Asian Paints Analyst Briefing

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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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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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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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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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...

Asian Paints Analyst Briefing

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