Why Asian Paints isn’t actually a Paint Company!

Asian Paints is not a paints company, it’s a supply chain company! 

Yes, you read that right. India’s largest decorative paints company with ~50%+ market share is actually a supply chain behemoth, at its core. We will get to the fascinating bit in sometime, first let’s take a brief look at the company’s profile. 

Whenever one thinks of Asian Paints, one thinks of ‘monopoly’ too. And that’s pretty much the case. Asian Paints has not let any other player touch its market share in the decorative paints segment in the country. 

The company was incorporated in 1942, and in 25 years, Asian Paints became the largest paint company in India. To give you a sense of Asian Paints’ size, their revenues for FY22 were ~₹29,500 crores and the second biggest player – Berger Paints’ revenues for the same period was ~₹8,830 crores. That’s 3.3x higher and similar is the case with net profits with ~₹3,030 crores versus Berger’s ~₹832 crores. With a modest profit of ₹46 lakhs on a revenue of ₹23 crores in 1952, they have come a far way!

From a fundamental standpoint as well, Asian Paints is second to none with the best margin profile coupled with strong return on equity and superior cash flows. The table below is a representation of the same.   

Now, it’s a given that they have a quality product line, or else being a monopoly is impossible. But that’s not their secret sauce when it comes to the unshakable business growth they have witnessed. 

What’s the secret sauce then?

It is their supply chain/inventory management. You see, whenever a company is involved in manufacturing bulky products (paint boxes, oil containers, machinery equipment), sound inventory management almost becomes quintessential. Not only is it cumbersome to churn these bulky products, but also they require the business to incur storage and handling costs.

Now, if you visit any of the paint shops in the country, you will see the dealer telling you why Asian Paints is an unbeatable proposition for him. That is because, every 3 hours the stock at this dealer’s shop is getting churned by Asian Paints, making his life much easier when it comes to inventory management. 

On the downside, Asian Paints gives the lowest margin to its dealers (~₹3/litre) as compared to other players who give as high as ₹15/litre.

Then, why is the paint dealer willing to stock Asian Paints’ products even at such low margins? The reason being in this business, inventory space is the most precious asset for the paint dealer. If a company’s products stay stacked in the dealer’s shelves for long, he not only bears the opportunity cost, but also the storage cost. Here, the opportunity cost is products from other companies which he could have stocked and in turn sold. Therefore, if Asian Paints can spin through the inventory every 3 hours versus other players who take as long as 2 days, the ball falls on Asian Paints’ court. 

Mind you, this is one paint dealer we are talking about. Asian Paints does this for 75,000+ dealers. How do they do it? Logistics and tech prowess.

That was from the supplier’s perspective. Let’s shift our focus to the buyer’s perspective.

Asian Paints is just not selling paints, but rather the experience of buying those paints. They have conceptualized experience stores – Beautiful Home Store that takes the customer through an immersive journey of visualizing their homes with the new decor and paints. This is achieved with the help of Artificial Intelligence, isn’t that cool?

Although they are in the business of selling paints, the dedication with which they have invested human and material resources on business ancillaries is a masterclass in itself.

• Asian Paints has an extremely strong brand aspiration amongst the Indian consumers which makes it a fit for Windmill Capital‘s Brand Value smallcase.
• The company’s product is spread across the value chain and is a pull for India’s aspiring middle class and this agility in terms of addressing the needs of the value conscious customers makes it a fit for the Affordable Housing smallcase.
• We have seen strong fundamentals on company’s numbers, wherein they have a track record of increasing dividends (year-on-year), which allows it to make way to the Dividend smallcases.
• As a construction chemical major, the company is a natural fit in the Specialty Chemicals smallcase.

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Windmill Capital Team

Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. For more information and disclosures, visit our disclosures page here –https://windmillcapital.smallcase.com/#disclosures