Asian Paints

ABOUT THE INDUSTRY The paint industry worldwide is classified into 2 segment viz. decorative

and industrial segment.

Low interest consumer product.

Low per capita consumption of paints

Working capital intensive.

Cost of raw materials = 50% COGS

NOTE: Some of the raw materials were crude derivatives. Implies

fluctuation of crude oil prices and exchange rate effects the cost structure of

the company. => Need for effective cost control systems, efficient

technologies and working capital management for competitive

advantage.

Cntd. Demand drivers:

1. Building activity- for decorative paint segment

2. Economic development- for industrial paint segment.

Price based Competition (especially in the decorative segment).

Awareness and perception of specific brand is more important than the

corporate brand equity. Marketing operations fined tuned to local needs.

Dealers, contactors, female customers- major influencers.

Leadership was either regional or confined to specific segment of the

paints market.

Distribution channel plays an important role in the industry.

Core Market APL, domestic leader in decorative paints.

ROCE of 25% as compared to global avg. of 10-20%.

Among the top 10 decorative coatings companies in the world

Growing at a rate of over 15%

Focused towards developing competitive advantage on the following

dimensions:

1. Feedback from dealers and sales force=> helps identify the customer

needs=> Product adaption/invention

2. Product Innovation: Introduction of products covering all points in pricing

spectrum e.g. Tractor emulsion, Color World tinting system, AP Helpline, AP

Home Solutions, Kids World etc.

2. IT – usage of Mainframe computers, V-SATs, improve demand forecasting,

reduce inventory and WC cost, reduce loss of sales due to out stocking.

3. Size – More than twice the size of its nearest competitor => edge in

distribution, marketing, manufacturing and sourcing raw materials.

4. R&D Investments – Savings from efficiencies in formulations => lower cost

of operations.

5. Dealer relationship – network of 16000 dealers =>ability to serve remote

locations

6. Recruitment – Best managers from the best of business schools in India.

7. Brand Equity – higher price realization, key differentiator.

Global Expansion:

Global demand (in terms of volume)- annual growth

rate of 3.5%

Focus on Emerging markets then the developed

markets: India, China, South Korea, Latin America,

Eastern Europe, Mexico and Taiwan. Already done well

in India.

Enter via JVs, Greenfield ventures and Acquisitions

Funding of acquisitions from Cash generated out of

APL’s operations.

Greenfield ventures preceded by extensive exports to

create brand awareness.

Choosing markets where competition is not stiff =>

Minimizing business risk.

Asian paints used different factors like size of economy, size of paint

market, nature of competition to identify the markets where it would

establish a footprint.

APL believed that emerging markets like Asia-Pacific region, Latin

America and Eastern Europe were growing.

Localized manufacturing: asian paints had a manufacturing plant in

each overseas market with products were calibrated to meet local

consumer needs.

Growth through Joint Ventures: joint ventures ensured ready- made

platforms of distribution, brands and plant capacity, whereas organic

growth was costly.

Segmentation: IB had categorized markets into three segments:

leadership markets, growth markets and turnaround markets.

Leadership Markets Growth Markets Turnaround

Markets

Countries Bahrain, Fiji, nepal,

solomon islands,

vanuatu

South Asia (

Bangladesh, Sri Lanka),

Middle East, South East

Asia (Thailand,

Malaysia)

Australia,Oman

Nature of

paint

competition

Market leader

Market Share > 40%

Market Nicher

Market Share <10%

Niche player

Market Share<

5%

Focus 1. Efficiency

2. Acquisition for

further market

expansion as no

more possibility of

penetration led

growth and to

make use of the

already established

distribution

network.

1. Improvement in the

distribution channel

2. Market penetration

To get

Profitability as

presently

operating at the

BEP

Investment

potential

Low as already a

market leader. Per

High

Total size of the market

High

Market= $575

2005 2004 2003 2002

CONSLD

TD APL INTNL

CONSLDT

D APL INTNL

CONSLDT

D APL INTNL

CONSLDT

D APL

INTN

L

PAT(US$

MILLION) 38.73 38.66 0.07 32.23 32.88 -0.65 30.98 31.56 -0.58 23.52 25.7 -2.2

GROWTH(

%) 17.58% 110.77% 4.18% -12.07% 22.85% 73.27%

By the P/L account of the company

No, global expansion does not detract the company from its global market

Reasons:

• Financial performance of domestic market is improving. Refer the growth rates.

• The company took continuous innovation in operations in domestic market

• They play the domestic operation on a strong footing before looking outward.

• They also reduce the cost of material in domestic market to finance global

acquisitions => Cost cutting measure improves the profitability in domestic market.

• Doubled the sales and brought down working capital by 50% in domestic market

• We see that the growth in the international market has grown by 110.77% in 2005 as

compared to 2004. This implies that the international market still has a lot of potential

in term of growth and profitability