1

Asian Paints (India) Limited

The 2003 DSP Merrill Lynch Institutional

Investor Conference,
Udaipur

Ashwin Dani,
Vice Chairman & Managing Director

February 12, 2003

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Ratings & Recognitions

• India’s largest paint company for over three decades
• Amongst the top 10 decorative coatings companies in the
world
• Ranked 4th in India on Corporate Governance by “The Asset”
in 2002
• Forbes magazine, USA in its annual survey ‘Best under a
Billion’ ranked Asian Paints amongst the 200 Best Small
Companies in the World in 2002
• Ranked as 4th most admired company in India by The
Economic Times in 2001
• Rated 9th best Indian employer by “Business Today” survey-
2001
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Commitment to Standards

• High quality management:

• 60% of management from best Indian business schools
- among highest across industries
• 15% of management are scientists & technologists
• Commitment to quality - ISO 9001 compliant
• Commitment to Health, Safety & Environment - ISO 14001
compliant
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Structure of the presentation

A] Business Perspective

B] APIL performance : till Q3-FY’03

C] M&A - The growth strategy & our experience

D] International operations - The strategy ahead

E] Outlook
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Business Profile
Net Sales (%)

Paints business:
• Decorative Coatings 7
93
• Industrial Coatings

Chemicals business: PBIT (%)

• Backward integration
• Cyclical business
7

93

Paints Chemicals
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Decorative Coatings
• Leaders across all segments
The Asian Paints Corporate Brand
Wall Finishes
• Powerful brands like Tractor, Royale, Apcolite etc.
Enamels
• Brands viz. Apcolite Synthetic Enamel, Utsav Enamel dominate
Exterior Finishes
• Brands like Apex, Ace dominate segment in just a few years
• Significant value growth drivers
Wood Finishes
• Created this segment
• Powerful brands viz. Touchwood, Asian Melamine Wood Finish
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Industrial Coatings

• Second largest player in industrial coatings

• Main segments:
– Powder Coatings
– Protective Coatings
– Road Marking Coatings
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Industrial Coatings – JVs & Acquisitions

JV - Automotive Coatings
• Strong JV (Asian-PPG Industries Ltd) with one of the world’s
largest auto OEM coatings companies (PPG)
• Profitable company in just 4 years since inception in a highly
competitive market
• Successful in supplying to most new MNC entrants in OE sector
– Sole supplier to Hyundai India
Acquisition - Powder Coatings
• Fastest growing segment in industrial coatings
• Asian Paints Industrial Coatings Ltd (APICL), 100% subsidiary,
acquired powder coatings business of Hawcoplast Chemicals,
pioneer in powder coatings in India, in 2001
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Elements of
Asian Paints’ Supply Chain

35 Job
35 Job Work
Work
Key Success Factors
Centres
Centres
~~ 3000
3000 SKUs
SKUs
Flexible
Operations
44 Plants
Plants

~800 Raw
~800 Raw Materials
Materials Lower
Throughput Time
66 Regional
Regional Distr-
Distr-
ibution Centres
ibution Centres
Low Delivery
Costs
~300 Pkg
~300 Pkg Material
Material 74 Branches
Branches
74

~~ 500
500 Industrial
Industrial
~~ 15000
15000 Dealers
Dealers
Customers
Customers
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Investment in I.T.

• The only company in India to integrate SCM from i2 &

ERP from SAP
• Benefits:
– RM & FG inventory reduction
– Revenue Increase by avoiding retail shorts
– Reduction in dead & slow moving stock
– Plant through-put improvement
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Market Share
Paint Revenue Share FY 01-02
Top 6 paint companies

11%
4%
17% 3%

20%
45%

Asian Paints Nerolac Berger

ICI J & N Shalimar
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Structure of the presentation

A] Business Perspective

B] APIL performance : till Q3-FY’03

C] M&A - The growth strategy & our experience

D] International operations - The strategy ahead

E] Outlook
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Financial Results
for the 9 months ended
(In Rs. million)
Dec’02 Dec’01 Grth %
Net Sales 11278.76 9982.0 13.0 %
PBDIT 2223.45 1719.2 29.3 %
Interest 67.5 142.5 - 52.6 %
Depreciation 339.11 265.3 27.8 %
Other income 157.77 72.8 116.7 %
PBT 1816.84 1311.4 38.5 %
Prov. for Current Tax 681.32 430.8 58.2 %
Profit after Current Tax 1135.52 880.6 28.9 %
Prov. for deferred tax (-2.55) 43.2
Net Profit. 1138.07 837.4 35.9 %
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Segment Information
For the 9 months ended

Dec.2002 % to Total Dec.2001 % to Total growth

Revenue
Paints 10552.92 92.56 % 9391.85 93.6% 12.36 %
Others 847.88 7.44 % 637.43 6.4% 33.02 %
Total Company 11400.8 100.00 % 10029.28 100.0% 13.68 %
PBIT
Paints 2042.4 92.58 % 1652 98.3% 23.63 %
Others 163.8 7.42 % 28.91 1.7% 466.59 %
Total Company 2206.2 100.00 % 1680.91 100.0% 31.25 %
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Margin Ratios
For the 9 months ended
Dec’02 Dec’01 Growth
Company level:
EBITDA /Net Sales 20.0 % 17.5 % + 2.5 %
EBITDA - OI /Net Sales 18.6 % 16.7 % + 1.9 %
EBT / Net Sales 16.4 % 13.3 % + 3.1 %
PAT/ Net Sales 10.3 % 8.5 % + 1.8 %

Segment level:
Paints EBIT/Net Sales 19.4 % 17.6 % + 1.8 %
Others EBIT/Net Sales 19.3 % 4.5 % + 14.8 %
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Margins over the years

20
18.1
EBITDA/Net Sales % 17.9
17.5
PAT/Net Sales %

15.5
16 16.3
16.2

14.7
Margins (%)

12

9.1 9.2
8.9
8.4 8.6
7.6 7.5
8

4
1996 1997 1998 1999 2000 2001 2002

PAT before deferred tax

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Profits over the years

2400 14000
Net Sales EBITDA CAGR 14.8%
EBITDA
PAT
2000
12000
EBITDA & PAT (Rs Mn)

Sales CAGR 14.5%

Net Sales (Rs. Mn)

1600
10000
PAT CAGR 15.8%
1200

8000
800

400 6000
1996 1997 1998 1999 2000 2001 2002
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Margins Strategy

Firmer RM
Firmer RM Price
Price
prices (6-8%)
prices (6-8%) increase (1.25%)(Sept’02)
increase (1.25%)(Sept’02)

Margin
RR && DD efficiencies
efficiencies && Margin
Sourcing efficiencies
efficiencies expansion
expansion
Sourcing
despite
despite
input
input
price
price
Control on
Control on overhead
overhead costs
costs increase
increase

Improved realisations
Improved realisations from
from chemicals
chemicals business
business
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Free Cash flow story continues

Higher
creditors

Lower
Inventor-
ies Working
capital
reduction
Free Cash
Higher Acquisns
Margin Cash Flow internally
Expansion from ops funded

Lower
Lower
interest
Capex
costs
Assets NCD
“sweated” instalment
more pmt.

Higher
capital
product-
ivity
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Consumer-centric initiatives
• Asian Paints Home Solutions
– Offers a “painted surface” vs. just “paint”
– Aimed at controlling the quality of end product
– Overcomes major “barriers to purchase/consumption”
– Good response from the market; present in six cities
• Asian Paints Helpline
– Toll free access to the Helpline
– High conversion rate into actual sales
• ColourWorld machines
– 3175 machines installed till February 1, 2003
– 827 machines installed under arrangement with Citibank
– ColourWorld dealers make more than 50% of sales
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Structure of the presentation

A] Business Perspective

B] APIL performance : till Q3-FY’03

C] M&A - The growth strategy & our experience

D] International operations - The strategy ahead

E] Outlook
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Growth strategy and M&A

Growth Strategy:
Growth Strategy: ToTo increase
increase sales
sales growth
growth rate
rate of
of the
the
group beyond
group beyond past
past levels
levels using
using aa two-pronged
two-pronged approach:
approach:

Market share
Market share gain
gain

Organic Growth
Organic Growth
Market expansion
Market expansion

International M&As
International M&As

Inorganic Growth
Inorganic Growth
Domestic M&As
Domestic M&As
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M&A International - Strategy

• To enter the high-growth emerging markets

• Adopt a regional hub approach to international

operations

• Apply the emerging market business model:

– Introduce new products suited to local needs
– Introduce new technology, accordingly
– Focus to improve all areas of operations, especially supply
chain
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M&A International - Opportunities

• No single MNC is present across emerging markets

• Asian Paints believes there is plenty of scope to
achieve significant presence in targeted countries
• Niches/segments available for Asian Paints in these
markets
• Vast potential exists for Asian Paints, as most paint
companies in these markets operate sub-optimally
viz., in Supply chain, manufacturing, technology &
marketing
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M&A - Funding

• Primarily through internal accruals

• Debt:Equity ratio will be lower than 1

– Debt:Equity ratio is 0.23:1 for FY’02

• Dividend payout ratio to be largely maintained

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The Egypt acquisition

• Acquisition of SCIB Chemical for Rs. 245 million for 60 %
stake
• 5th largest paint company in Egypt
• Sales of LE 52 mn (USD 11 mn) in 2001
– Paints business LE 39 mn
• Opportunities
– Size of Egyptian paint market ~ USD 150 mn
– Egyptian market is in a growth phase
– No committed MNC in market & leader continuously losing
market share
– SCIB enjoys good brand equity, is considered a dynamic &
innovative company
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The Berger International Ltd(BIL) acquisition

Region Countries Proportion Proportion of

of total total sales
sales value* volume*

Caribbean Jamaica, Barbados,

47 % 28 %
Islands Trinidad & Tobago

Middle East UAE, Bahrain,

27 % 40 %
& Malta Malta

China, Singapore,
China &
Thailand, Myanmar, 26 % 32 %
S.E. Asia Malaysia

* For FY 2001
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Financials of BIL for Last 3 Years

Value in '000' of S $
2001 2000 1999

Sales 115,034 130,945 133,173

PBIT (3,662) 1,367 (9,162)
PBT (6,131) (732) (10,658)
PAT (9,417) (5,047) (11,303)

Gross Block 48,041 50,665 49,379

Net Block 23,683 28,863 30,270

Networth 14,040 23,956 32,487

Book Value/Share 0.14 0.23 0.31
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BIL financial performance : Jan-Jun’02

(S$ 000)
H1-FY2002 H1-FY2001
Turnover 53850 51850
Op.Profit Before Tax 1041 -3610
Op.Profit after Tax 616 -4223
Less minority interests -250 275
Operating profit after tax
366 -3948
after minority int.
– Substantial improvement in H1-FY’02
– Write back of S$ 1.1 mn : Had write back not been done, the
group would have incurred Net loss after tax S$ 1.273 mn (Net
loss after tax of S$ 3.948 mn in previous period)
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Berger International Ltd- The strengths

• Berger has a strong brand in all these countries.

• Access to the Berger brand and trademark in over 70

countries (India not included)

• Sound systems and policies in most countries

• Excellent margins in the countries where they are

leaders
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Berger International Ltd - The synergies

• BIL’s operations are mostly in emerging markets which
synergises with the vision of Asian Paints

• No overlap of BIL operations with Asian Paints

• Economies of scale could be achieved especially in Middle

East as APIL already has operations in Oman & Egypt

• Exports to neighboring countries

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Governance & Compliance of BIL

• Total Board strength six, with three independent directors
• Chairman & CEO are from Asian Paints
• Committees have been reconstituted for Audit,
Remuneration & Appointment
– All these committees now headed by independent directors
• Group policies being laid down to ensure consistency on
key areas.
• Internal audit on all units planned.
– Audit to be completed by Asian Paints India personnel.
• Processes strengthened to monitor statutory compliance
– Compliance to be monitored regionally
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Structure of the presentation

A] Business Perspective

B] APIL performance : till Q3-FY’03

C] M&A - The growth strategy & our experience

D] International operations - The strategy ahead

E] Outlook
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FOOTPRINTS OF ASIAN PAINTS

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International markets
Growth Drivers
Growth Drivers Market Leaders
Market Leaders Focus for
Focus for
Turnaround
Turnaround
Bangladesh
Bangladesh Jamaica
Jamaica Australia
Australia
China
China Barbados
Barbados Mauritius
Mauritius
Egypt
Egypt Trinidad && Tobago
Trinidad Tobago Oman
Oman
Malaysia
Malaysia Bahrain
Bahrain Malta
Malta
Myanmar
Myanmar Nepal
Nepal
Singapore
Singapore Fiji
Fiji
Sri Lanka
Sri Lanka Solomon Islands
Solomon Islands
Thailand
Thailand Vanuatu
Vanuatu
UAE
UAE Tonga
Tonga
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Growth Driver economies - Imperatives

• Rationalise product ranges

• Complete the product portfolio
• Improve supply chain & working capital management
• Implement cost structures for increased plant
efficiencies, better overhead management & increased
asset productivity
• Using information technology to maximise efficiency
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Market Leader economies - Imperatives

• Enter new segments like wood finishes in BIL units

• Focus on cost efficiencies, supply chain etc
• Gain market share from competition & maintain
margins
• Will focus to maintain ROCE in excess of 30% in
these markets
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The new Asian Paints group

24%

71%

5%

Paints - India

Chemicals - India

International

Asian PPG not included

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Targets for Asian Paints International

• Sales growth of at least 10% in next 2 years

• Excess of 3% PAT margin by year 2004

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Structure of the presentation

A] Business Perspective

B] APIL performance : till Q3-FY’03

C] M&A - The growth strategy & our experience

D] International operations - The strategy ahead

E] Outlook
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Consolidated outlook - FY’03

• Asian Paints (India) will perform well, both top-line &
bottom-line
• International operations:
– Only 2 months sale of BIL will be considered
– Less than one month sale of SCIB Chemical will be
considered
• Goodwill write off due to new acquisitions ~ Rs. 50
million
• Asian PPG Industries will add to the bottom-line
• Consolidation to have no significant net impact on
group profits
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Paint Industry Attractiveness - India

• Impetus given by Finance Minister to the Housing Industry
– Good growth recorded by Housing Finance & Cement sectors
• Increased government focus on infrastructure development
• More educated consumers & increased aspirations for better homes &
lifestyles
• With general industrial revival - emerging segment for high
performance Industrial Coatings
• Low penetration levels of paint in India:
– Per capita consumption in India ~ 0.78 kg p.a.
– Europe ave 12 kg, USA: 19 kg, Brazil: 5.8 kg

• Last 13 years’ industry CAGR ~ 13.6%; Asian Paints sales CAGR ~

16%
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Economic Environment

• GDP grew by 5.8 % in Q2-FY’03

– Industrial growth of 6.3% in Jul-Sep’02
– Manufacturing sector grew by 6.4%
– Construction sector grew by 7.2 %
• Benign inflation provides comfort
• Demand environment still lacklustre
– Feel-good factor missing

Source : Dun & Bradstreet

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Targets for Asian Paints (India) Ltd

• Net Sales growth 10 - 12 % in 2002-03

• Restraint in capex & small improvements
expected in working capital
• Maintain margins
• ROCE (EBIT/CE) of at least 35 % for next 2 years
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A sian Paints w ill

• Always remain a company committed to increasing
shareholder wealth

• Always maintain its prudent policies of cash flow

management

• Remain committed to shareholder transparency and good

corporate governance
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Our vision
“ Asian Paints aims to become one of the top
five Decorative coatings companies world-
wide by leveraging its expertise in the higher
growth emerging markets. Simultaneously,
the company intends to build long term value
in the industrial coatings business through
alliances with established global partners.”
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End...