Set up in 1942, the Asian Paints group is the largest paint manufacturer in India also engaged in the business of manufacturing of varnishes, enamels or lacquers, surfacing preparation, organic composite solvents and thinners. It operates in 15 countries and has 26 paint manufacturing facilities in the world serving consumers in over 60 countries.
Besides Asian Paints, the group operates around the world through its various brands viz. Asian Paints Berger, Apco Coatings, SCIB Paints, Taubmans, Causeway Paints and Kadisco Asian Paints.
It also manufactures metal sanitary ware such as bath, sinks, washbasins and similar articles. Recently introduced Lightings, Furnishings and Furniture thus adding more products in the Home décor and Interior Design category.
Asian paints is the only business in the history of the planet which has grown revenues at 20% per annum for the last six decades now. Asian paints went public in 1982 and from 1982 to till today it has given a *return of 1800 times at 28% CAGR.* The business of Asian Paints doubles in every three year.
The company was founded by Mr Champak Lal Chowksi. He built a great *money machine* which cannot be matched till today. Till 1969, paint was sold as a FMCG product. Logistics chain of selling used to be a whole seller, a distributor and a dealer or retailer. The whole seller and distributor where taking almost 20% margins. The dealer or retailer were getting only 3%. Asian Paints removed whole seller and distributor and started selling directly to dealer. Dealers were not ready for this new change. They protested that they didnt have so much off space and money to store so much of inventory. Mr Champak Lal Chowksi offered dealers that every three hours Asian paints truck will come and replenish the inventory. People thought, he has gone out of his minds. How can you replenish four times a day. You have forty thousands dealers and how on earth would you deliver hundred and sixty thousands times a day. Remaining 28 years of his life, what Champak Lal Chowksi built was so powerful that even after 22 years after his death, nobody in their right minds can think of competing with Asian Paints across the globe. What did he actually do to build this kind of business which has created unprecedented competitive advantage and great MOAT? He made Paint, the only product in our country which goes directly from the factory to the dealer near your house. He ensured that there is no intermediary in between. He made the Paint, the only product which stocked and restocked 4 times a day and 28 times a week. Everything else you and I buy, is replenished once a week or maximum twice a week.
Asian paints is the only firm in India which takes home 97% of the MRP. 3% goes to the dealer. Every other product in India, 30-40% of MRP goes to this logistic channel and 60% is taken by the manufacturer. So, *60% for everybody else and 97% for Asian Paints*. Today, they have more than *seventy thousand* dealers and they deliver almost three lakhs times a day. Number two company Berger delivers forty times a day and number three company Akzo Noble delivers ten thousand times a day. How does Asian Paints does it in a country where infrastructure and logistics are nothing to talk about atleast till the last decade. Asian Paints does it with the help of technology. In 1970, Champak Lal Chowksi spent rupees 8 crores to buy first super computer of India, 10 years before ISRO or any IIT and 20 years before any other company in India. The world finest ERP implementation is NOT Amazon or Walmart but Asian Paints. What they could achieve is simply amazing and unmatched.
Behind this remarkable network architected by Champaklal Choksey, is 50 years of proprietary data on paint demand for each neighbourhood in India, for every hour of the day, for every day of the year. That allows Asian Paints to forecast your paint demand just like Amazon can second guess what you will buy when you visit their website next. What colours are selling, what quantities are selling and what tin sizes are selling. This mountain of data is their selling machine and with every passing day this data is going up and up. With this kind of data and logistics, the smartest people in the paint industry say that nobody in their right mind should think about competing with Asian Paints. Their data gives them the power to predict sales of every dealer with more than 95% accuracy. It is all automated. Asian Paints’ proprietary data, its forecasting ability and its distribution network give them a working capital cycle of 8 days. From raw material to cash in bank in 8 days. Nobody else in the paint sector comes remotely close to Asian Paints on this metric. The next nearest competitor Berger Paints, who is one third in top line(sales) than Asian Paints; working capital cycle is 45 days. Asian Paints ROCE is between 35-40, Berger Paints ROCE is between 20-25. Akzo Noble( earlier ICI) is one tenth the size of Asian Paints; working capital cycle is 105 days and ROCE is 16%. The above story has been told very passionately by Mr Saurabh Mukherjea of Marcellus Investments, in his many TV shows.
While Nerolac and Berger together deploy about 46,000 tinting machines through their dealer network, Asian Paints alone has 50,500 machines.
You will be surprised to note that the best paint in India is made by Akzo Noble but best paint company in India is Asian Paints.
The company is also focused on R&D and introduces 25 colour additions every year. They also have installed paint dispensing (NNG) machines with almost all retailers which saves them warehousing and encourage retailers to sell Asian Paint products. This also acts as a solid moat. Therefore, Economic Moat category gets 5 stars in Asian Paints shares fundamental analysis.
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CONCLUSION
No company can sit on the laurels and performance of the past. It is a highly competitive market and to maintain the leadership position, the company has to keep innovating and expand the business in the related field. Asian Paints has remained focused through its journey and kept on entering the business of tiles, kitchenwares and bath and sanitaryware which are all related to paint business. The company has never tried a new business where they don't have any expertise and knowledge. Businesses fail when the promoters start foraying into unrelated fields where they have no expertise and knowledge. The glaring examples of failure are unitech foraying into the field of telecom. ADAG group entering all kinds of businesses. Sun Pharma's founder Dilip Shanghvi buying 23% stake for 1800 Cr in Suzlon, JP Associates started entering all kinds of businesses with very high leverage. There are many more examples.
Presently, the stock is highly priced. But you will never find such consistent compounders under priced. It has always been trading at higher valuations than its peers. You need to be patient or to have a strategy to buy such stocks.
Asian Paints is a leader in an industry that’s mature and fairly stable. Today, the company earns more than ₹ 21,000 crore in revenue, more than the combined revenue of the three largest incumbents. It earns the highest margins in the industry and commands a market share of more than 50%. No wonder then that people pay such high premiums for the stock. It's not a gem but a KOHINOOR of Indian Stock Market.
REFERENCES
https://finshots.in/markets/
https://www.google.com/amp/s/
https://www.topstockresearch.
https://marcellus.in/blogs/
https://investyadnya.in/stock-
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