Sunday, October 6, 2013

Is Asian Paints painting a good picture?

PART 1: Brief Overview

This week I picked up Asian Paints to analyse for two basic reasons –
  • As a paint company it has shown high revenue growth and increase in its product portfolio over past decade  
  • Post stock split this July, its share price would interest number of small investors.
Asian Paints (NSE: ASIANPAINT), a market leader in paint segment operates in home decoration and industrial coating segment. It operates in 16 countries with 8 manufacturing facilities and 2 chemical plants through its subsidiaries and joint ventures.  The target customer bases in home decorative segment are end user individual consumer including kids (with its Royale Play Fashion Wall) and Builders, contractors or co-operative housing society. In its industrial coating segment, it has customers includes OEM and Automobile dealers and Architects & Interior Designers. To expand customer base of decorative segment, the Company has launched ‘Do-it-yourself’ pattern and signature stores.

Its product portfolio includes
·         Interior Paints -  Royale, Royale Play, Premium Emulsion, Tractor Emulsion, Distempers
·         Exterior Paints - Apex Ultima, Apex Exterior Emulsion, Apex Duracast, Ace Emulsion
·         Metal Finishes - Premium Semi-Gloss Enamel, Premium Satin Enamel, Premium Gloss Enamel, Utsav Enamel
·         Wood Finishes, Water proofing and crack bridging product

Key development of 2013
  • Acquisition of interest
    • Acquisition of 25.72% stake in Berger International
    • Acquisition of 51% interest in Sleek Group
  • Manufacturing Facility
    • Manufacturing facility commissioned at Khandala, Maharashtra with an installed capacity of 300,000 KL per annum
    • Expansion of manufacturing capacity at the plant at Rohtak, Haryana to 200,000 KL per annum
  • Business Structuring
    • PPG-AP acquired Kruppa Paints (Pvt.) limited in the month of November 2012
    • Merger of AP Coatings Ltd (100% subsidiary of Asian Paints) and PPG Coatings India Private Ltd  (wholly owned Indian subsidiary of PPG Industries Securities LLC., USA (PPG)) into PPG Asian Paints Private Ltd (PPGAP), 50:50 joint venture between Asian Paints and PPG
    • Demerger of certain businesses into Asian Paints PPG Private Ltd (AP-PPG), new 50:50 joint venture between Asian Paints and PPG
Factors that will continue to impact Asian Paints growth
  • India's demographic comprises of higher number of youth which has increased demand primarily for housing and secondary for automobiles.  
  • Growth in disposable income among Indians along number of financing options offered by banks and financial institutes for housing and automobiles will continue to drive the demand for paints.
  • With its 108 national sales location, it enjoys strong distribution network. This has enabled the Company to generate over 85% of its annuals sales within India. Thereby, the upward or downward movement of rupee against foreign currency would have negligible impact on Company’s revenue.
  • The educated middle class, who look for value for money, now desire for higher standard of living and unique identity has led to change in their preference for color.  Asian Paints have number of products in cost-effective price range.  Further, they now prefer to have more durable paints that offer better looking finishes in their preferred colour set. The wide ranges of colour offered by Asian Paints cater to this customer need.
  • Further, the new age customers are keen on having eco-friendly color. Asian Paints have recognized this customer need and has products that has less toxic chemical. 
  • The Company continuously undertakes research activities and has expanded its product portfolio annually. During 2013, it key launched product includes Royale Aspira, Royale Shyne and upgraded versions of its product Royale.   
  • The Company’s initiative like Home Painting Guide, Paint Calculator, Colour Idea Stores, Colour Consultancy and Colour Scheme Pro will continue to reap benefit in near future to drive growth of its home decorative segment. 
  • The growth in net revenue per employees from 1 crores in 2008-09 to 1.70 crores in 2012 -13 indicates customer preference for its product, thereby a strong Brand presence and recall among its customer.