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Asian Paints Limited: Painting History
J. RAMACHANDRAN AND JALAJ GARG
4. Ramachandran, Professor of Strategy and Jalaj Garg, Wharton MBA Class of 2013, prepared this case for class discussion.
This case is not intended to serve as an endorsement, source of primary data, or to show effective or ineMicent handling of
ecision or business processes Asian Paints Limited: Painting
story
‘September 2018. Asian Paints Limited ("APL") was the largest paint company in India, a postion it had
comfortably maintained for over five decades by focusing on customer needs and constant innovation in
products, marketing, and service delivery. Inthe last ten years, the company — which was also the tenth
largest paints company in the world — had grown its revenues over four times, is profit five times, and
its market capitalization nearly ten times (sce Exhibit 1). To further accelerate its growth and realize its
vision of being “India’s most exciting and inspirational home décor brand and business”, APL. was
investing over 240 Bn’ to double its decorative paints manufacturing capacity and expand its presence in
the home improvement (adhesives, waterproofing, et.) and decor space (modular kitchens, wardrobes,
cle). KBS Anand, Managing Director & Chie” Executive Officer, remarked"
‘We are in the midst of our largest capscity expansion .. [the two new] large plants would
ssive the company the ability to manufacture paints atthe lowest cost wel 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 APL's stock to “Sell” (witha target price of 8860, when APL was trading at €1,166):"
‘We are worried about Asian Paints’ capital allocation decisions around: (1) aggressive
capacity expansion; (2) entry into weak intemational 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, leave a thin coating that ean be for decorative (aesthetics) andlor protective (humidity ar, sunlight
lc.) purposes. They can also serve other functionalities as required (eg. fire retardation, luminescence,
solar reflection, waterproofing, inscet 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). Athough the benefits offered by paints can be achieved in other ways ~
by using different base materials (such as stairles steel instead of ion or PVC instead of wood or colored
bicks/cancrete 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 exis, these have not disrupted the paint industry per se.
Paint is a raw material intensive industry, with titanium dioxide (a pigment) crude oil (and derivatives),
and mineral turpentine oil as the major inputs. These raw materials typically constitute 15-20%, 35-4
and 6.7% of the overall raw material basket respectively, though it varies by product type. Commercial
‘manufacture® of paints began in Europe and “he United States in the 18% century. By the middle of the
Page 2 of 25 Asian Paints Limited: Painting History
19% century, traditional approaches that used manual power gave way to grinding and mixing machines,
By the second half of the 19* century, the chemical industry emerged and allowed major chemical
‘companies (e.g. Bayer, DuPont) to develop new innovations in paint technology. By the late 20" century,
‘production was done in batches of various tyres of paints depending on end demand of each type. While
large production volumes offered economies of scale, paints’ high volume-to-value ratio (that made them
‘expensive 10 transport) and the need for large varity dictated smaller scales of operation near end
markets
HISTORY OF INDIA’S PAINT INDUSTRY
‘The first manufacturing unit in India was set up in 1902 by International Paint (a British company). Other
tsh companies such as ICI, Jenson & Nicholson, and Berger followed soon and shaped the industry's
carly years. However, it was an Indian player ~ Asian Paints that became the industry leader inthe late
1960s. Several global players such as Nippon Paints (Japan), Sherwin Williams (USA), and Jotun
(Norway) entered the market following India’s economic liberalization inthe early 1990s. APL, however,
successfully defended its leadership position, and has dominated the industry for over five decades.
Demand for paint in India was closely correlsted with GDP growth (1.2-1.6x of the GDP growth). Over
the years the industry evolved from being a chemical product to more ofa consumer product. Increase in
Aisposable incomes together with a higher prepensity to consume and up-trading by consumers (in search
of superior products) resulted in strong indust-y growth. The industry grew six-fold ~ from %8,000° CF" in
2005 to over £50,000 Cr’ in 2018 (and expe-ted to grow to £70,000 Cr by 2020) ~ outperforming other
consumption categories such as packaged foods, beauty and personal care, and apparel. Despite this
robust growth, India's per capita paint cons amption of 25-35" kg was much lower than developed
countries and global peers such as China (~12.8 kg) and Brazil (~7.0 kg), signaling considerable growth
potential
In 2018, the Indian market was dominated by four players ("paint majors”): APL, Berger, Kansai
Nerolac, and Akzo Nobel (sce Appendix for competitor profiles). This competitive order had been quite
steady (see Exhibit 2) with low disruptions in terms of pricing or discounts, prompting many to describe
it as a cozy oligopoly. This structural characteristic meant that companies could pass input cost
fluctuations to customers and grow profitably. Their scale, distribution muscle, and product development
capabilities afforded the paint majors considerable advantage over the smaller and unorganized players.
‘The small and unorganized sector consisted of about 2,500 units that were typically located in smaller
cities and focused on lower value decorative products (that had lower technology and quality
requitements), Historically these units had an advantage over the organized players with respect to excise
duties and taxes. Reduction in excise duties (from 40% to 12%) followed by the introduction of the
Goods and Services Tax (GST)" eroded this advantage. Also, since pricing was the only lever for the
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Page 3 of 28 Asian Paints Limited: Painting History
smaller players, their market share steadily declined from 45% to 35% over the last decade. Unlike some
FMCG products (eg. biscuits, detergents), ou:sourcing in paints was limited to lower-end products, The
top four players purchased about 30% of ther otal sales volumes, with the rest manufactured in-house
PRODUCT SEGMENTS
Paints can be classified into two primary prosuct segments: Decorative/Architectural paints and Industrial
paints (see Exhibit 3). At 70-75% share'®" of the overall Indian paints market in value terms, the
decorative segment was significantly larger than the industrial segment. Internationally, though, the
‘industrial segment was typically lager in developed economies, with the global average being 58%.
‘The decorative segment comprised exterior end interior wall paints (emulsions, enamels, distempers),
primers, varnishes, putties, ete. Their demand stemmed!” from residential (35-40% repainting, 20-25%
new houses), commercial (offices, malls; about 25%) and industriaVnsitutional (about 15%) users, and
saw significantly higher demand during the festive season (September to December.
Distribution in the decorative segment was direct to real; there were no wholesale distributors who broke
bulk or helped manage credit to retailers. Henze, paint companies needed to directly deal with thousands
of retailers and manage credit with them (on average, the industry gave credit of three weeks to retailers),
‘Over the years all the paint majors had invested heavily in expanding their distribution network (see
Exhibit 4), particularly in rural India. They had also installed Computerized Color Dispensers (“CCDs”)
‘or tinting machines at a large number of their dealerships. These CCDs could produce large variety of
shades using a small set of standard colors, thereby minimizing inventory requirements at points of sale.
‘Though CCDs were pioneered in India by Jenson & Nicholson, all paint majors adopted them. CCDs
were manufacturer-specific and required significant space (25-35 sq, f.); making it very difficult for a
new company to penetrate existing outlets. CCDs had a payback period of three to five years, and
‘ypically paint companies helped their dealers finance the intial outlay of &3-4 lakhs" per CCD.
‘White buying continued to be heavily influenced by painters, contractors and dealers, involvement of end
‘consumers in the purchase decision was gradually increasing, Paint consumers were becoming less price-
sensitive and were willing to pay a premium for better products and brands. The industry therefore
witnessed a huge growth in premium produets since the late 2000s, This trend was homogencous across
India, including in small cities. Creative marketing campaigns and sustained endorsements by celebrities
evolved this hitherto low involvement consumer category into an aspirational brand play and created
strong brands forthe paint majors, a facet that was challenging for new and smaller players to replicate.
‘That said, the brand spend ofthese paint companies was generally lower than that of FMCG players.
Both these aspects ~ distribution and brand — enabled the top four players to command considerable
pricing power. They were able to passthrough cost inflation to consumers at times of high inflation, with
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Page 4 of 28 Asi
‘ants Limited:
inting History
APL usually serving as the benchmark. Short periods of disruptions notwithstanding, the leading players
reportedly maintained competitive order in terms of pricing and promotions.
In contrast, competition in the industrial segment was fierce. High volumes made up for relatively low
margins. This segment generated demand" from the automobile sector (OEMs and component
‘manufacturers; about 45%) and a few non-automobile sectors including manufacturing equipment (high
performance coating; about 25%), consumer darables (powder coating; about 15%), and some others (e-8.
marine). Products as well as paint application and delivery equipment typically had to be customized and
jointly developed with the customer. Consequently, this segment was more technology-intensive than the
decorative segment, and required considerable balance sheet strength (for R&D and capex) onthe part of
the paint manufacturer. It was, therefore, dominated by the organized sector. Strong client relationships
that often spanned multiple geographies were ertical. Investing in customized products commanded
‘considerable loyalty from customers, nd unlike in the decorative segment, distribution strength was not
key differentiator. However, a minimum reach was required to provide efficient aftersales service
GROWTH DRIVERS
Rising consumer aspirations were a key growh driver. Increasing disposable incomes resulted in shorter
repainting eycles. In urban centers, repainting cycles shortened from 5-6 years a decade earlier to 2-4
‘years, driven, in part, by the introduction of end-to-end painting service solutions by paint companies.
Similarly, rural cycles decreased from 7-8 years to 5-6 years. Consumers also tended to spend more per
ceyele than earlier (c.g. upgrading from limewash, locally known as chuna, to more expensive products)
‘As DS Rawat, Secretary General, ASSOCHAM.”" pointed out:*
‘The Indian paint industry has seen a gradual shift in the preferences of people ftom the
traditional whitewash to higher quality paints like emulsions and enamel paints.
Increasing urbanization and greater awareness about the protective benefits of decorative paints were also
‘expected to drive demand in ticr-2 and tier3 towns and rural areas. Conversion of kuchha houses
(temporary; made of weak materials such as mud or clay) to pucea ones (permanent; solid) inthe rural
sector — an outcome of higher rural disposable incomes ~ also benefited the paint industry's growth
‘Government schemes such as “Housing forall” (by 2022), “Smart Cities Mission”, and “Shyama Prasad
“Mukerji Rurban Mission" were also expectec to give fillip to the demand for decorative paints
In the industrial paints segment, India's growing automotive market was a major factor driving growth
Going forward, the growing consumer durasles (e.g. refrigerators) sector was also likely to play an
important role. The government's “Make in India” campaign and the push for infrastructure development
(pors, roads, power, ete.) would also drive demand.
Page $ of 28 Asian Paints Limited: Painting History
AL'S COLORFUL JOURNEY.
[APL was founded in 1942 by four young entrepreneurs — Champakla! Choksey, Chimanlal Choks
‘Suryaknat Dani, and Arvind Vakil ~ ina garag> in Foras Road in Mumbai. Realizing that it would be hard
to compete against the multinational incumbents in the industrial segment, APL opted to focus on the
decorative segment. It sought to differentiate itself in terms of product (vibrant colors versus the light
shades on offer back then), packaging (small packs that allowed customers to paint just the front end of
the house), and target markets (focus on semi-urban and rural areas that remained below the radar ofthe
incumbents). The focus on semi-urban and rural areas required APL to develop and invest in a strong
dealer network, a practice that it continued to follow. Success with its initial advertising efforts and
innovative promotional campaigns (that targeted, for example, local festivals such as Pola during which
Maharashtrian farmers decorate their bulls) eventually led to the creation ofthe mascot Gattu. It became
‘one of India's most recognizable advertising symbols, and more importantly, fostered a strong belief (that
persisted) within the company on building strong brands and effective messaging. Product innovations
such as washable distemper — which were significantly better quality, and less expensive vis-i-vis
traditional dry distempers(limewash), but of more inferior quality than plastic emulsion paints ~ spurred
the company to market leadership. By 1967, APL was the largest paint company in India
SUSTAINING LEADERSHIP
The 1970s and 1980s were periods of high growth for APL. The company modemized its existing
‘manufacturing facilites (is plant in Mumbai (Westem India) reportedly became the largest single paint
Factory in the country), and later expanded its manufacturing footprint by setting up plants in Patancher
near Hyderabad (South India) and Kasna, Utar Pradesh (North India). It also backward integrated into
production of resins and other raw materials used in paint production,
{In 1982, APL raised money from public capital markets to fund growth. It was among the firs businesses
in India to buy a state-of-the-art mainframe computer, and used it to improve demand forecasting,
production planning, reduce inventory and werking capital, and improve service levels to dealers. A color
‘computer imported in 1979 helped dramatically reduce the tinting time from 5-6 days to 4 hours.
‘To grow and strengthen its talent pool, APL departed from the traditional practice among Indian family
managed businesses of leveraging the family network. Instead, it started hiring graduates from premier
engineering (Indian Institutes of Technology) and business schools (Indian Institutes of Management).
‘This was yet another practice it followed even in 2018. It encouraged these hires to take ownership of
problems and assigned significant responsibil ties to them early in their career. According to Jalaj Dani, a
‘member of one of the founding families, “it was never a crime to make mistakes at Asian Paints and the
‘company still believes so.”
A structured process of taking feedback from dealers and its sales force resulted in the launch of the
highly successful Mera Wala Color (ny choice of color) marketing campaign in 1992
Chttps:/ww youtube com/watch?v=191ZeSkKbac). The campaign showcased the company’s extensive
Page 6 0f 25 Asian Paints Limited: Painting History
range of colors on offer, and made the consurner fel that she was in charge by enabling her to pick the
exact shade that she considered perfect for her. Amit Syngle, Chief Operating Officer, observed:"*
‘The tagline became so popular that people would go up to stores and ask for mera wala
‘lue or mera wala green .. I became a generic term and showed the involvement of
people with the campaign.
‘A year later, building on the insight that people paint ther houses on festive occasions and family events
such as weddings, APL launched the Khushi Ke Rang (colors of happiness) campaign
(tips: ww youtube com/watch?v=H-Yy-MmmuP8). It sought to establish a strong emotional connect
with the consumers by linking itself to the spirit of joy and festivity. These efforts clearly helped. For the
first time in 1997, the company — traditionally a leader in the middle and lower segments of the market —
«gained leadership of the premium segment. Its Royale brand dislodged the long-standing leader Dulux
from ICT India, the Indian subsidiary of ICI Pe.
Growth ofthe passenger car market in India, following the entry of Maruti Suzuki, prompted Asian Paints
to foray into the automotive segment. Though the company entered intoa technical tie with Nippon Paints
of Japan to source the requisite technology, it failed to gain much traction, Meanwhile, the automotive
sector continued to grow, driven by the entry af global majors in both the two-wheeler and passenger car
segments. In a change of strategy, APL set up a joint venture called PPG Asian Paints with PPG Inc
(formerly Pittsburgh Plate Glass) ~ the world’s largest coatings company ~ in 1997 to eater to the
automotive OFM segment. The joint venture 5ecame the second largest player behind Kansai Nerolac in
the OEM segment, and the largest in the auto refinish segment (after acquisition of ICI India’s auto
refinish business in 2007). APL and PPG formed another joint venture in 2012 called Asian Paints PPG
for non-automotive industrial coatings.
BATTLE FOR CONTROL,
‘The year 1997 also found the promoters bating for control of the company. After falling out with the
other promoter families over plans for the company's future and certain governance matters, Atul
(Choksey ~ the then Managing Director and son of co-founder Champaklal Choksey ~ sold the family’s
9.1% stake to Kotak Mahindra Capital Comoany, which further sold it to ICI Ple. The other three c0-
Founders and the company's Board viewed this as a takeover threat and refused, as permitted by the then
prevailing laws, to ratify the transfer ofthe shares to ICI Plc. The British major, however, maintained that
this was not a hostile bid and contended that it sought to acquire the stake with the twin objectives of (a)
pre-empting another competitor (reportedly PPG) from buying it, and (b) exploring a strategic alliance
‘with Asian Paints to leverage its strength in the middle and lower segments of the market where ICT had
litle presence. ICI Chairman AS Ganguly (ex-Chairman, Hindustan Lever Limited) also stated that “[the
company] will explore any position whereby twill be able to gain a dominant position inthe market.""”
Ashwin Dani, who took over as Vice Chairman and Managing Director following the exit of Atul
CChoksey, viewed the entire process asa hostile effort to take over the company. He said"
Page 7 of 28 We have the best of technology and the marketing expertise. We do not see any scope for
ICI helping us in our business.
Later, reflecting on the development, he added"
‘Value for money is embedded deeply in the psyche of the Indian consumer. No other
market in the world is as deep rooted as India in terms of value for money . ICT} does
not have distemper paints. And we sell huge quantities of distemper paints. This is poor
‘man’s paints. Globally not many players sell distemper .. They service only class. We
service class and mass both. What's more, am making reasonable profit from distemper
sales and there is growth too in that sezment.
‘After ICI failed to receive permission from the Indian government (which could not do so without the
consent of the APL Board), Kotak Mahindra Capital Company sold half ofits stake to UTI (a mutual
fund) and the other half back to the other three promoters, thereby ending the corporate battle
CONSOLIDATING LEADERSHIP
APL hired strategy consulting firm Booz Allen Hamilton in 1997-1998 to help achieve its new and
ambitious growth plans, and to put in a place «structure that separated the roles of ownership, governance
and management. Based on the recommendations, the company restructured its business into theee
Strategic Business Units (Decorative Paints, Industrial Paints, and International Operations) Since APL.
considered itself to be a promoter-driven but professionally managed company, each new SBU was to be
Iheaded by a professional manager. Ashwin Dani said:
We have a perfect blend of entreprercurial and professional management. If a manager
has a bright idea, he has the full independence and support to develop it: he becomes the
‘owner of the management process.
‘The promoters also agreed among themselves that sale of shares by any one of them should have the
consent of the other two, Also, all major decisions were to be taken by consensus. With this new
‘understanding, the management set about consolidating the company’s leadership position."
STRENGTHENING DISTRIBUTION
‘The company followed up on the success of tie Mera Wala Color campaign by installing CCDs at dealer
outlets and branded these outlets as Asian Paints Colorworld. Customers could match different shades
‘with the help of interactive touch screens and specially designed display panels. Ifa customer wanted a
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Page 8 of 28 Asian Paints Limited: Painting History
shade that was a combination of two defired shades, the dealer could immediately mix it to her
satisfaction using the state-ofthe at equipment. Bharat Puri, then General Manager of Marketing, said:
Our Mera Wala concept was tailored according 10 consumer research findings that
revealed that the consumer was becoming more aware and was willing to pay more for
some value addition. At this point in time, we realized thatthe shade card was the most
effective tool of communication between the company and the customer.
CCDs revolutionized the way paints were scld, and transformed the paint dealer from a trader into a
retailer. Positive reception from customers encouraged the company to scale its Colorworld outlets. In
2018, about 80% of the company’s outlets were Colorworlds. The rollout was enabled, in large part, by
the company’s innovative efforts in helping dealers finance the investment in CCDs. APL orchestrated
three-way agreements wherein banks funded the dealer, who repaid the loan to the bank over time. This
way, the investments were not reflected in tre company’s balance sheet. Earlier, APL used to bear the
initial investment, which the dealer would repay through lease arrangements. Such support from the
company fostered strong dealer loyalty and further reinforced APL's distribution network, which grew
from 15,000 dealers in 2001 to $2,000 in 2018.
APL was also the first paint company to shift from a manufacturing and distribution focus to a service
focus when it launched Home Solutions, an end-to-end painting service. This service trace its origins to
feedback from a telephone helpline that was sated in 1998, where it emerged that 40% of the calls were
for turnkey contract services. By 2018, this helpline was used asa single communication point for Home
Solutions. customer called and requested a salesperson to visit her house. Once the paints were chosen,
APL took eare of the rest of the job including scrubbing and cleaning. While an authorized contractor
undertook the actual painting, APL's supervisors made regular visits for quality checks. The company
also subsequently started painter training acad:mies to educate and train painters. KBS Anand noted:
‘The helpline helped us realize the fact that customers didet want to take the trouble of
selecting the right color, deciding which pain to buy and from where.
Other innovations (see Exhibit 5) included its signature store Color with Asian Paints in Mumbai set up
{in 2009, With an area of 7500 sq, ft, this experiential flagship store did not sell paint. Instead, the aim
\was to inspire Indian consumers to be more confident with color in their homes and position APL as their
home décor and color experts. KISS Anand explained:
We wanted to de-mystify the painting category, remove the hassle and make our
‘customers fel like experts in color arxd home décor
‘The company also operated more than 200€ Ezy Color stores and 380 Color Idea stores all over the
country for end-to-end solutions (color personalization to painting execution) and launched a new forma
called AP Homes where customers could have an integrated experience including paints, wall papers, bath
fitings, kitchen, sanitary ware, et.
Page 9 of 28 Paints Li
ited: Painting History
RENEWING BRAND AND PRODUCT PORTFOLIO
India’s economic growth spurred changes in consumer behavior. On average, consumers had greater
disposable incomes and were more engaged in the home decoration process, driven by a desire to express
their personality and distinctiveness. Realizing this, APL launched the memorable Har Ghar Kucch Kehta
Hai (every home speaks a story) campaig (hiips//www youtube,com/watch?v-Gv-3pqAIRZE and
Livnw yout /watch2v=b_uSC749aKQ). It helped move the APL brand from a color-focused
positioning (Mera Wala Coor) to one that invoked pride in one’s home. Over the years, this positioning
helped the company expand its product portfolio to include wallpapers, water-proofing solutions, wood
coatings and more recently kitchens and bathrooms as well. Amit Synge said:**
Har Ghar Kucch Kelta Hai is « summation of our positioning and an expression which is
timeless and is as relevant today as it was before .. [Asian Paints) owns the emotion of
home more powerfully than any other arand in India.
Inkscing with this goa of connecting deply withthe customer's home-ltd aspirations, the company
Imunched anew red and yellow (colors chose to denote warmth) logo in 2002 with thelr“ in the
company’s name presented inthe form ofa brah roke (ce Exhibit 6). Gat, the lovable mascot, was
uit relegated tous the packaging". Created bythe legendary cartoonist RK Laxman in 1954, Gat
fd helped positon Asian Paints as « consamer brand; the mischievous boy got the end consumer
interested in what was then alow involvement category controlled by panes. Eventhough Gat's mass
market appeal was increasingly Becoming oof yee with the premium-