If you were Asian Paints Limited’s CEO, how would you think
about the company’s future growth?...
For the exclusive use of J. Kwok, 2020. Asian Paints Limited: Painting History SIMBA पारित गारन्तु September 2018. Asian Paints Limited ("APL) was the largest paint company in India, a position it had comfortably maintained for over live decades by focusing on customer needs and constant innovation in products, marketing, and service delivery. In the last ten years, the company which was also the linth largest paints company in the world - had grown its revenues over four times, ils profits live times, and its market capitalization nearly ten times (see Exhibit 1). To further accelerate its growth and realize its vision of being 'India's most exciting and inspirational home decor brand and business". APL was investing over 340 But w double ils Accorative painly innufacturing capacily and expand its presence in the home improvement (adhesives, waliprooling, clc.) and decor space (modular kitchens, wardrobes, clc.). KBS Anand, Managing Director & Chief Executive Oficer, remarked' We are in the midst of our largest capacity expansion ... [the two new] large plants would give the company the ability to manufacture paints at the lowest cost well into the future, These decisions, however, were not devoid of skepticism. Ambit Capital, for instance, described these moves as indulging in "empire building", and venturing into categories which provide "no apparent synergies and would prove to be "a distraction in terms of capital as well as management". It downgraded AIL's stock to "Sell" (with a target price of 7860, when ALL was trading at 21,166): We are worried about Asian Paints capital allocation decisions around: (1) aggressive capacity expansion; (2) entry into weak international markets, and (3) acquisitions in home improvement ... the stock trades at a 34% premium to the FMCG sector. We believe this premium is unjustified ... a de-rating for Asian Paints is warranted. PAINT INDUSTRY: A PRIMER Paints are colored substances, which when applied on metallic and non-metallic surfaces and allowed to dry, Icave a thin coaliny lit can be for decorative (itesthetics) and or proleclivc (lumidity, air, sunlight, etc.) Putukses, They can also serve eller lumctionalities as requircd (cy, lire relardation, luminesceTICC, solar reflection, waterproofing, insect repelling). There are four primary components of a typical paint: pigments and extenders (lend color). binders (hold pigment particles together to form a film), solvents (wet the paint and make it suitable for applying: usually water or organic), and additives (for specific functionalities mentioned earlier). Although the benefits offered by paints can be achieved in other way's - by lusing different base materials (such as stainless steel instead of iron or PVC instead of wood or colored bricks concrete blocks that do not require any additional coatings) - these design decisions are not trivial since the choice of base material is fundamental to the performance of the product. Consequently, while direct and indirect substitutes exist, these have not disrupted the paint industry per se. Paint is a raw material intensive industry, with titanium dioxide (a pigment), crude oil (satu derivatives), and nineral turpentine oil as the major inputs. These raw materials typically constitute 15-20%, 35-40% and 6-7% of the overall raw material haskel,' respectively, though il varies by product type. Conmercial Exchange rate: 1 USS=*71.29. Page 2 of 25 This doc. nent is authorized for use only by Jonathan Kwok in 2020.