Mr. Subir Bose

What is your view on the Indian Paint Sector's growth? At what rate have the decoratives and industrial paints, and the overall paint sector grown in FY11? What is the share of organized players in the Indian Paint Sector?
Fiscal FY11 has been very good year for Indian Paint Industry. The over all growth of industry was around 15-16%. We expect FY12 also be a good year for the Industry on the back of projected 8.5%-9% GDP growth. However, Industry has to tackle with the sharp spike in the input prices. The share of organized market for the paint industry is improving and currently is in excess of 70%.

What kind of market share does the company enjoy in the decorative paints segment? What would be the revenue break up of decorative paint segment from Retail and Prolinks (wherein the Company deals directly with major projects)? What was the growth rate you would project in prolinks with a big boost by Government to infrastructure in this budget? Where do you see the growth in the retail business coming from?
Berger Paints is Second leading player in the Decorative paints market following Asian Paints. We enjoy market share of 18% in this segment. Although I would not be able to share revenue break up, retail constitutes major share of revenues. With Government spending inching up in the Infrastructure and improving construction in the urban and metro areas, the prolinks are also doing well.

Coming to retail business, Repainting constitutes major chunk of retail demand followed by new constructions. Earlier the demand from the repainting constituted 70-80% of the total demand from the retail business but now there has been shift with more demand coming from the new constructions constituting 30% of the retail demand and the other 65-70% from the repainting demand.

Despite the fact that about 75% of your company's revenues coming from relatively high margin decoratives, we find that your company's margins are lower than the margins of major players with dominant presence in decoratives.
Yes ! Our margins are bit lower than the leading players. Kansai Nerolac is enjoying higher margins because of its monopoly in the Industrial paint market particularly from the Japanese's automobile manufacturers. Asian Paints is the market leader in the decorative paints segment. Being Second leading player in the decorative paint market, we do have lower margins than the above two.

Give us update on Franchisee brand stores and how does this work? What were the current count and the regions they are covering? What was the revenue potential that the company expects from these Franchisee brand stores in FY11 and FY12? Going forward, what are your plans to increase the distribution reach?
Currently we have 40 Franchisee stores spread across the major cities of Tamil Nadu. These stores have color consultancy wing where in the customers can check out various different patterns of paint combinations. This will enhance the buying experience of the customers. Currently, revenue potential from the franchisee stores is meager. However, we use these stores for knowing the preferences and tastes of the customers. Through these stores, we found more visibility in the southern regions. The company is planning to add 40-50 stores in Andhra Pradesh in FY12.

What is your company's Unique Selling Proposition in the Protective Coating Business? What % of your company's revenues & profits comes from this business and at what rate is this business growing. What was the annual capacity of the company in this business? Kindly explain the market potential and future prospects in this business, going forward?
The company is leader in the protective Coating Business. Nearly 15% of the sales come from this business. Margins in this business are higher than the decorative paint business. Currently the company runs at 70% capacity utilization for the protective coating business.

What was the total capacity of the company at end of FY11? Please give us the breakup of capacity in Water based paints; Solvent based paints, Enamels, Industrial Coatings, Protective Coatings etc. What would be the capacity after expansion at end of FY12?
The capacity at end of FY10 stands at 240315 MT of Paints and Varnishes. We have added nearly 25,000 MT in FY11. The company plans to take the capacity to 3,50,000 MT per annum by end of FY12. Further we will add 1,00,000 MT per annum by end of FY13.

The Greenfield water based paint plant along with emulsion manufacturing facility at Hindupur, Andhra Pradesh with capacity of 1,50,000 MT per annum is expected to commence commercial production in 2013. The other brown field expansion at Goa from existing 6000 KL to 12000 KL and expansion at Rishra (West Bengal) by 60,000 KL per annum will be commissioned in FY12.

Kindly share the region wise sales of the company? What factors do you feel are responsible for relatively marginal presence in Western and Southern Regions, which are witnessing healthy growth in demand? What are the strategic initiatives to strengthen your company's presence in these two regions?
We do not generally share the region wise sales of the company. We are not able to make our presence felt significantly in the western and Southern markets because Asian Paints has better presence in that market. The competition in very much intensive in those markets and Berger paints address more of the urban market demand. We are trying to improve our presence in south through Franchisee stores and improvement in the product mix – more towards premium water based paints.

What was the total capex for FY11 and FY12 and how was it getting funded? The Debt Equity has been witnessing declining trend from 0.42 in FY07 to 0.04 in FY10. What would be the DE ratio for FY11 and FY12? What kind of DE ratio is the company satisfied with?
Total capex for FY12 and FY13 will be to the tune of Rs 170 crore. All the capex is funded by the internal accruals (profits of the company). We are happy with the decline in the DE ratio of the company in the past 3 years. We will be able to maintain the same DE ratio of 0.04 in the next couple of years also.

Kindly share the trends in the raw material prices. Kindly share the quarterly average prices of Ti02 anatase and rutile grade, mineral turpentine Oil (MTO), Pentaerythritol and other major solvents and Pigments from the quarter ended June 2009 through the quarter ended December 2010, and in January and February 2011.
Paint Industry has been witnessing sharp spike in the raw material prices in FY11. The prices of Rutile – White pigment has surged up by 50% while that of solvents by 15-20% and Additives by 10-15% respectively in FY11.

What factors do you feel are responsible for relatively sharp rise in tio2 anatase and rutile grade prices? Whether these are structural issues that have made these prices find new normal, or do you expect the prices to ease in short to medium term?
Shortage in the illuminate ore, which is raw material for Titanium dioxide, is major factor for the spike in the rutile prices. Only 40-50% of the demand for rutile is addressed by the domestic industry and the remaining will be exported. We expect the rutile price to inch up further in FY12.

What was the price increase taken by the company to offset the rise in the raw material prices in FY11 and in Q4FY11 in particular? How do you think things on raw materials span out for FY12?
To pass on increase in the raw material costs, we have undertaken price hike of 12% in FY11 and 2% in Q4FY11 in particular. With north bounded raw material prices, we are increasing the prices by 5% w.e.f May 2011. The paint industry has always been able to pass on the raw material prices to its customers. If prices continue to harden in FY12, there could be some hampering on the demand front.

The Other expenses as % of sales stand in very close range of 20% since FY06. What is the company's policy for the spending on the advt expenses (What % of sales in particular). What are the initiatives that the company is taking to with hold the competitive pricing both from the domestic players and the foreign players?
Right! Advertisement expenditure plays a key role for any FMCG Company and Paint companies. We always have a strategy of add expenses to grow in tandem with the revenues. That is why you could see a stable other expenses as % of sales. Above the line adv expenses constitute 1.5% of the total sales. However including the promotions and other expenses, adv expenses would be in range of 3.5%, which is inline with the industry expenditure.

The Indian paint industry is going for an expansion mode with the leading players planning capex and increasing the production capacities. What are the factors according to you are driving for the capacity expansions? Kindly explain the demand and supply equation particularly on the decorative paints after the capacity expansions (If the market is oversupply or undersupply) and about the price competitiveness?
Growth in the paint industry is always correlated to the GDP growth! So far the demand is growing each year I feel there should be no major mismatch in the demand and supply equation.

The spike in agri commodity prices coupled with increase in production has meant strong growth in the rural income. What is your view of the growth in demand for Paints in the rural and urban areas? Amongst various price points, in which price segment (low, economy, medium, premium etc) is Berger relatively stronger, and would focus intensively, going forward.
Berger Paints mainly address the middle premium segment of the market. Urban market is one of our major focuses. The requirement of industry is different in rural and urban markets. While the rural markets in South such as Kerala use premium paints. This is not true for North and eastern states! Rural demand has more propensity for the economy and medium segment. On the other hand growing urban tastes are directing the urban areas towards middle premium and premium range paints.

There is a school of thought that, unlike in the previous upturns in rural income, in FY 2010-11, the incremental spending of the rural sector in housing construction has been relatively less than say, repayment of debts, spending on consumer goods (both FMCG an consumer durables) etc. Kindly share your thoughts in this regard, and whether there is just a lag effect, or a change in the priority of the rural economy.
I feel its just opposite! Choice of consumer durables is always first than paints for the rural economy.

What segments of the market does the Berger product range address? According to you, what are the major constraints that the company needs to work upon in the near future?
Berger addresses the Medium premium market. We don't have constraints to work on.

After the economic slowdown in FY09, the company has resumed to the normal PAT margins of 7.1% in FY10; which is lower than the other peer players. With increase in the scale of production and distribution reach, what would be the sustainable PAT margins of the company going forward in FY12 and FY13? What is your guidance for the company's financial performance in FY12 and FY13; post the expansion of the projects both on the top line and bottom line front?
The company has reported CAGR of 10% on the Top line and 11% in Bottom line for the past 5 years. We expect to maintain the growth trend in the coming years. We expect to improve our margins by 50 bps a year in FY12 and FY13.

Any other significant developments that you would like to highlight to shareholders?
Nothing. Thank u for keeping belief on Berger Paints.