STM Assignment Faculty: Prof. Brajraj Mohanty Industry: Paint Company: Asian Paints Limited
Submitted To: Dr. Mousumi Padhi Asst. Professor, Human Resource Management, Xavier Institute of Management, Bhubaneswar
Submitted By: Group 10 (Section-B) Anish Tripathy (UM15066) Himanshu Dhamija (UM15081) Kunal Sharma (UM15089) Piyush (UM15095) Soumyasri Roy (UM15113)
Submitted To: Dr. Mousumi Padhi Asst. Professor, Human Resource Management, Xavier Institute of Management, Bhubaneswar
Submitted By: Group 10 (Section-B) Anish Tripathy (UM15066) Himanshu Dhamija (UM15081) Kunal Sharma (UM15089) Piyush (UM15095) Soumyasri Roy (UM15113)
Contents 1
Executive Summary............................................................................................................................................................... 4
2
Industry Overview.................................................................................................................................................................. 5 2.1
Nature and Size of the Industry....................................................................................................................................... 5
2.2
Key Growth drivers for the industry............................................................................................................................... 12
2.3
Identification of Critical Success Factors (CSF).............................................................................................................. 15
2.4
Market Analysis based on CSFs..................................................................................................................................... 16
2.5
Industry Benchmarks..................................................................................................................................................... 17
2.6
PESTEL Analysis............................................................................................................................................................. 25
2.7
Porter’s Five Forces Analysis.......................................................................................................................................... 31
2.8
Strategic Group Mapping............................................................................................................................................... 33
2.9
Competitive Landscape................................................................................................................................................. 34
2.10 Market Segmentation.................................................................................................................................................... 37 2.11 Buying Criteria Analysis of the Industry......................................................................................................................... 38 2.12 Key trends and future developments............................................................................................................................. 39 3
Company Overview.............................................................................................................................................................. 40 3.1
Company background.................................................................................................................................................... 40
3.2
Timeline with key milestones and their strategic impact............................................................................................... 41
3.3
Vision, Mission, Goals, and Strategic Themes................................................................................................................ 42
3.4
Key Product and Service Portfolio.................................................................................................................................. 43
3.5
Core Competencies of the firm...................................................................................................................................... 46
3.6
Business Model of the organization............................................................................................................................... 48
4
3.7
3rd Generation Balanced Scorecard (Amalgamation of 1st Generation BSC and Activity System Map)........................49
3.8
SWOT Analysis............................................................................................................................................................... 50
3.9
Competitor Analysis (identify competitors)................................................................................................................... 52
3.9.1
Based on Critical Success factors............................................................................................................................ 53
3.9.2
Based on Financial indicators.................................................................................................................................. 53
Future Growth Strategy for the organization........................................................................................................................ 54 4.1
Portfolio Analysis........................................................................................................................................................... 54
4.1.1
Based on BCG Matrix............................................................................................................................................... 57
4.2
Company’s Strategic Roadmap for future...................................................................................................................... 58
4.3
Product Market Investment Strategy............................................................................................................................. 61
4.4
Re-imagining the Organization with the transformed business model or Use-case based on SMAC and IOE................62
1 Executive Summary Guidelines
The executive summary should provide a brief overview of the organization and the industry in which it operates. It should also illustrate the results of the analysis made in the report. It should provide the future growth prospects in the industry for the organization. It should also highlight on the strategy for any organization to gain competitive advantage in this industry.
The Indian Paints industry is booming & consumer behaviour to purchase products with a variety of new players & product flooding the market is rapidly evolving. The Indian market, which is under transition, is also getting more and more competitive both in terms of consumption and quality consciousness. A booming paints and varnish industry has resulted in innovative marketing techniques coming into play. All major players like Asian Paints, Modi Paints, Nerolac Paints, Berger Paints and few other players are trying to strengthen their retailing operations with different marketing strategies/techniques because the paints and varnish industries now come under the impulse category where factor like supply chain management, The width of distribution, advertisement, packing & communication make all the difference. In the background of the above scenario, we decided to study Asian Paints to carry out our research to determine what market thinks about Asian Paints and Varnish. Does Asian Paints give value for money, total satisfaction and does it have a competitive growth strategy for the future. We delved deep to find out the about the image of the product, purchase behaviour of the consumer, their expectations and reasons of satisfaction and dissatisfaction, the current market practices and future roadmap of the company.
2 Industry Overview 2.1 Nature and Size of the Industry Guidelines
History and Evolution of the industry
Brief Description of the industry segment or sub segment History and Evolution of the Industry Position of Industry depending on Industry Life Cycle (Introduction, Growth, maturity, decline) Size (% of National GDP) of the industry
History of Paint Paint has been used by mankind since its origin. The evidence can be found in the cave paintings. The Chinese are considered to be the pioneers of manufacturing paints thousands of years ago. In modern times paint is made artificially and is used in many different ways. There are three basic things required to make paint. You need a pigment to get the exact colour you want, a binder to hold the paint together, a thinner so that it can be applied easily Ancient Egyptians, Greeks, and Romans made paint by treating lead with wine or vinegar. Later painters mixed up white-lead paste, then added linseed oil, turpentine, a drier, and coloured pigments in oil. Such paint yielded a great result but unfortunately, it also poisoned people. Today, paint with more than .06 per cent lead by volume is banned in the U.S. There's also been a shift away from oil as the base for paint. It began during World War II, when linseed oil and the solvents that cut it were scarce. By the mid-'5Os, synthetic replacements were outperforming natural ingredients. Today, practically all paints consist of some form of synthetic resins or polymers But the most dramatic shift has been away from solvent-thinned paints in favour of water-thinned ones. Today, latex is the consumer standard, accounting for nearly 80
per cent of the paint sold.
History of Indian Sector Before World War: Indian Paint Industry is over 1000 years old. The earliest paint factory in India dates back to 1902, when Shalimar Paints, color & Varnish Company, A Pinchin Johnson unit, was established at Calcutta. The industry still consisting of one lone unit went through a rather prolonged period of infancy, till the World War II brought in dramatic opportunities. Period Between the Wars: With the stoppage of imports owing to war conditions, the domestic market at last became almost the exclusive reserve of the domestic industry. European manufacturers, hitherto exporting to India, readily saw the advantages of setting up manufacturing facilities here. The period between the wars thus saw the greatest ever influx of foreign paint companies into India Till the Second World War the industry consisted of small producers and two foreign companies. Period Between the War and Independence: After the war, the imports stopped which led to the setting up of manufacturing facilities by local entrepreneurs. Still the foreign companies continued to dominate the market, which in a way is the current scenario as well. The initial decades saw the complete dominance of British Paint companies such as Goodlass Walls (now Goodlass Nerolac), ICI, British Paints (now Berger Paints), Jenson & Nicholson and Blundell & Eomite. Post Independence: While talking about the post independent development of the Paint industry in India, mention must be made of Asian Paints, a completely Indian unit which started on a very small-scale, grew so big and so beyond recognition over the years that it is today not only the largest unit in India but way ahead of the second largest, Kansai (Goodlass) Nerolac Paints Ltd., formerly a unit of Goodlass Wall (UK). Demand for automotive paints picked up with entry of Maruti. The post independence period witnessed a steady growth in the paint industry. From a mere Rs.200 million turnover in 1950, the paint industry crossed the Rs.14000 million marks in 1990-91. Post Liberalization: Rapid industrialization and improvements in the infrastructure such as transport, energy and communication during the last decade gave a further fillip to the growth of the paint industry. Aided by Government’s liberal policy of technology
import, the automotive and consumer durables segments expanded phenomenally, with a flurry of foreign collaboration. Increased demand for decorative, protective and functional coatings was a natural fall out, which brought, in its stride, a host of indigenous developments as well as the injection of new technology Evolution of the Indian Sector
Key Consumers of this industry and their changing needs
1902 – Shalimar Paints, Calcutta
1920-45: Asian Paints, Nerolac started operations in India
1965-91: Paints looked upon as luxury item.
1983: Demand for automotive paints picked up with entry of Maruti.
1991: Reduction in excise duty and many controls on the industry removed.
After 1991: Steady growth, slow disappearance of unorganized sector units and industry fragments.
Consumers for Industrial Paint Segment • • • • • • • • • •
Automotive OEM Automotive Refinish Vehicles Railways Aircraft Marine Coatings Road Marking Plastic Coatings Metal Packaging Coatings General Industrial Coatings
Consumers for Decorative Paint Segment •
Commercial Hotels
•
•
Stage in the Industry Life cycle
Shopping Malls Offices Restaurants Industrial Warehouses Manufacturing Others Hospitals Educational Institutes Government Recreation Amenities
Decorative Paint Segment This segment is in the maturity level. As the basic main components of paints stay the same and industry is focused on bringing in product differentiation for keeping the industry afloat and steadily rising. Also, this segment is mainly considered a luxury segment. So with rising disposable incomes there is a gradual shift in the preferences of people from the traditional whitewash to higher quality paints like emulsions and enamel paints
Industrial Paint Segment This segment of the paint Industry is still in the growth phase. This segment started evolving late with the entry of Maruti in1983. Industrial paints are segmented into automotive coating, high performance coating, powder coating and coil coating. This segment is continuously viewing new developments and
increasing share. Source: PRODUCT MANAGEMENT IN INDIA By RAMANUJ MAJUMDAR Total Available Market Size (National and Global)
Global TAM: 121.9 billion USD (FY13) [source: http://www.business-standard.com/article/companies/indian-paintmarket-set-to-grow-20-cagr-in-two-years-on-rapid-urbanization114090500527_1.html] National TAM: INR 280 bn (FY13) [source: https://www.equitymaster.com/research-it/sector-info/paint/PaintsSector-Analysis-Report.asp]
Total Serviceable Market Size (National and Global)
Financial year 2015 for the Industry
Global TSM: 121.9 billion USD National TSM: INR 182 bn
FY15 had its share of both excitement as well as challenges. The arrival of a new Government at the centre with a decisive majority raised hopes of a quick turnaround of the Indian economy. However, it has now dawned that although many macroeconomic indicators are on the mend, it will take time for the growth potential of the economy to be fully realized.
On the positive side, softening of international crude and commodity rates has eased the mounting cost pressures on the industry to some extent. And while operating margins haven’t improved much, they can certainly expand in the forthcoming quarters should things continue to remain the same. Apart from better than expected economic growth, the boost to demand in FY16 can also come from fall in inflation levels as it will have a positive effect on
Prospects For The Industry
customer’s wallet and boost his disposable income. All the key players are almost done with capacity expansion and have started production from new plants. Asian Paints’ plant in Khandala, Maharashtra has recently got commissioned. Besides, it has initiated a project to double capacity at Rohtak plant in Haryana. Kansai Nerolac’s capacity expansion plans at Jainpur and Bawal has culminated. Berger Paints has also commissioned its water based paint plant at Hindupur in Andhra Pradesh. Its powder coating plant at Jejuri has also been commissioned.
The market for paints in India is expected to grow at 1.5 times to 2 times GDP in the next five years. With GDP growth expected to be between 67% levels, the top three players are likely to clock above industry growth rates in the future, considering they have a strong brand and good reach.
The market size of the paint industry in India is estimated at around Rs 350 bn. Industry players expect close to 12% growth in business volume and 10-12% rise in sales in FY16.
Decorative paints segment is expected to witness higher growth going forward. The fiscal incentives given by the government to the housing sector have immensely benefited the housing sector. This will benefit key players in the long term. Although the demand for industrial paints is lukewarm it is expected to increase going forward. This is on account of increasing investments in infrastructure. Domestic and global auto majors have long term plans for the Indian market, which augur well for automotive paint manufacturers like Kansai Nerolac and Asian-PPG. Increased industrial paint demand, especially powder coatings and high performance coatings will also propel topline growth of paint majors in the medium term.
Volatility of the Indian currency and international oil prices and worries about a normal monsoon continue to be major challenges facing the paint
industry.
2.2 Key Growth drivers for the Industry Key Growth drivers
Rationale ´Rapid urbanisation, upwardly mobile lifestyles and increase in disposable income are the key growth drivers of decorative paints´, says Sameer Nagpal, Managing Director & CEO, Shalimar Paints. ´Robust manufacturing, industrialisation and infrastructure growth typically drive demand for industrial coatings.´ A comprehensive list of growth drivers on the basis of our research is 1. Increasing level of income and education – The increasing proportion of young population along with increasing disposable incomes is leading to a change in consumer habits. The Indian economy is shifting from a savings economy to a spending economy. With more income at their disposal, people are now ready to pay for better
products and paint is no exception. Educated consumers are more brands conscious and seek value in what they consume. Thus, paint companies offering value-added features like non-toxicity, weather protection, texture, eco-friendly production, etc. will attract more demand. These valueadded products enable the manufacturers to earn a better premium as compared to the regular paints, thus offering higher margins. Paint industry has witnessed strong growth of 1.5-2x GDP growth since liberalization. Indian paint industry growth is closely related with the GDP growth rate and has grown on an average 1.5-2x GDP growth rate since liberalization
2. Increasing Urbanization: Urbanization is leading to a shift from temporary houses to permanent houses. Urban houses are well-designed in its interior as well as exterior aspect. This calls for more houses being painted using medium and premium paints. For urban houses, interior design is becoming a fashion statement and a lot of paint is used to decorate the interiors. This will lead to an increase in the per capita consumption of paint which will increase the overall demand of paint. Urbanization also brings more nuclear families. More nuclear families mean more number of houses even for the existing population thus further driving the demand. 3. Increasing share of organized sector: Decrease in taxes on key raw materials will improve the position of the organized players. The Organized sector is expanding its distribution network and adopting the installation of tinting machines at retail outlets. These tinting machines offer a wide variety of color shade options to choose from. The
unorganized players are not in a position to offer such facility as it is comparatively capital intensive. Shift in use, from distemper segment towards premier segment is also shifting market share from the unorganized sector to the organized sector. 4. Development of the Realty, Automobile and Infrastructure sector: The growth of the paint industry is largely dependent on the development of the realty and housing sector, as decorative segment generates about 70% of the total paint demand from this sector. The Automobile segment generates more than two-third of the demand for Industrial paints, and hence is the growth driver for Industrial Paints. The Infrastructure segment creates direct demand for paints as well as creates indirect demand through supporting the growth of the realty, automobile, FMCG and other industries where paint is used. The growth potential in the above 3 sectors is immense, the paint industry being dependent on these 3 sectors is expected to grow along with them. 5. Availability of financing options: Easier housing finance and auto finance is expected to favor more people to buy houses and travel in personal vehicles. This will drive the growth of housing and automobile sector, of which the Paint industry will get its share. 6. Increasing Penetration in the Rural Markets: Paint usage in rural areas is generally in the distemper segment, hence dominated by the unorganized players. Demand in rural areas is dependent on agriculture, which is dependent on the monsoons. With the development of irrigation facility, the dependence of agricultural output on monsoons will be on a decreasing trend. Also, with the modernization of agriculture and accompanying development of rural India, consumer preferences are expected to improve. Paint companies are expanding their distribution network in rural parts of India, which is a relatively untapped market for the organized players. These factors supported by the increasing penetration of the paint companies will help drive the demand for paints. Source: www.spasecurities.com/DownloadTechnicalReport.aspx?rid=1165 http://www.business-standard.com/article/companies/indian-paint-market-set-to-grow-
20-cagr-in-two-years-on-rapid-urbanization-114090500527_1.html
2.3 Identification of Critical Success Factors (CSF) Critical Success Factor identified CSF1 Distribution:
CSF2 Cost And Price Drivers:
Rationale Marketing of decorative paint requires extensive dealer networks, especially in the urban and the semi-urban markets. An effective and efficient distribution network is a key requirement for the success of paint manufacturers. Since paints are in high demand in virtually all areas of the country, it is pertinent that the end product gets to the final consumer as at when needed. Distribution therefore remains a key success factor. The paint industry costs and prices are driven by raw material costs which constitutes about 57% of the costs of sales, and government levies which constitutes 38% of the cost of paints. There are more than 300 inputs going into the manufacturing of paints and about 70% of them are based on petroleum. The petroleum prices are therefore one of the most important cost drivers. The paint industry includes the extent of concentration in the paint industry which is very high. This lead to very low margin at each level with the final retailer as little as 4-5%.
CSF3 Working Capital management CSF4
The industry has high raw material content; the number of finished product is also large with varying pack sizes. Sales in decorative paint are seasonal with more than half of sales coming in September – November festival season. Debtor levels also tend to be high in this industry Paint is highly raw material intensive commodity, which have protective functions in addition to decorative one. An average range of trade sale, industrial, automotive and
Technology
maintenance coating employs well over 900 raw materials. This possess a constant challenge for research and development efforts in formulating and reformulating products for better performance, cost reduction, new application, shade development and exploitation of new materials. As the environment in which paint is used, keeps on changing with expanding problem of industrialization and attendant pollution, the expectation of paint performance keeps on changing , demanding evolution in paint technology. Source: http://www.ipaindia.org/about-paint-industry.aspx http://www.indianmirror.com/indian-industries/paint.html https://www.equitymaster.com/research-it/sector-info/paint/Paints-Sector-AnalysisReport.asp
2.4 Market Analysis based on CSFs Region
CSF 1
CSF 2
CSF 3
CSF 4
Very High
Moderate
High
Low
North
NA
NA
NA
NA
South
High
High
High
High
East
NA
NA
NA
NA
West
High
High
Moderate
Moderate
North-East
Moderate
Moderate
Low
Low
Global
India
Central
NA
NA
NA
NA
Note: Used data for the year 2014-15
2.5 Industry Benchmarks Size of industry:
Category
Industry Level (National)
Indicator
Market Size (crores) Size as % of GDP Inventory turnover
Activity Ratios
Receivables turnover (Days)
Industry Average of Top 5 Firms or players serving 75-80% of the market
Market Leader
201112
201213
201314
2014-15
201112
2012-13
2013-14
2014-15
13793.3 7
17976.3 4
20549.6 8
23248.26
9,118.9 2
10,462.9 4
12,167.0 2
8,639.47
0.001
0.002
0.002
0.002
-
-
-
-
6.06
5.98
-
7.56
6.06
6.26
7.24
30.73
31.11
-
19.21
15.82
15.48
16.17
5.91
27.44
Payables turnover (Days)
53.96
57.29
60.21
-
51.95
52.82
55.03
57.23
Asset
1.85
1.77
1.77
-
3.55
3.13
3.11
2.95
Category
Indicator
Industry Average of Top 5 Firms or players serving 75-80% of the market
Market Leader
201112
201213
201314
2014-15
201112
2012-13
2013-14
2014-15
Current ratio
1.6
1.48
1.27
1.33
1.12
1.12
1.18
1.09
Quick ratio
1.03
0.9
0.74
-
0.69
0.66
0.83
0.49
Cash ratio
1.03
0.9
0.74
-
0.69
0.66
0.83
1.09
Debt-toassets ratio
0.06
0.04
0.04
-
0.039
0.019
0.011
0.009
Debt-tocapital ratio
0.11
0.09
0.07
-
0.076
0.035
0.020
0.015
Debt-toequity ratio
0.13
0.14
0.14
-
0.07
0.02
0.01
0.01
Interest coverage ratio
42.6
28.96
27.84
-
59.77
45.68
44.53
72.77
Gross profit margin
13
12.9
12.77
-
15.61
15.83
15.02
15.34
turnover Liquidity Ratios
Solvency Ratios
Source:https:// www.eq
Source http://w ww.mon
Category
Indicator
Industry Average of Top 5 Firms or players serving 75-80% of the market 201112
Profitability Ratios
uitymas ter.com/ researc hit/comp are/com pare_co mp.asp ? symbol =ASPNBRGR& value= ASIANPAINTSBERGER PAINTS &utm_s ource= compar ecompan ypage&u tm_med ium=we bsite&u tm_cam
201213
201314
2014-15
Market Leader 201112
2012-13
2013-14
2014-15 eycontro l.com/fin ancials/a sianpaint s/ratios/ AP31
Category
Indicator
Industry Average of Top 5 Firms or players serving 75-80% of the market 201112
Market Leader
201213
201314
2014-15
201112
2012-13
2013-14
2014-15
paign= compar e-withbottom &utm_c ontent= change Operating profit margin
17%
15%
15%
15%
16.81%
17.24%
17.05%
17.25%
Net profit margin
9.23
9.99
8.50
11.11
11.38
11.54
11.03
11.39 http://w ww.mon eycontro l.com/fin ancials/a sianpaint s/ratios/ AP31
Return on assets (ROA)
16.26
15.27
13.69
-
22.16
20.11
18.97
44.10
Return on equity (ROE)
31.97
30.68
28.07
-
38.30
34.74
32.74
31.69
Price to
25.27
33.33
36.43
57.50
32.40
44.89
44.84
61.49
Category
Indicator
Industry Average of Top 5 Firms or players serving 75-80% of the market
Market Leader
201112
201213
201314
2014-15
201112
2012-13
2013-14
2014-15
PEG Ratio = (P/E Ratio) / Projected Annual Growth in Earnings per Share
1.77
2.07
3.24
5.24
1.17
1.78
1.9
4.54
Price to Cash Flow
19.10
22.77
25.67
-
25.2
31.3
30.7
29.85
Price to Book (P/B)
7.15
9.23
8.68
12.32
12.48
15.60
14.56
18.34
Price to Sales 0.16
0.20
0.17
-
0.036
0.047
0.045
0.07
Dividend Yield
1.21
0.91
0.95
0.54
1.24
0.94
0.97
0.66
Dividend Pay-out Ratio
32.16
29.87
33.35
-
38.8
39.6
41.7
37.73
Enterprise value (EV is market
13.10
20.07
22.04
35.05
30.7
46.69
51.74
76.4
Earnings (P/E) Valuation Ratios or Price Ratios
Category
Indicator
Industry Average of Top 5 Firms or players serving 75-80% of the market 201112
201213
201314
2014-15
Market Leader 201112
2012-13
2013-14
2014-15
2144yrs 5.00%, 4557yrs2.00%
21-44yrs - 5.00%, 45-57yrs2.00%
21-44yrs - 5.00%, 4557yrs2.00%
21-44yrs - 5.00%, 4557yrs2.00%
Source: https://www.as ianpaints.com/ pdfs/companyinfo/investors/ financial_resul ts/AR1314.pdf - page 70
Source: https://www.a sianpaints.co m/pdfs/compa nyinfo/investors/ financial_resul ts/AR %20201415.pdf page 70
4.8%
5%
5.3%
Source: https://www.as ianpaints.com/ pdfs/companyinfo/investors/ financial_result s/AR13-14.pdf - page 112
Source: https://www.as ianpaints.com/ pdfs/companyinfo/investors/ financial_resul ts/AR1314.pdf - page 112
67%
67%
62%
Source https://www.as
Source https://www.as
https://www.a sianpaints.co
capitalisation plus debt minus cash ( Thousand crore) Staff Turnover or Industry Attrition Rate Competitive Ratios
Source https://www. asianpaints. com/pdfs/co mpanyinfo/investor s/financial_r esults/AR1213.pdf pg.79
Staff Cost/ Salary as percentage of Sales
7.19%
Operating Expenses as
79.13%
4.63%
71.01%
4.69%
70.81%
4.48%
66%
Source https://www.as ianpaints.com/ pdfs/companyinfo/investors/ financial_result s/AR12-13.pdf - pg.79
Source: https://www.a sianpaints.co m/pdfs/compa nyinfo/investors/ financial_resul ts/Q3FY15%2 0results.pdf
Category
Indicator
Industry Average of Top 5 Firms or players serving 75-80% of the market 201112
201213
201314
2014-15
Market Leader 201112
2012-13
2013-14
2014-15
ianpaints.com/ pdfs/companyinfo/investors/ financial_result s/AR12-13.pdf - pg.45
ianpaints.com/ pdfs/companyinfo/investors/ financial_resul ts/AR1213.pdf - pg.45
m/pdfs/compa nyinfo/investors/ financial_resul ts/Q3FY15%2 0results.pdf
1.4
1.9
2
Source https://www.eq uitymaster.co m/researchit/companyinfo/detailedfinancialinformation.as p? symbol=ASPN &name=ASIAN -PAINTSDetailedFinancial-Data
Source https://www.e quitymaster.co m/researchit/companyinfo/detailedfinancialinformation.as p? symbol=ASPN &name=ASIA N-PAINTSDetailedFinancial-Data
SOURCE https://www.a sianpaints.co m/pdfs/compa nyinfo/investors/ financial_resul ts/Q3FY15%2 0results.pdf
23%
19%
0.23
Source: https://www.as ianpaints.com/ pdfs/companyinfo/investors/ financial_result s/AR13-14.pdf - page32
Source: https://www.as ianpaints.com/ pdfs/companyinfo/investors/ financial_resul ts/AR1314.pdf page32
https://www.a sianpaints.co m/companyinfo/investors/ financialresult.aspx
4%
4%
5%
5.4%
Source https://www. asianpaints. com/pdfs/co mpanyinfo/investor s/financial_r esults/AR1213.pdf -
Source: https://www.as ianpaints.com/ pdfs/companyinfo/investors/ financial_result s/AR13-14.pdf - page 113
Source: https://www.as ianpaints.com/ pdfs/companyinfo/investors/ financial_resul ts/AR1314.pdf - page
Source: https://www.a sianpaints.co m/pdfs/compa nyinfo/investors/ financial_resul ts/AR %202014-
percentage of Sales
Depreciation as percentage of Sales
1.89
Fixed Assets to Sales Revenue
12%
Advertising as percentage of Sales
5%
1.53
20%
5%
1.52
21%
5%
1.87
-
-
Category
Indicator
Industry Average of Top 5 Firms or players serving 75-80% of the market 201112
201213
201314
2014-15
Market Leader 201112 pg.44
*****Data is extracted using Bloomberg Terminal and Ace Equity Software.
2012-13
2013-14
2014-15
113
15.pdfpage 204
2.6 PESTEL Analysis Category
Description
Key factors for analysis
Rationale
Political
The political scenario will consider some key factors as changes in political scenario affects industry immensely
a) Democracy
a) India is the largest democracy which is a positive factor for the industry growth.
b) Stability c) Taxation Policy d) Attitude e) Govt. Influence
b) Government is more or less stable, Especially after the inception of Modi govt, faith in the Govt. has further elevated, which will lead to more consumer spending c) Reduction in excise duty and custom duty on raw material and final products. d) Political consensus on economic reforms and higher target of growth of the economy e) Less control of Govt. and hence its market oriented.
Economic
Economic factors could easily be one of the most important factors. As 70% of the paint industry (decorative) is a luxury item so the economic state of the environment will play a major role.
a) Growth b) Excise Duties c) Correlation with GDP d) Costs of raw material e) Exchange Rates f) Inflation rates
a) Over the last ten years, the industry has grown at a compounded annual growth rate (CAGR) of 12-13% the sector is expected to post a CAGR of around 16.2% during 2013-14 to 2015-16, according to a report. b) The duties for this industry were last impacted in 2012.The Union Budget, 2012 brought more negative impact than a relief for the Paint Industry. While the cut in customs duty on Tio2 7.5% will help in improving margins of the industry, the increase in the excise duty to 12% on paints will make different paint products dearer. On the other hand, thrust on infrastructure sector and rural development will also aid the industry growth c) There is positive correlation. And this is good thing for the industry because India’s GDP is on the rise d) With the current decrease in oil and petroleum prices, the industry is benefitting substantially. Most of the raw materials are petroleum
based. Thus paint companies benefit when the petrochemical industry goes into its cyclical downswing e) Most paint companies are hit by the fact that they do not make the raw materials themselves, leaving the cost factor vulnerable to exchange rate fluctuation. For example, phthalic anhydride (PAN) is manufactured from orthoxylene and which goes into the production of paints along with titanium dioxide. Asian Paints is the only paint company that manufactures PAN. The other paint companies have to import their stock. Since PAN prices generally outpace international orthoxylene prices by almost 50% paint companies end up paying a fortune when prices rise. In such a situation Asian Paints benefits by selling PAN in the open market. Source: https://www.equitymaster.com/research-it/sector-info/paint/paint-inputs.html
f) For the last two years paint majors had been reeling under the economic slowdown. “The past couple of years have not been very rosy, but we are expecting a 12% volume growth this fiscal,” said Ramakanth V Akula, president (decorative) at Nippon India. Mainly driven by high vegetable prices (food prices soared by an annual 14.72%), the retail inflation rate accelerated to an all-time high of 11.24% in November (from 10.17% the previous month) According to him, another price hike may not be on the cards as a couple of them have happened already during the year. Source: http://www.business-standard.com/article/companies/inflation-woe-paint-firms-may-not-getto-see-rosy-picture-113121300725_1.html
Social
Social factors represent the culture of the society that an organization operates within.
a) Urban-Rural distribution b) Modernization
a) It has been found that while demand remained tepid in the Indian cities, consumption was rising in rural areas. The rural market has grown at a rate of around 20 per cent a year (in financial year 2013). The market size of the paint industry in India is estimated at around Rs 29,000 crore. Industry players expect close to 12% growth in business volume and 10-12% rise in turnover this financial year. The rural opportunity combined with easing prices of
They may include demographics, level of education, distribution of wealth and social classes, and lifestyle Technological
Technological factors refer to the rate of new inventions and development And it is very important in the paint industry due to the continuously changing consumer preferences and high competition
Rutile, a key raw material, promises 2014 to be a better year for Indian paint industry. b) Modernization of paint like (waterproof paints, Teflon coating, creating colour shops etc.)
a) Development on product side b) Development on Usage side c) Development on Aesthetics d) Development on environmental influence e) R&D facilities
The Indian paint industry has begun to look more like the FMCG industry where branding, distribution strength and innovative use of technology have become decisive aspects of growth against a backdrop of ever changing customer preferences. In Feb 2014, Asian Paints launched its Nilaya collection that deals with customizable paints. This existed out India and its introduction to the Indian industry will take it ahead in leaps and bounds. There have been innovations in the paint market both at the product technology and development level while the usage side has seen some changes. These have been with a view to create better and safer products, environment friendly paints, cheaper technology and better aesthetics Premium products account for less than 25% of the organized decorative paints market and has grown at more than 15% annually in the last few years. “India Paint Industry Opportunity Analysis 2018” research report by KuicK Research is an intriguing text that gives detailed facts and analysis on latest developments in the Indian paint industry. Asian Paints has one of Asia’s largest paint research laboratories, recognized by the Department of Science & Technology, Government of India. The R & D group is structured to provide separate focus to Industrial Paint Technology and Decorative Paint Technology. Our
‘Firsts’ in the paint industry specialized chemical resistant coatings, computerized colour matching, thermosetting, acrylic finishes and economic plastic emulsion paint.
Environment al
a) Impact of volatile organic compounds (VOCs) b) Lead free paints
a) The potent health effects of paints have made paint companies reconsider the composition of their products. This has led to the development of a new range of eco-friendly non-toxic paints. These eco-friendly paints aim to reinvent conventional paints so that serious health and environment implications are avoided. The ecofriendly paints available in India can be classified into the following three types:
c) Manufacturing processes
Zero-VOC paints: The level of VOCs in these paints is so low that they can be termed as ‘zero-VOC paints’. As per the EPA* standard, the total VOC content should be less than 5 gram per litre of paint.
d) Season and climate changes
Low-VOC paints: As specified by the EPA, these paints can have VOC concentrations ranging from 5 to 200 gram per litre of paint. Natural paints: These paints are made of natural compounds such as tree resins, water, plant oil, essential oil and natural dyes. They do not contain any VOCs. Water-based paints do not have an odour, while oil-based paints have a smell. Source: http://greencleanguide.com/2014/07/17/the-green-shade-of-eco-friendly-paints/
b) Steps by industry leaders in environmental efficiency: Asian Paints began its journey into non-toxic paints by removing lead and heavy metals from its paints. The company has also substantially reduced the VOC content in its paints to comply with international standards, as specified by the Green Seal Standard for Paints & Coatings Berger: Through their Green Horizon endeavour, the company
seeks to protect the environment by producing better products. Berger Paints has removed lead, mercury and chromium from its paints, which are toxic to the human body. The company has also greatly reduced VOCs (8.4 gram per litre in its Breathe Easy Emulsions) and decreased the content of aromatics so that their products have zero negative health impact. Berger Paints has also diversified into water-based paints, custom-made for the pharmaceutical industry. Their Breathe Easy Emulsions are also water-based. Dulux: The company complies with the highest environmental standards on paints, especially in the area of VOC content. Dulux promotes water-based substitutes actively through its website and other promotional activities Nerolac: All its manufacturing plants are ISO-14001 certified, which helps the company to achieve sound environmental performance. Recently, Kansai Nerolac launched a line of waterbased, low-VOC paints that has the National Test House (NTH) certification. Source: http://greencleanguide.com/2014/07/17/the-green-shade-of-eco-friendly-paints/
c) Three of the plants of Asian Paints - Bhandup, Ankleshwar and Patancheru - were awarded the BSC's much sought after "Sword of Honour", which is considered as the pinnacle of achievement in safety across the world. Up gradation of process technology in the same year has resulted in increased yield and therefore lesser pollution. For instance, the improved filtration process has resulted in higher filtration rates and lower losses. Use of natural gas as fuel - instead of furnace oil or diesel has not
only improved fuel efficiency but also reduced sulphur dioxide emissions by 77%. Solvent recovery plants - set up with an investment of Rs.1.8 million, these plants have resulted in almost zero solvent disposals and have already yielded a direct benefit of Rs.10.4 million. Rainwater harvesting – scheme developed by us has become the benchmark for industries. Rainwater harvesting has resulted in around 14.5 million litres being harvested in 2003-04 and used at the various plants of Asian paints. Source:http://www.ukessays.com/essays/marketing/business-enviornment-of-asian-paintsmarketing-essay.php#ixzz3SHuuYmNu
Legal
a) Pollution Control Law b) Health and Safety Law c) Environmental Law
Since India does not have guidelines on non-toxic paints, it is easier for the industry to abide with rules but it has still made changes in the contents of ots paints so as to meet the aware consumer’s demands. As of now the standards formulated by the Green Seal Standard for Paints & Coatings and the US Environment Protection Agency (EPA) are considered for all comparisons.
2.7 Porter’s Five Forces Analysis Porter’s Five Forces
Description
Key factors for analysis
Rationale
Buyer Power
Medium
Households and Industrial Users are the main customers of this industry.
Bargaining power of buyers: For housing requirements, the buyers can be customers (building contractors who buy in bulk) and end customers (people who paint/re-paint their house). Customers are more price
sensitive because for them number of options are available and decisions are made based on quality, price and differentiating factors (like weather protection, environment friendly paints). The unorganized market has also have a large chunk of market share providing many options to lower income segment. Whereas, Industrial segment is low margin high revenue business and buyers of these segments are knowledgeable about their needs. Therefore, price comparison is done effectively by the customers. However, The leading Industrial paint suppliers have their expertise in their favour, which limits the bargaining power of buyers. Thus, Bargaining power of buyer is Medium. Supplier Power
Medium
The Indian Paint industry is raw material intensive industry with more than 300 products going into the manufacturing of the final products
The raw material can be divided into different categories like pigments, additives, solvents, binders etc. Titanium Dioxide is one of the key pigment used in the production of paint and is facing a global supply shortage. Thus supplier of this material has solid bargaining power. Thus, Bargaining power of supplier is Medium.
Existing Competition
About 80% of organized market is created to by the four players of Indian Paint Industry.-Dulux, Nerolac, Berger, Asian Paints
But the current market growth rate can provide ample room of opportunity for all the players of the industry to flourish. However, competition will keep on increasing as market will get saturated, but this will take
some time to happen, till then one can keep satisfy customer need with good margin. Also, the presence of unorganized market does provide room for competition. Thus, on the whole competitive rivalry for the Indian paint industry is Low to Medium. Threat to new entrants
Threat to substitutes
Low to Medium
2.8 Strategic Group Mapping
Brand, distribution network, working capital efficiency, and technology play a crucial role
As it has been stated earlier that the paint market in Indian is dominated by few players, making it difficult for anyone new entering the industry to compete. Since new technologies are also available to shorten production life cycle of paint. Thus, Threat to new entrant is Medium.
Lime wash, Wall papers etc.
The availability of substitute is very minimal. In the rural areas lime wash is conventionally used as a substitute for paints. One alternative option for decorative walls available today is Wallpaper. Thus, the availability of substitutes in the Indian Paint Industry is Low to Medium.
X-axis: Service Y-axis: Quality
The map clearly shows that Asian Paints has differentiated from its competitors by service has a feature.
2.9 Competitive Landscape
Value propositions ( Low Cost, Differentiation, Niche)
Competitive Strength Assessment (Normal and Weighted) Porter 5 Forces Model In this context, we applied Porter’s Five Forces Model to analyse Indian Paint Industry. The paints and coatings industry is highly dynamic and one which poses several challenges to suppliers in the market. Strong price sensitivity, rising raw material prices and the resultant squeeze in profit margins are issues paint suppliers have to deal with on almost an everyday basis. To understand the competitive landscape of the paint market better, it can be useful to employ Michael Porter's model of market competition. In this model, one can analyse the paint market from 4 key angles: the buyers, raw material suppliers, potential new entrants and threats from substitute products being introduced into the market. After looking
at all these factors, this article will finally conclude what the key challenges are in this market and what companies can do to succeed in it. Buyers becoming stronger For any industry, the key factor affecting the competitive scenario in the market is the end-users or the buyers, and the paints industry is no exception to that. Paints are sold through direct sales as well through distributors. While architectural paints mainly follow the retail channels, industrial paints are sold directly to end-use companies. It has been observed that these buyers, both direct end-users and retail channel, are becoming increasing powerful with their growing bargaining power. End-users are demanding higher quality paint for the same or a lower cost. Paint manufacturers are continuously being forced to reduce prices, and those who fail to do so are losing out to the closely fought competition. In recent years, it has also been seen that, due to economic recession, end-users have lower purchasing power and this is forcing paint companies to reduce prices in order to keep up their sales volumes. High raw material prices squeezing paint supplier's margins To aggravate the situation, the cuts in price of product are being accompanied by increase in the raw material prices. Resins prices have been rising in the past few years for almost all kind of paints. Thus, paint companies are getting squeezed from both directions resulting in thinning of their profit margins. Another challenge on the resin front is that the introduction of newer technologies and newer types of resins are pushing out few conventionally used resins. Governmental regulations against paints containing volatile organic compounds (VOC) will be a major factor in throwing out certain kinds of paints from the market. This will definitely affect the resin situation in the market and would require the paint companies to adjust accordingly. Companies have to be proactive and cannot sit back and wait for other companies to act because these will be the companies which will surely lose out in the market in the medium run, if not the short. Large companies becoming larger Paint markets in Asia are dominated by multinationals and a few large local companies. These companies are now looking to expand in the region and almost all of them are looking at the golden goose of the region, China. Multinationals like Akzo Nobel have already done very well in this direction and have made a significance presence in
the Chinese market. Thai paint giant, TOA, is among the top local companies which are also aggressively looking at the Chinese market. Besides China, these large companies are also looking into new unexplored markets like Vietnam and Cambodia as these countries are showing tremendous growth potential for the paints industry. These countries are slowly opening up and purchasing power of customers is on the rise. This will encourage the growth of industries like construction and manufacturing and will correspondingly encourage paints. Besides being a growing market for sale of paints, Vietnam is also being looked at as an important country for production and export for various kinds of coatings. This is due to the low cost of labour and other resources making it an ideal manufacturing base. Paint consumer looking to other alternatives to paint Last among the key factors of competition in Porter's model is the threat from substitutes and this is one issue which is, slowly but surely, irking the paint suppliers. As countries in the Asian region become affluent, there is an increasing demand for more trendy and easy-to-use alternatives to paints. Colourful patterned wallpapers and wall panelling are being preferred by some for architectural use instead of regular emulsion paints. In terms of industrial use, the use of coatings for office equipment is decreasing significantly. Equipment suppliers prefer to use metallic finishes and oxidation process to give a more matt and sleek look to the equipment. Also, these metallic options are considered more hassle-free as there are no issues of paint chipping, re-painting etc. In conclusion Based on the above-stated factors, it can be clearly concluded that the paints & coatings industry is facing challenges from almost all directions in the competitive landscape. Paint suppliers have to act aggressively and efficiently to stay abreast in this highly competitive market. The key to success in this market lies in building a strong brand image through aggressive marketing strategies and gaining customer loyalties. Paint manufacturers have to be very creative in the way they package and sell their paints. This market, like many other markets, is moving towards being service-oriented rather than just being product-oriented. Companies need to sell more than just paint to flourish in this market. Companies have to understand their consumers' needs and preferences; and package products accordingly. Companies who do so promptly and efficiently are sure to see success in this market.
2.10 Market Segmentation Key Products and/or Services 1) Decorative
Regions The decorative paints account for approximately 75% of the total sales with Asian
Paints being the market leader. This segment caters to the housing sector. It is price sensitive and is a higher margin business as compared to industrial segment as it is used in protecting valuable assets. Urbanization has surged the demand for decorative paints. Easy availability of housing loan, rise in the level of income and shift in the perception of paints as having a protective value rather than mere decorative one, have been a few factors that have impacted the housing and thereby the paint industry positively. There is also seasonality involved in the demand for decorative paints with demand at its peak around festive time.
2) Industrial paints
Industrial paints cater to the Automobile Original Equipment Manufacturers (OEMs) for protection against corrosion and rust on steel structures, vehicles, white goods and appliances. With production and sales of passenger cars expected to grow, demand for automotive paints will continue to remain healthy. Kansai Nerolac is the market leader in this segment. The industrial paints segment is far more technology intensive than the decorative segment. Globally, the industrial paints segment accounts for a major share but over the next few years, the ratio of industrial paints to decorative paints is expected to be 50:50, more in line with the global trend. This industry is raw material intensive. As most of the raw materials are petroleum based, the industry benefits from softening of crude prices.
2.11 Buying Criteria Analysis of the Industry Parameter
Details
End-user Segments
Significance Attached (Low, Medium, High)
Consumption Pattern
Credit Policy
Quality
It describes the consumption pattern of consumers. Consumption pattern depends upon proximity, demographic and behaviour of the user It describes the purchase policy of customer. In case of B2B sales this is a consideration for a number of companies. It describes the quality of the product and service provided by the vendor to the end user.
Individual Customers SMEs Corporate
Business User
High Low Low High Low
Retailers Everyone
Medium
Impact of buying criteria on consumer choices Listing of key buying criteria for different consumer segments
The impact of the buying criteria is graded on the basis of the intensity and duration of their impact on the current market landscape. The magnitude of the impact has been categorized as described below: Low - Negligible or no impact on the market landscape Medium - Medium-level impact on the market High - Very high impact with radical influence on the growth of the market
2.12 Key trends and future developments Trends and Forecasts The market for paints in India is expected to grow at 1.5 to 2 times GDP growth rate in the next five years. With GDP growth expected to be over 7%, the top three players are likely to clock above industry growth rate. Demand in the case of industrial segment is also expected to increase.
The per capita consumption which is at 1.5kg, way below the consumption of the developed countries (20kgs), is expected to improve with the growing income levels, both in urban as well as rural India on the back of various government initiatives like NREGS, farm loan waivers, pay commission led salary hikes etc. Despite the positive figures, the Indian paint makers might see growth slowing in the coming months as a drop in the demand for homes, offices and cars is seen hurting the industry. A better focus on supply chain or distribution mechanism backed by aggressive promotion might turn the wheels of fortune and trigger unprecedented growth in the paint industry. The Indian paint Industry has a wide potential for growth which is demonstrated by the fact that the per capita consumption of paint in India is merely around 1 kg as compared to about 20 kg in the developed countries or a global average of about 15 kg. So, the absolute consumption of paint in India is definitely expected to rise. The market share of the organized sector is on an increasing trend. Also, the contribution of industrial segment will increase with the continuing economic development of the country. With India moving towards becoming a developed economy, the decorative to industrial paint ratio of 70:50 is expected to move towards the global average of 50:50. Thus the Indian paint industry is in its growth phase and is expected to grow at a rate faster than that of GDP. The future prospects of the industry are strong.
3 Company Overview 3.1 Company background Asian Paints Limited (APL) is involved in the manufacture and sale of industrial and decorative paints. The company’s product portfolio includes ancillaries, automotive and decorative paints. APL owns and operates 23 paint manufacturing facilities. The company has two operating segments Paints and Other segment. APL, along with its subsidiaries, operates internationally in 17 countries across South Asia, South East Asia, South Pacific, Middle East and Caribbean region through its
five corporate brands including Asian Paints, Berger International, SCIB Paints, Apco Coatings and Taubmans. The company has five direct subsidiaries, namely, Asian Paints (Nepal) Pvt. Limited, Asian Paints Industrial Coatings Limited, Asian Paints (International) Limited, Multifaceted Infrastructure (India) Limited and Maxbhumi Developers Limited. The company is headquartered at Mumbai in Maharashtra, India. Asian Paints is the only company in India to have won the prestigious Economic Times - Harvard Business School Association of India award on two separate occasions, once in the category of “Mini-Giants” and the other in “Private sector Giants”. The company has come a long way since its small beginnings in 1942. Four friends who were willing to take on one of the world’s biggest, most famous paint companies operating in India at that time set it up as a partnership firm. Over the course of 25 years Asian Paints became a corporate force and India’s leading Paints Company. Driven by its strong consumer-focus and innovative spirit, the company has been the market leader in paints since 1968. Today it is double the size of any other paint company in India. Asian Paints manufactures a wide range of paints for Decorative and Industrial use. Vertical integration has seen it diversify into Specialty products such as Phthalic Anhydride and Pentaerythritol. Not only does Asian Paints offer customers a wide range of Decorative and industrial paints, it even custom-creates products to meet specific requirements. To keep abreast of world technology and to protect its competitive edge, Asian Paints has from time to time entered into technology alliances with world leaders in the paint industry. It has a 50:50 joint venture with Pittsburgh Paints & Glass Industries (PPG) of USA, the world leader in automotive coatings, to meet the increasing demand of the Indian automotive industry. It has also drawn on the world’s latest technology for its manufacturing capabilities in areas like powder coatings and hightech resins - thus ensuring that its product quality lives up to exacting international standards, even in the most sophisticated product categories. The company places strong emphasis on its own in-house R&D, creating new opportunities by effectively harnessing indigenous creativity. The Asian Paints Research & Development Centre in Mumbai has acquired the reputation of being one of the finest in South Asia. With its team of over 125 qualified scientists, it has been responsible for pioneering a number of new products and creating new categories of paints. The R&D team has developed the entire decorative range of the company. The company boasts of state-of-the-art manufacturing plants at Bhandup in the state of Maharashtra; at Ankleshwar in the state of Gujarat; at Patancheru in the state of Andhra Pradesh; and at Kasna in the state of Uttar Pradesh. All the company’s plants have been certified for ISO 9001 -the quality accreditation. All the company’s plants have also received the ISO 14001 certificate for Environment Management Standard. The Phthalic Anhydride plant has been certified for ISO 9002 and ISO 14001 whereas the Penta plant has been certified for ISO14001. Asian Paints was one of the first companies in India to extensively computerize its operations. In addition to computerized manufacturing, computers are used widely in the areas of distribution, inventory control and sophisticated MIS to derive benefits of faster market analysis for better decision making. It is a continuously evolving company deriving its cutting edge from the use of innovative IT solutions. All the locations of the company are integrated through the ERP solution.
3.1 Timeline with key milestones and their strategic impact
1st February, 1942
Champaklal H. Choksi, Chimanlal N. Choksi, Suryakant C. Dani and Arvind R. Vakil get together to manufacture paint in a garage on Foras Road, Bombay. They name their company 'The Asian Oil & Paint Company.
1945
Asian Paints touches a turnover of Rs. 3,50,000, with an innovative marketing strategy "to reach consumers in the outmost corners of the country with small packs."
1954
Paints mascot, Gattu, the mischievous kid, was born.
1957 - 66
The family-owned company makes the shift to a professionally managed organization. Asian Paints embark on an ambitious mass marketing campaign, pertaining with thousands of dealers in small towns all over India.
1967
Asian Paints emerges as India's leading paint company ahead of any international competition.
1973
Asian Paints becomes public ltd company.
2002 Asian Paints was a market leader of Indian Decorative Paints with market share of 44%.
Asian Paints today
Asian Paints becomes India’s largest and Asia’s third largest paint company. Asian Paints is more than twice the size of its nearest competitor. It is one of the most admired companies in India. Present in 22 countries with 27 manufacturing locations. Asian Paints aims to become the 5th largest decorative paint company in the world.
3.2 Vision, Mission, Goals, and Strategic Themes 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.”
Mission “To provide paints as per market demand, ensuring desired level and quality of customer (dealer) service. Asian paints aims to become the largest decorative paint company in the world & to rank among the top five paint manufacturing companies of the world.”
Strategic Theme The company follows a three-pronged growth strategy - market expansion, acquisition and outsourcing. By taking the above steps, the industry leader in the decorative paints segment (market share: 35-37 per cent), and number two in the industrial segment (20 per cent share), plans to emerge frontrunners in the paint sector. Asian Paints' present focus is on smaller cities and towns, even villages, where walls, interiors and exteriors are mostly limecoated - and in the coming years most of them would be paint-coated, making them a major potential market for paint companies. The company will be investing around Rs 100 crores to expand its dealer-tinting line called Colour World, by adding another 2,000 systems as the demand for acrylic paints in smaller towns and cities is increasing and wood polish is another area where the focus is currently on. As part of market expansion and brand-building plans, the company has formed a consumer services division. A prospective customer can call the division's helpline and check out all about paints and even get a quotation to paint his house or shop a novel way to reduce the influence of painters over the customers' choice of brands.
The company intends to augment its production by debottlenecking its plant. This is expected to increase production by 80,000 tonne per annum (TPA) to 2.4 lakh TPA. The company is also on the lookout for acquisitions - both domestic and overseas. So far, the industry hasn't seen any mega mergers as there are very few [but large] players and because of low-entry barriers. So, this will be a major change. Asian Paints, in fact, has a considerable presence abroad, with 10 international joint ventures to its credit.
3.3 Key Product and Service Portfolio ASIAN Paints Asian Paints manufactures and markets industrial and decorative coatings. Along with that the company also provides home painting services and solutions. The company's key products and brands include the following: Decorative paint:
Interior wall paints
Exterior wall paints
Wood surface paints
Metals surface paints
Industrial coatings:
Protective coatings
Floor coatings
Road markings
Ancillaries:
Wall primer
Acrylic Wall Putty
Exterior Wall Putty
Wood Primer
Asian paints made a foray in automotive paints in the year 1997 with a joint venture with PPG Industries. The joint venture is called PPG Asian paints. The company manufactures body coatings and plastic coatings. Paint brands owned by the company are: Interior products:
Utsav
Tractor Emulsion
Premium Emulsion
Appcolite Advance
Royal Luxury Emulsion
Royal Shine
Royal Lustre
Royal Sensation
Royal Glitter
Royal Aspira
Royal Play
Royal Play Neu
Stucco
Dune
Safari
Textile
Kids World
Magneeto
Exterior products:
Ace
Apex
Apex Ultima
Ultima Protek
Ultima Metalics
Ultima Vibrants
Asian Paints
Colour Next
Wood & Metal Paint & Polish:
Premium Glossy Enamel
Satin Enamil
Touch Wood
Melamine
Pu Aqadur
Pu Polish
3.4 Core Competencies of the firm
Mass Customisation
Integrated Distribution System
1. R&D Research & Development has played a significant role in the growth of the organization. The company has continuously invested in R&D. The company has a dedicated Group R&D Centre in India. PPG Asian Paints has a robust R&D lab in Mumbai that specialises in colour development and troubleshooting.
2. Production Asian Paints have world class production facilities across the world. The company have 23 manufacturing facilities across the world.
3. Marketing & Sales Asian Paints puts forward a unique selling proposition. The Rural Marketing Initiatives started since 1960. Distribution is one of the main strategies of Asian Paints. Advertising & Promotional started in 1980s. Advertising Methods include Radio, TVCs, Print, and Internet.
4. Customer Service
Customers - the very core of all the business activities of Asian Paints. From the beginning, Asian Paints has fostered a customer-centric approach to business. A simple but unbeatable concept of "going where the customer is" drives all our retail strategies. Asian Paints efforts are continuously on to engage the consumer in the painting process and fulfil all the requirements related to the world of painting.
Strategic Alliances
The company has technical collaborations with PPG of the US for auto paints and powder coatings.
Asian Paints, via its Singapore-based subsidiary - Berger International - inks a technology and brand licensing agreement with PT Abadi Coatings Solusi, an Indonesian paint company.
Alliance with Nippon Paints of Japan for auto paints and with Sigma Coating of Holland for marine and anti-corrosion paints.
The company also have a strategic alliance with Protech Chemicals, Canada.
3.5 Business Model of the organization Organisation of International Business of Asian Paints
3.6 3rd Generation Balanced Scorecard (Amalgamation of 1st Generation BSC and Activity System Map) Strategic Linkage Model (Activity System Map)
3.7 SWOT Analysis SWOT Analysis 1. Comprehensive nationwide coverage of the market - urban, semi-urban and rural areas. 2. Great investments in fast-growing emerging countries
Strength
3. Widest product range in terms of products, shades, pack sizes different decorative, some in 150 shades, 20 different pack sizes; are available 4. The pricing strategy is oriented to middle/lower end consumers. 5. High quality MR and MIS; Paint Industry is quite strong in production-marketing coordination. Their policy of offering tailor-made products to suit customer need has resulted in an ever growing product range. 6. In-house production, no outsourcing, high reliability in suppliers, superior in quality assurance. 7. Leader in profit and operating margins, ROI of PI is 22%. 8. High calibre human resource employs maximum number of MBAs, as a proportion to total number of employees.
Weakness
1. In industrial paints, AP has only a 14% market share. It is far behind the leader Goodlass Nerolac, which has a market share of 43%. Since this is going to be the major growth segment in the future, a lag in this segment will end up as a major weakness. 2. Widening product mix puts strain on production distribution, accounting and administration. 3. Ever expanding product mix throws some strain on inventory management.
4. AP has a major weakness on the technology front in industrial paints. Most paint firms have technology tie-ups with manufacturers abroad. For example, Goodlass Nerolac has a tie-up with Kansai paints, which has provided the company with Cathodic Electro Deposition (CED) technology. Since Kansai is the supplier to Suzuki, Japan, Goodlass with its Kansai connection finds it easy to tap Maruti in India. AP has not been able to make any significant advances either with Maruti or the auto segment in general. Berger has a technical tie up with Herbets, Germany, for automotive paints, Valspar Corp, USA for heavy-duty coatings and Teodur NV, Holland for powder coatings.
Opportunity
1. AP has always encashed on opportunities that have come its way. It has maintained a product profile keeping the market trends in picture. It shifted to predominance in industrial paints than industrial paints than in decorative paints as was evident from the production figures of 1995-96. 2. The automobile industry accounted for 50% of the industrial paint market. 1. Domination of few foreign companies
Threats
2. Since both Goodlass Nerolac (43%) and Berger's (14%) have a higher market share than AP's (14%), it is possible that in the future, they may capture the entire industrial paint market. 3. Competitors have gone in for hi-tech with instacolour spot mixing. For example, J&N's instacolour offers 626 shades 4. Competition is catching up fast, hi-tech facilities gives abundant choices.
3.8 Competitor Analysis (identification of competitors)
3.8.1 Based on Critical Success factors Asian Paints
Berger Paints
Kansai Nerolac
Critical Success Factors
Weightin g Factor
Rating
Weighted Value
Rating
Weighted Value
Rating
Weighted Value
Distribution Network
0.1
8
0.8
7
0.7
6
0.6
Cost & Price Drivers
0.2
7
1.4
5
1.2
5
1.6
Technology
0.3
8
2.4
5
1.7
6
1.5
Working Capital Management
0.4
8
3.2
6
2.5
4
1.6
Overall
1
31
7.8
23
6.1
21
5.3
3.8.2 Based on Financial indicators Asian Paints
Berger Paints Ratio
Kansai Nerolac
Asian Paints
0.2
14.5
7.6
5.04
2.9
1.52
2.52
Debt-to-equity ratio
0.2
0.01
0.22
0.03
0.02
0.04
0.01
Interest coverage ratio
0.1
72.77
12.41
11.39
7.28
1.24
1.14
Net profit margin (%)
0.2
11.39
6.98
7.65
2.28
1.40
1.53
Gross profit margin (%)
0.1
15.34
10.42
10.62
1.53
1.04
1.06
Operating profit margin (%)
0.2
17.25
12.48
12.53
3.45
2.50
2.51
Overall
1
17.46
7.74
8.77
Financial Indicators
Weightin g Factor
Earnings per share
Berger Kansai Paints Nerolac Weighted Value
4 Future Growth Strategy for the organization 4.1 Portfolio Analysis
Decorative paints Product Width Interior Wall
Distemper Emulsions
Product line Tractor acrylic Tractor synthetic Utsav Acrylic Utsav synthetic Royale Play Tractor Emulsion
Cost Range Mid-Range Mid-Range Economy Economy Premium Economy
Enamels
Exterior wall Emulsions
Wood Surfaces
Apcolite
Premium satin ApcolitePremium Gloss Utsav Apex Ultima Apex Duracast Rough
Premium Premium Economy Premium
tex
Premium
Apex Duracast Fine tex Apex Aprex stretch Ace PU Exterior Matt PU Interior Glossy PU Interior Matt Melamyne Glossy Melamyne Matt Utsav
Premium Mid-Range Mid-Range Economy Premium Premium Premium Mid-Range Mid-Range Economy
Portfolio Analysis (Contd.) Asian Paints manufactures as well as markets decorative and industrial coatings and it provides solutions and services for home paintings. All the products of Asian Paints are of acrylic type with properties such as washable, long-lasting, leak proof and sunlight protected. Some of the main products of the company are as follows
Industrial coatings include Road markings, floor coatings and protective coatings.
Decorative paints include metal surface paints, wood surface paints, exterior wall paints and interior wall paints.
Ancillaries include wood primer, exterior wall putty, wall primer and acrylic wall putty.
Asian paints Royale – An interesting offering by Asian paints where they decorate your house with colors and Asian paints direct painters are involved in the process.
Along with the above paints, Asian Paints has been in the market of automotive paints. It is a joint venture with another company called PPG industries under the name PPG Asian Paints. The products include the manufacturing of plastic coatings and body coatings
Additionally, Asian Paints has acquired a 51% stake in Sleek Group, a leading player in modular kitchen space, for an undisclosed amount. The acquisition is in line with the company’s goal of becoming a complete home solutions provider in the next few years. Asian Paints is looking at more acquisitions in allied areas such as home furnishings and sanitary ware. The company is weighing several such opportunities which allow them to get inside a consumer’s home and sell more products. Sleek acquisition makes sense as modern kitchen space is at an inflection point with very few organized pan-India players and rapid growth.
4.1.1 Based on BCG Matrix
4.2 Company’s Strategic Roadmap for future The following data needs to be taken into consideration before Asian Paints lays out a strategic roadmap for the future:-
Market Shares of Companies Sources Worldwide
Paint Demand
Strategy for Globalization Asian Paints group operates in 17 countries across the world and is the largest paint company in eleven countries. The group operates in five regions across the world viz. South Asia, South East Asia, South Pacific, Middle East and Caribbean region through the five corporate brands. The strategy followed by Asian Paints for globalization is a mix of both International strategy and Multi domestic/localization strategy. The points supporting this claim is as follows:1. International Strategy
All the research and development centers of the company is in India. Asian Paints have a Research & Technology center at Turbhe on the outskirts of Mumbai. PPG Asian Paints, the subsidiary of Asian Paints Ltd have a R&D center in Mumbai and Chennai.
Asian Paints have 23 manufacturing facilities around the world. All of these facilities are managed by the corporate office in India.
2. Multi domestic/localization strategy The Group operates as:
Asian Paints in South Asia (India, Bangladesh, Nepal and Sri Lanka)
SCIB Paints in Egypt.
Berger in South East Asia (Singapore), Middle East (UAE, Bahrain and Oman), Caribbean (Jamaica, Barbados, Trinidad & Tobago)
Apco Coatings in South Pacific (Fiji, Tonga, Solomon Islands and Vanuatu)
Taubmans in South Pacific (Fiji and Samoa)
Each of these subsidiaries have their own customized product for the need of that market. Branding and positioning is also done in different way for different markets.
There are 23 manufacturing facilities for Asian Paint, of which most of them are outside India. Each of these use locally available raw materials to manufacture the final product.
The Strategic Future Roadmap of Asian Paints
Future IT Developments:
Extend Supply Chain Management (SCM) to sales forces.
Equip territory sales- in –charge with mobile communication devices such as PDA’s.
To automate and web enable product requests and invoices for better supply chain management.
Use of “Single SAP ERP Platform”.
4.3 Product Market Investment Strategy Country of Investment
Category of Investment
Industry Reward to Risk Ratio (A)
Country Reward to Risk Ratio (B)
Risk Adjusted Rewards ( 0.65A + 0.35B)
Product Market Investment Strategy
Investment Rationale
Singapore
Overseas Subsidiary Investments
1.5/1
1.2/1
1.395
Strategic Alliance
1.2/1
1.395
Acquisitions and strategic tie ups
Asian Paints (Internationa l) Ltd. (APIL), Mauritius has transferred its entire holding held in the subsidiary company, Asian Paints (Vanuatu) Ltd. to Berger International Pvt Ltd. Singapore Low operation costs, lesser freight
Source: http://www.eqsis.c om/asian-paintbullish-target-800/
Ethiopia
Mergers & Acquisitions
1.5/1 Source: http://www.eqsis.c om/asian-paint-
bullish-target-800/
charges and favourable policies
Ratio calculations based on reward and risk ratings from Business Monitor International Report – March 2015
4.4 Re-imagining the Organization with the transformed business model or Use-case based on SMAC and IOE Reimagining Business Models (Digital Disruption) Asian Paints is reimagining its business with SAP HANA and SAP Simple Finance. CEO of Asian paints is on stage to share his company’s cloud journey. Serving thousands of customers across 60 countries, Asian Paints is using SAP S/4HANA and SAP Simple Finance to transform its fast-growing business. Source: http://news.sap.com/bernd-leukert-explains-sap-s4hana-road-map-to-digital-transformation/
Reimagining Business Processes
Reduction in manufacturing process cycle time and advancement in productivity by different practices. Minimization of waste at the development time and recycling.
Assistance in marketing in USPs for demonstration and pushing of the new products.
Assistance to the Materials department by provision of alternate raw material to the current on. Also, increasing the negotiation power and elasticity in the supply chain.
Reimagining Customer Segments Asian Paints is reimagining its customer segment to follow a 5-Tier Customer Target Strategy:
Tier - 1 - On the recipient end there are strategic solution seekers. Company thinks of cost reductions, performance & productivity improvement for clients, improving customers' & shareholders' profitability.
Tier -2 - Here the customers can be considered as value or brand sensitive. Asian paints targets these customers with value added VDS integration customer level service. Tier -3 - These consumers are price sensitive. They are least bothered about the service. These are mainly middle or low income group people Asian paints have several brand like UTSAV - to serve them. Tier-4 - Here the company targets the small manufacturing & local companies, which can generate revenue. Company utilizes its business & telesales technology to address & satisfy their needs. Tier-5 - This tier is composed of specific targeted companies that although small in size, deserve special attention because they are highly innovative in nature. Asian paints have a good prospect over here.
Reimagining Products & Services The key is to adopt a smart knowledge management system that not only caters to existing organizational requirements but is also scalable for future needs.
Reimagining Workplaces Paint companies like Asian Paints are quickly shifting from a reactive approach to maintenance, to a preventive one, in the face of a volatile economic landscape, mounting costs of unplanned maintenance and the risk of environmental damage caused by operations in increasingly hostile environments
Reimagining Channels Acquire the assets of or merge with smaller players that have interests in unconventional sources and upstream assets.
