Introduction of Asian Paints Ltd
Asian Paints is India’s number 1 company in paints when it comes to fundamentals since the 19s. Since its listing in 1982, it has grown at a CAGR of 28% and has given 1800x returns to its shareholders.
It roughly doubles every 3 years.
If you look at the current scenario, just in 1.5 years, the business doubled.
How a paint company could do this over a span of 50+ years?
How could they be so strong despite not being the number 1 quality paint company?
How are they constantly outperforming their peers?
Well, here’s the story:
Champaklal Choksey did a brilliant move by removing the distributor and the wholesalers as they were taking off 20% of the margins of the company.
They simply kept dealers who could directly sell and to whom they had to transport the paints. For dealers, this was a tough task to hold such a big inventory.
They requested Mr. Choksey to look into this.
Choksey did a genius move. He said that our truck would come every 3 hours and replenish the stock. So that was like 4 times a day and 28 times a week.
And this was back in the 70s when ease of doing business was difficult. And they had 40,000 such dealers which totaled to 1.6 lakh times a day.
Today that has grown to 2.5 to 3 lakh times a day.
They have 70,000 dealers today. Number 2 player Berger Paints delivers around 40000 times a day and number 3 Akzo delivers 10000 times a day.
No other company can even think of delivering a product in any sector even 10000 times a week. This was possible because there was no middleman.
Today, they directly transport it from the manufacturer to the dealer. Normally the retails shops’ stock gets replenished 2-3 times a week and but the Asian Paints’ store gets 4 times a day.
When you talk about the margins, 97% of the MRP goes to the manufacturer and 3% goes to the dealer. In other cases, manufacturers get 60% of the MRP, 30% the distributors and wholesalers, and the rest the dealers.
That is how Asian Paints has been consistently generating high ROE.
But How Did Asian Paints Ltd Make It Possible?
The answer is – Technology.
Champaklal Choksey bought the first-ever supercomputer in India in 1970 for 8 crore rupees. This was 10 years before ISRO & IIT Powai adopted it and 21 years before any other company.
Even an SAP consultant said that the best ERP implementation was not by Amazon or any other US corporation but it’s India’s Asian Paints Ltd.
For a span of 50 years, Asian Paints Ltd has collected data on:
- What color is being sold the most?
- What quantity is being sold?
- And what tin size is being sold the most?
I believe that nobody should even think of competing with Asian Paints.
Also Watch: Saurabh Mukherjea Why is Asian Paints Ltd Such a Huge Money Making Machine?
The dealers don’t even get to know about the colors that come every three hours in the consignment. Not even the size. They have to just sell the paints.
The paint gets sold within three hours and by then the next delivery comes.
The area managers get an email early morning in the day with the details of all the loaded trucks. On what truck, what size of tins, which color, and what quantity needs to be loaded, and at what time it must reach that dealer, everything is automated through the supercomputer.
If one wishes to know on a particular day, at a particular store, at a time, which color paint will be sold, Asian Paints Ltd can tell you with 97% accuracy.
This entire cycle from raw material to cash generated at banks is completed in 8 days. If you compare this with Berger Paints, they have 45 days cycle. Akzo, the best paint in India has a working capital cycle of 105 days.
The Return on Capital Employed of Asian Paints is 40%. For Berger Paints, it is 25% and Akzo Nobel is 16%. Asian Paints Ltd collects 6-20 times more data than any other company.
Asian Paints Ltd sells to 55% of the country. That too 4 times a day. Berger sells it to 20% of the country twice a day. And Akzo Nobel 10% of the country just once a day.
This is a Himalayan barrier to entry.
Nobody can even think of crossing this mountain.
This post has been written by Priyansh Chachani for FinMedium.
Also Read: The Parachute Story
Cover Image: ET Markets