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"We will look for acquisitions if they synergise with our business..." - Views on News from Equitymaster
 
 
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  • Jun 19, 2000

    "We will look for acquisitions if they synergise with our business..."

    Mr. Ashwin Dani started his career as a development chemist with BASF, Detroit and joined Asian Paints in 1968 as a senior executive. He is currently the Vice-Chairman and Managing Director of Asian Paints Limited, the market leader in the Indian paint industry. He was instrumental in setting up joint venture between Asian Paints and PPG industries of USA. Mr. Dani is a science graduate and has completed Masters degree in polymer science from University of Akron, Ohio.

    In an interview with equitymaster.com, Mr. Ashwin Dani spoke about the performance of the company, the initiatives on the distribution front and the prospects for the current year.


    EQM: In retrospect how would you evaluate your company's performance in FY00 vis--vis the industrial performance? How were the realisations effected?

    Mr. Dani: We have outpaced the industry growth this year. We have consolidated our standing in the market as well as gained market share. The volume growth rate that we achieved has been the best in the last two decades. If we evaluate the entire company's performance as a whole over the previous year, Net sales have risen by 19% and net profit is up by 27%. Our volume growth rate for the year has been 23%. All products have registered good growth rates. Operating profit margins have increased from 13.8% to 16.7%. Seldom would you have seen operating margins increase by around 3% in a year, particularly of old economy companies. We have performed well in all segments, in all product categories and in all markets. We have strengthened our presence in urban India and increased penetration in rural India and expect a good year forward.

    EQM: The housing demand has witnessed a buoyant demand growth due to the initiatives taken by the government. What rate of growth do you foresee for this sector?

    Mr. Dani: There is a direct correlation between the construction segment and the demand for paints. The cement sector has grown by around 15% in FY00. A rise in the construction sector is beneficial for the paint industry as new construction accounts for around 20-25% of the demand for paints. The budget for the last financial year provided various incentives to the housing sector through tax concessions and rebates. Further incentives were given in the recent budget. All these measures have realised in an increased demand for housing. This will boost volumes for the paint industry. I expect the construction sector to do well in the current financial year resulting in a positive rub-off for the demand of paints.

    EQM: On the information technology front do you plan to capitalise on the opportunities thrown up in the form of B2B arid B2C set-ups?

    Mr. Dani: We have always made investments in supply chain management. Presently we service around 15,000 dealers through our various branches, depots and regional distribution centres. The measures that we have initiated to improve our distribution have helped increase our order-fill rate. The service levels have increased greatly due to the incorporation of advanced technology to enhance our distribution systems.

    An example of our investments in supply chain is exemplified by the implementation of the innovative supply chain management engine from i2 Technologies, the world leaders in SCM solutions. The implementation of the SCM solution will help us derive significant savings by lowering inventory cost thereby reducing working capital. The solution will also help for better demand planning and forecasting which will increase our order-fill rate.

    We have just launched a new revamped website. We plan to develop a model by using our existing channel partners & logistics system to deliver the paint/painted wall to the end consumer after he has logged in his order on the company website. The new site will focus on educating the consumer on his requirements for painting his house. This would help us identify-his needs and understand his wants more specifically. Pilots are being run in certain cities to link Colour World Dealers and our branches with the back-end being the Internet.

    EQM: How would you rate the progress of Colour World? What are the expansions plans pertaining to these outlets?

    Mr. Dani: All Colour Worlds have registered excellent growth rates. We have installed around 950 Colour world units at various dealers all across the country. We expect colour world to be the paint retailers of the future. This novel concept has got us closer to the consumer and we are able to identify and quantify his needs. The rate of growth of dealers having the colour world unit has been greater than dealers without the colour world unit. Hence, in the next year we would install more colour worlds and be more aggressive in this area of dealer tinting systems.

    EQM: How have the new product introductions performed (pertaining to the wood paint exterior paint)? In what segments would the company be looking at increasing its presence?

    Mr. Dani: New products have registered growth rates in excess of 100%. We launched "Ace- Exterior emulsion paint" in the last financial year. This product has done exceedingly well. Our premium product for exteriors "Apex" has done well this year showing very good growth rates. By the end of the current financial year, we will be leaders in the exterior segment. This shows our prowess, as we were not present in the exterior segment around four years ago.

    In the beginning of the current financial year, we have introduced a superior wood-finish product branded "Asian Woods -Opal PU". This product is positioned at the high-price wood finish segment for painting of exquisite wood furniture. We are confident that this product will tap high-end users of the wood finish segment and will generate good value sales for the company. We look to strengthen our presence in the exterior and wood finish segment. These segments along with increased rural market penetration will drive growth for Asian Paints in the future.

    EQM: There are reports of drought in certain parts of India. How is this likely to affect Asian Paints?

    Mr. Dani: India is a huge country and natural calamities occur ever year in some state or the other. The impact of drought on Asian Paints is very minimal. We have studied the sales pattern in the areas that have witnessed drought, and have concluded that the impact on sales will be minor. Volumes in other places of the country will cover up the little that we should lose due to this natural calamity. Most important is the prediction of a good monsoon that is excellent news for the industry. A good monsoon generates sales, particularly in rural markets and is good news for the entire industry.

    EQM: How do you see the company's presence in the industrial segment developing and elaborate on your joint venture with PPG?

    Mr. Dani: We are the second largest player in the industrial segment. We will scout for alliances in the industrial sector and will not hesitate to tie up with global paint majors to unearth the potential of the industrial segment. Our industrial business has performed well in FY00 registering good growth rates and we hope to repeat the same performance in FY00. Our joint venture with Asian PPG has done extremely well in FY00 with Original Equipment products witnessing excellent growth rates. We are presently 100% suppliers to Daewoo, Hyundai, General Motors and Ford.

    EQM: Does the company plan to generate growth organically or by pursuing a strategy of acquisitions?

    Mr. Dani: We will look to grow organically. This would be by introducing new products, creating new markets, widening existing segments and increasing rural penetration. We will look for acquisitions, if they come by, and if they synergise with our business. Our expansion in global markets will focus to acquire companies in emerging markets.

    EQM: The personalities those have influenced you the most?

    Mr. Dani: Jack Welch of General Electric and the most admired companies are PPG Industries and Du Pont for their research and development strength.

     

     

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