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Asian Paints: Analyst Meet Notes - Views on News from Equitymaster
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  • Jun 11, 2001

    Asian Paints: Analyst Meet Notes

    Asian Paints has reported a 12% growth in sales for FY01. Growth in topline has slowed down significantly in the fourth quarter primarily on account of earthquake in Gujarat. Asian Paints commands almost monopoly status in Gujarat and Hyderabad. Operating margins declined primarily on account of slower volume growth despite higher advertisement expenses. But the prospects for FY02 are promising and the company has geared up to meet its turnover target of Rs 21 bn by FY04.

    The highlights of the company's analyst meet are as follows:

    • The exterior segment grew by 38% in FY01 to Rs 1,350 m (12% of sales) and has become the market leader in just four years outpacing Snowcem. This segment is expected to be one of the key drivers for growth in the future also. New product launches in the 'Ace' and 'Apex' range have performed extremely well. Currently, it is predominantly a semi-urban and urban segment driven growth.

    • Operating margins are down primarily on account of higher employee cost rather than rise in raw material prices. Mr. Ashwin Dani said basic salary levels in top B-Schools have gone up to astronomical levels, as a result of which the company's expenses have gone up. The growth in sales was also not commensurate to the advertisement expenses.

    • The number of 'Colour World', the dealer tinting machines, has gone up to 2,100 as targeted by the company at the start of the year. The response from such outlets is good. In fact, sales from dealer where such machines have been installed were 50% higher than other dealers. So the expansion of such machines will continue in the current year also. The capex for expansion in FY02 is Rs 52 m.

    • Interest and depreciation costs have also gone up because of increased borrowings to fund 'Colour World' expansion. Since such machines are booked in the company's account, depreciation is on the higher side. In FY02, it plans to transfer the incremental machines to the dealers book.

    • The company has completed the installation of both the ERP as well as i2 package (supply chain) and both are fully operational. This year inventory and debtors turnover days has gone up marginally, but the management hopes to maintain net working capital to sales at 14% in FY02. This is the lowest when compared with other paint companies (for Goodlass and Berger, it is around 25%-30% of net sales).

    • The capex outlay for FY02 is Rs 640 m (Rs 52 m towards Colour World and Rs 260 m towards new office near Bandra-Kurla, and balance towards maintenance capex)

    Raw material scenario:

      Although the main raw material (rutile titanium dioxide) prices went up sharply in the first half of FY01, they have come off in the last two quarters. When asked about the lag difference between rise in crude prices and titanium, the management maintained that there is no such lag time at all. It is basically the demand for titanium, which affects prices and not the rise in crude prices. The company expects the titanium prices to come down in FY02.


    • Ashwin Dani said that the company would grow by 1.25-1.5 times the economy if the GDP growth were in between 6%-7%. It will be 2 times if GDP growth is 8%. This has been the trend for the last twenty years.

    • If monsoons are good, the company expects to grow by 12% in FY02. If not, topline would increase by 9%-10%.

    • The company has said that the contribution from other divisions like Polyurethane and Anhydride will decline. It would focus more towards increasing its presence in the exterior paint segment.

    • Mr. Dani was also continuously stressing on acquisitions in the domestic as well as the international market throughout the analyst meet.

    • The company's 50:50 joint venture with PPG of USA has also performed very well. Total turnover has crossed Rs 1 bn mark and has taxable profits. The main clients are Hyundai, Daewoo, GM, Bajaj Auto and Hero Honda. If General Motors picks up the majority stake in Maruti, Asian Paints might become the sole supplier. Goodlass Nerolac, thus, will lose its key client.

    • The company's subsidiaries in Fiji and Soloman Islands witnessed de-growth in sales due to political unrest. Its Mauritius and Oman units have commenced exports. The Sri Lankan acquisition currently contributes to more than 40% of its overseas turnover. Except for two subsidiaries, all other units generate profits.



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