`Our initiatives will help entire industry' -- Mr Ashwin S. Dani, Managing Director, Asian Paints

Anup Menon

The paints industry has been going through good times in the recent past.

The improvement in economic conditions has led to higher investment in construction and industrial activity. This has, in turn, led to better conditions for paint manufacturers. Asian Paints is the largest player in the domestic paints industry with a virtual stranglehold over the decorative paint segment. In an interview with Business Line, Mr Ashwin S. Dani, Vice-Chairman and Managing Director, Asian Paints, shares his views on the future prospects for the company.

Excerpts from the interview:

What are your views on Asian Paints performance for the first two quarters of 2000-01? What are your expectations for the company in the next six months?

The first two quarters have been excellent for Asian Paints. Paint volumes grew by around 22 per cent for the first six months. This is indeed an excellent growth rate considering the sluggishness in the economy. The impact on volume growth was because of the initiatives undertaken by the company in new segments and also because of Diwali being in October (in 1999, Diwali was in November). As a result, sales increased in September 2000 compared with the previous financial year when sales in September 1999 was average.

The next six months of the current fiscal will be average for the company. We must note that the third quarter of last year was phenomenal for the paint industry. Q3-2000 Asian Paints recorded topline and bottomline growth of more than 40 per cent. This happened as the first half of FY 2000 was average as Diwali happened in November pushing sales in Q3 in FY00. However, we are confident to end FY01 with value growth of around 15 per cent. (Value growth for six months ended FY01 was 19 per cent.)

There have been some signs of slowing down in the broad economy. Given this, can Asian Paints sustain its performance in the near future? If so what measures has the company taken to ensure sustenance of revenues?

Yes, on the economy there is an overall slowdown. We expect not a very bright Q3 for Corporate India. There will be an impact on corporate performance due to this sluggishness. For Asian Paints, we expect to at least outperform paint industry as well as overall industry growth rate. The impact on a slower economy will be evident, because had the economy moved forward we would have witnessed higher growth rates. Since we have entered new segments such as exteriors and large user business, which is expanding the market, our growth rates will be higher than industry. The growth rates in these new segments have been above average.

The most important aspect we are looking at is to grow the entire paint market. The step that we will adopt is to educate the consumer. The exterior initiative, the Helpline...all have resulted in more interaction with the consumer. This has helped not only Asian Paints but the entire industry. The process of educating the consumer will result in good dividends for the company and help it maintain its growth rate in the coming years.

What is the status of your phthalic anhydride and pentaerythritol businesses? Do you plan to continue to hold on to the business, or are you looking at hiving of the units?

The value of the chemical business is around 4 per cent of the turnover. It has always been making profits. Asian Paints has always made money in this business. We will run these businesses as they are part of our backward integration. In fact, we debottlenecked the plant last year to increase capacity at our phthalic plant, now around 22,000 tonnes. We will continue to run this business as it is generating profits. In fact, we will be increasing the phthalic capacity by another 2,000 tonnes this year.

Have you made concrete plans to strengthen your hold in the industrial paints segment?

Our industrial paints business is segregated into two -- automotive coatings and specialty coatings. The latter covers chemical-resistant paints, coil coatings and powder coatings. The industrial paints business constitutes only 4 per cent of the total turnover.

For the auto business, we have a joint venture with PPG Industries, world leaders in automotive coatings. The venture, Asian PPG industries Limited, performed extremely well last year recording sales of Rs 94 crore, or a growth of 114 per cent. The company is in its third year of operations. It is already a 100 per cent supplier to Hyundai, Daewoo, and General Motors. It is also a major supplier to Hero Honda and Bajaj. We already have three products catering to the automotive refinish segment. Deltron, a premium product for automotive refinish, was launched last year.

Raw material prices have been going up in the recent past. Will there be a serious impact on margins?

There is no denying that there has been an impact on the raw material cost due to the rise in oil prices. All petrochemicals-related raw materials have been impacted and there has been a surge in their prices. However, for the paint industry some of the impact was negated as the prices of vegetable oils dropped considerably. For example, the price of castor oil fell nearly 30 per cent over the previous six months. However, the fall in prices of vegetable oils reduced the burden to a little extent.

On operating margins, our efforts are concentrated at maintaining margins. We effected a small price increase of 2.5 per cent in end-October. Before that we had reduced prices by 1 per cent. Even then we maintained margins for the six months ended September 2000. In fact, there was a slight improvement in margins. This has been due to the initiatives undertaken by the company in various areas including raw material sourcing, better plant yields and better overheads management.

Do you have any expansion plans in the pipeline?

International expansion is very much a continuous process. We started three units last year, in Oman, Mauritius and Sri Lanka. We will concentrate our energies in emerging markets as we feel we have the expertise and technology to tap these markets. Our strategy is to acquire companies that have synergies with our core business. Most important, the right price must be right, and the acquisition should make economic sense and increase shareholders wealth.

What are your comments on the growth rates in the industry classified on the basis of decorative and industrial paints?

The entire organised paint market is valued around Rs 4,500 crore. The breakup of the organised and unorganised market is around 65:35. The total paint market grew 12-13 per cent in FY 2000. The organised sector grew by 14-15 per cent and the unorganised sector by 12-13 per cent. The decorative segment grew by 15-16 per cent, and the industrial segment by 13-14 per cent. For FY2001, our estimate is that the decorative segment should grow by 13-14 per cent and the industrial by 12-13 per cent. We see this growth rate maintained even in FY 2002.

What are your expectations from the coming Budget?

We request the Finance Minister to reduce the import duty on titanium dioxide, one of the most important raw material for the paint industry. The import duty on this raw material is 38.5 per cent. It is ironical because the import duty on paint is also 38.5 per cent. Some rationality is sought in the import duty of paint and its raw materials.

What is the outlook for the paints industry as a whole in the next one year?

The initiatives we have undertaken will expand the market. We will sustain the growth rate we will maintain this year.