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It gives me great pleasure to write to you at the end of another eventful year for your Company.
The fiscal year ended March 2013 had its set of challenges as the macro economic environment and growth prospects of India deteriorated during the course of the year with the GDP growth slowing down to its lowest in a decade. The retail demand for decorative paints remained suppressed echoing the sluggishness in the economy. Even in these difficult times, your Company has expanded its presence in most parts of the country. Value growth remained healthy partly due to increased prices and improved product mix over the previous year. Lower inflation in most of the raw materials supported the profit margins. However, higher depreciation and overheads resulting from the commissioning of the Companys seventh decorative paint manufacturing facility at Khandala, Maharashtra had an impact on the profit margins during the fourth quarter of the year. The installed capacity of this new facility is 300,000 KL per annum and the production from this facility will be ramped up progressively going forward.
Even internationally, the economy was in a bit of a turmoil. The euro financial crisis continued to pose significant challenges and while the US economy signalled growth revival, it continues to be marred by fiscal imbalances. The growth engine in China stalled too, leading to a demand slowdown and correction in commodity prices. Amidst this challenging environment, the International business of your Company registered reasonable value growth across the regions that it operates in. While economic slowdown continued to impact operations in Caribbean and some units in Asia, the demand conditions improved in the Middle East. The political uncertainty in the region, however, continued to be a cause of concern.
Performance of your Companys first 50:50 joint venture, PPG Asian Paints Private Limited, which caters to the automotive sector, was impacted by the slowdown in the automobile industry. The year under review saw commencement of operations of Asian Paints PPG Private Limited, your Companys second 50:50 joint venture with PPG Industries Inc., USA, subsequent to receipt of all approvals and clearances.
Going forward, political stability and policy actions would be critical considering the fact that the country is going to face general elections shortly and political logjams in anticipation of elections cannot be ruled out. However, the recent wave of reforms announced by the government including the initiative to move to cash transfers, reduction of fuel subsidies, etc., are steps in the right direction and these could have a positive impact on both the sentiments as well as the perception about the Indian economy. Moreover, the recent correction in the prices of the commodities and crude oil provide optimism as it could lead to better demand conditions which in turn can revive the growth prospects. Your Company firmly believes in the long–term growth potential of India and a testimonial to this commitment is the investment made by your Company in setting up the state–of–the–art manufacturing facility at Khandala.
While your Company continues to augment its capabilities, a rapidly changing world needs businesses to continuously adapt to the changes in the environment and more importantly the changing customer in order to remain successful. In order to address this change, your Company unveiled a new corporate brand identity. The changed brand identity signifies our intent to establish a deeper connect with our customers.
The strategic review process at your Company has led to the identification of Home Improvement and Dcor as a focus area. This is an area that offers tremendous growth prospects and can benefit from the strength of the decorative paints business of your Company. In line with this focus, your Company has announced its intent to acquire 51% stake in Sleek Group, subject to due diligence, necessary approvals and documentation. The acquisition of the Sleek Group has a strategic fit and is a step in your Companys foray into Home Improvement space.
Ms. Tarjani Vakil, Director, is retiring at this ensuing Annual General Meeting and does not wish to seek re–appointment. Her association with the Company has been for more than fourteen years. She is the Chairperson of the Audit Committee and member of the Board and Remuneration Committee. I would like to specially place on record on behalf of the Board, appreciation for her outstanding contribution during her association with the Company. During the year, Mr. M.K. Sharma joined the Board of your Company and he was also appointed as a member of the Audit Committee.
As we look ahead, I thank you for placing faith in the Company.
I sincerely thank all members of the Asian Paints team and our business associates for their trust, encouragement, support and passion that inspires us to strive harder.