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Asian Paints
(10:22, 28 Jun 2019)
The company held its AGM on 27 June 19. Chairman Ashwin Dani addressed the meet.

Highlights of the meet:

Asian Paints is a 75 year old company.

It is among the worldʼs top ten paint companies.

It is 3rd largest paint company in Asia and 9th largest in the world.

Industrial business accounts for around 3% of consolidated sales.

It is expanding Industrial coatings manufacturing capacity to cater to OEM demand.

It has network of 60000+ dealers. This enables it to cater to a wide cross-section of customers across geographies.

It adds about 3000 dealers every year.

It also adds 4000 Colour Worlds every year.

Paint universe of dealers in India is at 150000 and the company will continue to add dealers going forward.

Most of its products sell at a 5 to 10% premium to competition along with improving market share.

In industrial coatings segment it offers high-performance, high-quality products that serve to protect surfaces. For this business the company has two 50:50 Joint Ventures with PPG Industries Inc., USA. These are Asian Paints PPG Pvt. Ltd. (AP-PPG) and PPG Asian Paints Pvt. Ltd. (PPG-AP).

AP-PPG gives high-value paints and coatings to industrial Original Equipment Manufacturers.

PPG-AP is a leading supplier of paint and coatings to customers in automotive OEMs, automotive refinishes, industrial, marine, and packaging.

The company is a market leader in thermoplastic road markings, as well as in auto refinish segment.

It is the second largest player in the auto OEM segment.

The company is a big player in South Asia and the Middle East.

48% of sales come from Asia, 20% from Africa, 26% from Middle East and 6% from South Pacific.

Paint Industry growth is closely linked to GDP growth. It grows 1 to 1.5 times real GDP growth.

In India paint per capita consumption is low at 3.76 kg. The global world is 12-15 KG.

Orgainsed sector accounts for 70% of the market and rest comes from the unorganized sector. Thus there is decent room for growth.

After the introduction of GST, there has been shift of business from the unorganized to organized players.

Urbanization, Nuclear Family phenomenon, Smart Cities and Affordable Housing should drive growth for the paint industry.

Infrastructure growth in Roads, Ports, Refineries, etc. will benefit the Industrial Paint segment.

Many Auto OEMs (including Ford, Hyundai, General Motors) focused on using India as a base for servicing overseas markets. Focus of major auto companies on India and making India an auto export hub will benefit Auto Paint segment.

70% of sales is on 3 day payment.

It introduces around 20 to 30 new products every year.

The company is expanding its international presence with key focus on Africa and South East Asia.

The company forayed in Home Improvement business segment six years back with a vision of being a complete d├ęcor solutions provider.

Home Improvement currently accounts for 2% of group revenues. It is a key focus area for future growth alongside the growth potential in main coatings business.

In FY 2019 PAT was marginally lower largely due to additional impact of higher depreciation for the 2 new plants.

Automotive coatings JV (PPG-AP) growth is impacted due to slowdown in the Auto OEM segment.

High raw material prices and marketing spends has affected the margins of late.

Challenging business conditions is affecting operations in some of the key markets in International business portfolio, especially Egypt, Ethiopia, Bangladesh and Sri Lanka.

In last 2-3 years growth in bottom-of-pyramid products was stronger than premium end emulsions.

Operating profit will depend upon volatility in currency and crude oil prices.

Currently pressure on raw material has reduced due to correction in crude oil prices and lower volatility in forex.

Work on Dahej plant for resins is progressing well and likely to be completed in mid-year of FY20.

In FY 2019 capex was Rs 1,000 crore for standalone business including Rs 800crore for Mysuru and Vizag plants.

Both Mysuru and Vizag plants commissioned in FY19 and were as per schedule.

2 megaplants at Mysuru and Vishakhapatnam will have an initial capacity of 3,00,000 KL per annum. These water-based paint plants will augment the company's ability to manufacture paints at lowest cost to meet the future needs.

For FY20 capex guidance is Rs 700 crore. Of this, major part is expected to be incurred further towards Mysuru and Vizag plants and partially for maintenance capex and investments in EssEss and Sleek.

Growth is expected to remain uncertain in the near term due to global scenario, inflationary environment and probable lousy monsoon.

The management will closely watch progress of the monsoon season as well as easing of the credit cycle in the economy.

Geo-political uncertainty, forex challenges are the areas of concern for the International operations.

The demand is still average, not buoyant.

Smaller cities are seeing relatively faster growth.

It has completely written off exposure to IL&FS.

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