other income Turnover Expenses Gross profit Depreciation Rs m Rs m Rs m Rs m Rs m Rs m
Top 3 31/03/2008 3,363 34 3,397 3,006 357 49 3 30/06/2008 3,782 70 3,852 3,466 317 50 3 30/09/2008 4,238 24 4,262 3,832 406 47
Interest Profit before tax Tax Profit after tax Gross profit margin Effective rate Net margin tax profit
Rs m Rs m Rs m Rs m % % %
40 302 61 241 10.6 20.2 7.2
22 315 83 232 8.4 26.3 6.1
33 350 59 291 9.6 16.9 6.9
* Results Consolidated | Interim results exclude extraordinary / exceptional items | Historical Quarterly Results
IMPACT ON BUDGET: • • • • • • • • • • Market size of the Indian paint industry –Rs 5000crore.While the organize sector accounts for Rs 3500 Crore, the unorganized sector accounts for the balance of rs1500crore. In terms of volume, the unorganized sector accounts a major portion of supply. Decorative paints and industrial paints accounts for around 70% and 30%of the total demand respectively. In decorative paints, enamels accounts for the maximum share followed by wall finishes, primers and wood finishes. In industrial paints, while automotive paints accounts for around 30 to 35%.General engineering paints accounts for balance. While Asian paints is the market leader in decorative paints, Goodlass Nerolac is the market leader in the industrial paint. Raw materials accost account for around 50%of the total cost of production. Demand is seasonal. Most of the demand comes during the October to March period. Industry is working capital intensive. Technology, distribution network, product innovation, service, brand recall, and geographical reach are the key success factor.
Budget paints 2008-09 Given that the growth of the Indian paints industry to a large extent hinges on GDP growth, the performance of the paints industry last year was healthy on the back of a robust growth in the Indian GDP. Demand especially for decorative paints was strong led by increased construction activity and in the industrial paints business, powder and protective coatings logged in healthy growth rates. In the next five years, the industry is expected to grow at a CAGR of around 11% to 12% and paint companies are expected to clock strong growth rates backed by capacity additions undertaken by them. Having said that, rising crude prices will have a major bearing on the operating margins going forward. Budget measures • • 5%. • Increased emphasis on Bharat Nirman and improving infrastructure. Customs duty exemption to be withdrawn on naphtha for use in the manufacture of in order to correct price distortions and revenue losses. Naphtha for use in the manufacture of polymers will be subjected to normal rate of polymers
Budget Impact • • Reduction in excise duty on small cars, two wheelers and three wheelers will benefit Increased emphasis on bolstering infrastructure in the country is a positive for paint companies, as the prices of cars will decline thereby boosting volumes. companies, as it will enhance the performance of powder and protective coatings. Company Impact • Reduction in excise duty on small cars, two wheelers and three wheelers will benefit Kansai Nerolac and Asian Paints given their strong presence in the automotive paints segment.
Emphasis on improving infrastructure such as roads, capital goods and power will be
beneficial to Asian Paints, which has been witnessing strong growth in its powder and protective coatings businesses. • Reduction of duty on import of raw materials used in the paints industry. All raw materials imports to attract a common duty.
Budget 2005-06 Construction of residential complexes having more than twelve residential houses or apartments together with common areas and other appurtenances. Exemption on tax deductible housing loan to continue. Under the rural development programme, 6 m additional houses to be constructed for the poor.Peak customs duty reduced from 20% to 15% The new income tax brackets, the change in exemption and deductions available to individuals and the increase in exemption for women. IT to generate around 7 m jobs till 2009. Budget 2006-07 Peak rate of customs duty reduced from 15% to 12.5%. Basic inorganic chemicals reduced from 15% to 10%. Excise duty is being reduced from 24% to 16% on small motor vehicles. Duty to be reduced on major bulk plastics like PVC, LDPE and PP from 10% to 5%; on naphtha for plastics to nil; on styrene, EDC and VCM which are raw materials for plastics to 2%. Emphasis on the Bharat Nirman project and its timely completion. Budget 2007-08 Hike in allocation for rural and urban housing infrastructure development. Reduction in custom duty on chemicals from 12.5% to 7.5%.Dividend distribution tax to be hiked from 12.5% to 15%.Additional education cess of 1% to fund secondary and higher education. Key Positives • Steady growth: The Indian paint industry has very low consumption levels as compared to the other developing economies. While the decorative segment is growing at 1% per annum, the industrial paint segment (led by powder and protective coatings) is also expected to record strong growth rates going forward.
• A mixed bag: A robust housing sector is likely to boost demand in the decorative segment. Long-term growth potential of the auto sector is also a big positive. • Structural shift: Continuous fall in excise duty in the past has benefited organised players and the impending consolidation will add to the pricing power. • Capex cycle booster: With investment cycle showing signs of momentum, industrial paint demand could grow at a much higher rate than the last five years. Key Negatives • Raw material worries: Since the paint sector is highly raw material intensive, rise in crude and petrochemical prices affects performance and the reliance is unlikely to reduce going forward. • Monsoon blues: The performance of the decorative division also hinges on rainfall. In the last six years, the country has witnessed three years of poor rainfall, which has impacted paint demand.
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Description: The Indian paint industry worth Rs 43 bn has consolidated over the past four years with the organized sector taking away share from unorganized segment. The paint market is expected to grow at 8-10% p.a.over the next few years. The growth could be high if industrial activity picks up as the industrial paint segment is gaining more importance. Asian paints offer the best exposure being the market leader and an innovative marketing company.
1. ASIAN PAINTS LTD :
Asian paints are the largest player in India, and also the market leader in decorative paint, with a 41%market share. It has a domestic installed capacity of 1, 62,700 tpa for paint. With the government planning thrust in the housing sector, players like Asian paints stand for the benefit, as the demand for decorative paints will grow.