asian paints analyst briefing
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8/6/2019 Asian Paints Analyst Briefing
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Asian Paints (India) LimitedAsian Paints (India) Limited
Ashwin Dani,Ashwin Dani,Vice Chairman & Managing DirectorVice Chairman & Managing Director
February 12, 2003February 12, 2003
The 2003 DSP Merrill Lynch InstitutionalThe 2003 DSP Merrill Lynch Institutional
Investor Conference,Investor Conference,UdaipurUdaipur
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Ratings & Recognitions
Indias largest paint company for over three decades
Amongst the top 10 decorative coatings companies in the
world
Ranked 4th in India on Corporate Governance by The Assetin 2002
Forbes magazine, USA in its annual survey Best under aBillion ranked Asian Paints amongst the 200 Best SmallCompanies in the World in 2002
Ranked as 4th most admired company in India by TheEconomic Times in 2001
Rated 9th best Indian employer by Business Today survey-
2001
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Commitment to Standards
High quality management:
60% of management from best Indian business schools- among highest across industries
15% of management are scientists & technologists
Commitment to quality - ISO 9001 compliant
Commitment to Health, Safety & Environment - ISO 14001compliant
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Structure of the presentation
A] Business Perspective
B] APIL performance : till Q3-FY03
C] M&A - The growth strategy & our experience
D] International operations - The strategy ahead
E] Outlook
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Business Profile
Paints business:
Decorative Coatings Industrial Coatings
Chemicals business: Backward integration
Cyclical business
Net Sales (%)
793
PBIT (%)
7
93
Paints Chemicals
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Leaders across all segments
The Asian Paints Corporate Brand
Wall Finishes Powerful brands like Tractor, Royale, Apcolite etc.
Enamels
Brands viz. Apcolite Synthetic Enamel, Utsav Enamel dominate
Exterior Finishes
Brands like Apex, Ace dominate segment in just a few years
Significant value growth drivers
Wood Finishes
Created this segment
Powerful brands viz. Touchwood, Asian Melamine Wood Finish
Decorative Coatings
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Industrial Coatings
Second largest player in industrial coatings
Main segments:
Powder Coatings Protective Coatings
Road Marking Coatings
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Industrial Coatings JVs & AcquisitionsJV - Automotive Coatings
Strong JV (Asian-PPG Industries Ltd) with one of the worldslargest auto OEM coatings companies (PPG)
Profitable company in just 4 years since inception in a highlycompetitive market
Successful in supplying to most new MNC entrants in OE sector Sole supplier to Hyundai India
Acquisition - Powder Coatings
Fastest growing segment in industrial coatings Asian Paints Industrial Coatings Ltd (APICL), 100% subsidiary,
acquired powder coatings business of Hawcoplast Chemicals,pioneer in powder coatings in India, in 2001
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Elements of
Asian Paints Supply Chain
~ 15000 Dealers~ 15000 Dealers~ 500 Industrial
Customers
~ 500 Industrial
Customers
4 Plants4 Plants
6 Regional Distr-
ibution Centres
6 Regional Distr-
ibution Centres
74 Branches74 Branches
35 Job Work
Centres
35 Job Work
Centres
~ 3000 SKUs~ 3000 SKUs
~800 Raw Materials~800 Raw Materials
~300 Pkg Material~300 Pkg Material
Flexible
Operations
LowerThroughput Time
Low Delivery
Costs
Key Success Factors
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Investment in I.T.
The only company in India to integrate SCM from i2 &
ERP from SAP Benefits:
RM & FG inventory reduction
Revenue Increase by avoiding retail shorts Reduction in dead & slow moving stock
Plant through-put improvement
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Paint Revenue Share FY 01-02
Top 6 paint companies
45%20%
17%
11%4%
3%
Asian Paints Nerolac Berger
ICI J & N Shalimar
Market Share
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Structure of the presentation
A] Business Perspective
B] APIL performance : till Q3-FY03
C] M&A - The growth strategy & our experience
D] International operations - The strategy ahead
E] Outlook
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Financial Results
(In Rs. million)
Dec02 Dec01 Grth %
Net Sales 11278.76 9982.0 13.0 %PBDIT 2223.45 1719.2 29.3 %
Interest 67.5 142.5 - 52.6 %
Depreciation 339.11 265.3 27.8 %
Other income 157.77 72.8 116.7 %
PBT 1816.84 1311.4 38.5 %
Prov. for Current Tax 681.32 430.8 58.2 %
Profit after Current Tax 1135.52 880.6 28.9 %Prov. for deferred tax (-2.55) 43.2
Net Profit. 1138.07 837.4 35.9 %
for the 9 months ended
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Segment Information
Dec.2002 % to Total Dec.2001 % to Total growthRevenue
Paints 10552.92 92.56 % 9391.85 93.6% 12.36 %
Others 847.88 7.44 % 637.43 6.4% 33.02 %
Total Company 11400.8 100.00 % 10029.28 100.0% 13.68 %
PBIT
Paints 2042.4 92.58 % 1652 98.3% 23.63 %
Others 163.8 7.42 % 28.91 1.7% 466.59 %
Total Company 2206.2 100.00 % 1680.91 100.0% 31.25 %
For the 9 months ended
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Margin Ratios
Dec02 Dec01 Growth
Company level:EBITDA /Net Sales 20.0 % 17.5 % + 2.5 %
EBITDA - OI /Net Sales 18.6 % 16.7 % + 1.9 %
EBT / Net Sales 16.4 % 13.3 % + 3.1 %PAT/ Net Sales 10.3 % 8.5 % + 1.8 %
Segment level:Paints EBIT/Net Sales 19.4 % 17.6 % + 1.8 %
Others EBIT/Net Sales 19.3 % 4.5 % + 14.8 %
For the 9 months ended
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Margins over the years18.1
17.517.9
15.5
16.316.2
14.7
7.6 7.5
8.4 8.6
9.1 9.28.9
4
8
12
16
20
1996 1997 1998 1999 2000 2001 2002
Margin
s(%)
EBITDA/Net Sales %
PAT/Net Sales %
PAT before deferred tax
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Profits over the years
400
800
1200
1600
2000
2400
1996 1997 1998 1999 2000 2001 2002
EBITDA
&
PA
T(RsMn)
6000
8000
10000
12000
14000
NetSales(Rs.Mn)
Net Sales
EBITDA
PAT
EBITDA CAGR 14.8%
Sales CAGR 14.5%
PAT CAGR 15.8%
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Margins Strategy
R & D efficiencies &
Sourcing efficiencies
R & D efficiencies &
Sourcing efficienciesMargin
expansion
despiteinput
price
increase
Margin
expansion
despite
input
price
increase
Price
increase (1.25%)(Sept02)
Price
increase (1.25%)(Sept02)Firmer RM
prices (6-8%)
Firmer RM
prices (6-8%)
Improved realisations from chemicals businessImproved realisations from chemicals business
Control on overhead costsControl on overhead costs
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F C h fl t ti
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Free Cash flow story continues
Lower
interest
costsNCD
instalment
pmt.
Assets
sweated
more
Higher
capital
product-
ivity
Lower
Capex
Higher
Cash Flow
from ops
Margin
Expansion
Working
capital
reduction
Lower
Inventor-
ies
Higher
creditors
Acquisns
internally
funded
Free Cash
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Offers a painted surface vs. just paint
Aimed at controlling the quality of end product Overcomes major barriers to purchase/consumption
Good response from the market; present in six cities
Consumer-centric initiatives
Asian Paints Helpline Toll free access to the Helpline
High conversion rate into actual sales
Asian Paints Home Solutions
ColourWorld machines 3175 machines installed till February 1, 2003
827 machines installed under arrangement with Citibank
ColourWorld dealers make more than 50% of sales
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Structure of the presentation
A] Business Perspective
B] APIL performance : till Q3-FY03
C] M&A - The growth strategy & our experience
D] International operations - The strategy ahead
E] Outlook
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Growth strategy and M&A
Growth Strategy: To increase sales growth rate of the
group beyond past levels using a two-pronged approach:
Growth Strategy: To increase sales growth rate of the
group beyond past levels using a two-pronged approach:
Organic GrowthOrganic Growth
Inorganic GrowthInorganic Growth
Market share gainMarket share gain
Market expansionMarket expansion
International M&AsInternational M&As
Domestic M&AsDomestic M&As
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M&A International - Strategy
To enter the high-growth emerging markets
Adopt a regional hub approach to internationaloperations
Apply the emerging market business model:
Introduce new products suited to local needs
Introduce new technology, accordingly
Focus to improve all areas of operations, especially supplychain
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M&A International - Opportunities
No single MNC is present across emerging markets
Asian Paints believes there is plenty of scope toachieve significant presence in targeted countries
Niches/segments available for Asian Paints in these
markets
Vast potential exists for Asian Paints, as most paint
companies in these markets operate sub-optimallyviz., in Supply chain, manufacturing, technology &marketing
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M&A - Funding
Primarily through internal accruals
Debt:Equity ratio will be lower than 1
Debt:Equity ratio is 0.23:1 for FY02
Dividend payout ratio to be largely maintained
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The Egypt acquisition
Acquisition of SCIB Chemical for Rs. 245 million for 60 %stake
5th largest paint company in Egypt
Sales of LE 52 mn (USD 11 mn) in 2001 Paints business LE 39 mn
Opportunities
Size of Egyptian paint market ~ USD 150 mn
Egyptian market is in a growth phase
No committed MNC in market & leader continuously losing
market share SCIB enjoys good brand equity, is considered a dynamic &
innovative company
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The Berger International Ltd(BIL) acquisition
Region Countries Proportion
of total
sales value*
Proportion of
total sales
volume*
China &
S.E. Asia
China, Singapore,
Thailand, Myanmar,
Malaysia
32 %26 %
Middle East
& Malta
UAE, Bahrain,
Malta40 %27 %
Caribbean
Islands
Jamaica, Barbados,
Trinidad & Tobago28 %47 %
* For FY 2001
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Financials of BIL for Last 3 Years
2001 2000 1999
Sales 115,034 130,945 133,173PBIT (3,662) 1,367 (9,162)
PBT (6,131) (732) (10,658)
PAT (9,417) (5,047) (11,303)
Gross Block 48,041 50,665 49,379
Net Block 23,683 28,863 30,270
Networth 14,040 23,956 32,487
Book Value/Share 0.14 0.23 0.31
Value in '000' of S $
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BIL financial performance : Jan-Jun02
Substantial improvement in H1-FY02
Write back of S$ 1.1 mn : Had write back not been done, thegroup would have incurred Net loss after tax S$ 1.273 mn (Netloss after tax of S$ 3.948 mn in previous period)
(S$ 000)
H1-FY2002 H1-FY2001
Turnover 53850 51850
Op.Profit Before Tax 1041 -3610Op.Profit after Tax 616 -4223
Less minority interests -250 275
Operating profit after taxafter minority int. 366 -3948
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Berger International Ltd- The strengths
Berger has a strong brand in all these countries.
Access to the Berger brand and trademark in over 70countries (India not included)
Sound systems and policies in most countries
Excellent margins in the countries where they areleaders
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BILs operations are mostly in emerging markets which
synergises with the vision of Asian Paints
No overlap of BIL operations with Asian Paints
Economies of scale could be achieved especially in Middle
East as APIL already has operations in Oman & Egypt
Exports to neighboring countries
Berger International Ltd - The synergies
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Governance & Compliance of BIL
Total Board strength six, with three independent directors
Chairman & CEO are from Asian Paints
Committees have been reconstituted for Audit,Remuneration & Appointment
All these committees now headed by independent directors
Group policies being laid down to ensure consistency onkey areas.
Internal audit on all units planned.
Audit to be completed by Asian Paints India personnel. Processes strengthened to monitor statutory compliance
Compliance to be monitored regionally
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Structure of the presentation
A] Business Perspective
B] APIL performance : till Q3-FY03
C] M&A - The growth strategy & our experience
D] International operations - The strategy ahead
E] Outlook
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FOOTPRINTS OF ASIAN PAINTS
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International markets
Growth Drivers
Bangladesh
China
Egypt
MalaysiaMyanmar
Singapore
Sri Lanka
ThailandUAE
Growth Drivers
Bangladesh
China
Egypt
Malaysia
Myanmar
Singapore
Sri Lanka
Thailand
UAE
Market Leaders
Jamaica
Barbados
Trinidad & Tobago
BahrainNepal
Fiji
Solomon Islands
VanuatuTonga
Market Leaders
Jamaica
Barbados
Trinidad & Tobago
Bahrain
Nepal
Fiji
Solomon Islands
Vanuatu
Tonga
Focus for
Turnaround
Australia
Mauritius
Oman
Malta
Focus for
Turnaround
Australia
Mauritius
Oman
Malta
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Growth Driver economies - Imperatives
Rationalise product ranges
Complete the product portfolio
Improve supply chain & working capital management
Implement cost structures for increased plant
efficiencies, better overhead management & increased
asset productivity
Using information technology to maximise efficiency
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Market Leader economies - Imperatives
Enter new segments like wood finishes in BIL units
Focus on cost efficiencies, supply chain etc
Gain market share from competition & maintainmargins
Will focus to maintain ROCE in excess of 30% inthese markets
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5%
24%
71%
Paints - India
Chemicals - India
International
The new Asian Paintsgroup
Asian PPG not included
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Targets for Asian Paints International
Sales growth of at least 10% in next 2 years
Excess of 3% PAT margin by year 2004
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St t f th t ti
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Structure of the presentation
A] Business Perspective
B] APIL performance : till Q3-FY03
C] M&A - The growth strategy & our experience
D] International operations - The strategy ahead
E] Outlook
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Consolidated outlook - FY03
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Consolidated outlook FY 03
Asian Paints (India) will perform well, both top-line &bottom-line
International operations:
Only 2 months sale of BIL will be considered
Less than one month sale of SCIB Chemical will beconsidered
Goodwill write off due to new acquisitions ~ Rs. 50million
Asian PPG Industries will add to the bottom-line
Consolidation to have no significant net impact ongroup profits
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P i t I d t Att ti I di
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Paint Industry Attractiveness - India
Impetus given by Finance Minister to the Housing Industry
Good growth recorded by Housing Finance & Cement sectors
Increased government focus on infrastructure development More educated consumers & increased aspirations for better homes &
lifestyles
With general industrial revival - emerging segment for high
performance Industrial Coatings
Low penetration levels of paint in India:
Per capita consumption in India ~ 0.78 kg p.a.
Europe ave 12 kg, USA: 19 kg, Brazil: 5.8 kg
Last 13 years industry CAGR ~ 13.6%; Asian Paints sales CAGR ~16%
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E i E i t
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Economic Environment
GDP grew by 5.8 % in Q2-FY03
Industrial growth of 6.3% in Jul-Sep02 Manufacturing sector grew by 6.4%
Construction sector grew by 7.2 %
Benign inflation provides comfort Demand environment still lacklustre
Feel-good factor missing
Source : Dun & Bradstreet
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Targets for Asian Paints (India) Ltd
Net Sales growth 10 - 12 % in 2002-03
Restraint in capex & small improvementsexpected in working capital
Maintain margins
ROCE (EBIT/CE) of at least 35 % for next 2 years
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Asian Paints will
Always remain a company committed to increasingshareholder wealth
Always maintain its prudent policies of cash flowmanagement
Remain committed to shareholder transparency and good
corporate governance
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Our vision Asian Paints aims to become one of the top
five Decorative coatings companies world-wide by leveraging its expertise in the higher
growth emerging markets. Simultaneously,
the company intends to build long term value
in the industrial coatings business through
alliances with established global partners.
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End...
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