Berger Paints and ICI India Ltd.

CONTENT:

1. SUMMARY

2. INTRODUCTION

3. RAW MATERIAL & PRODUCTION PROCESS

4. INDUSTRY CHARACTERSTICS

5. CRITICAL SUCCESS FACTORS IN PAINT INDUSTRY

6. POTER’S FIVE FORCES OF PAINTS

7. DEMAND SUPPLY

8. EMERGING TRENDS

9. FINANCIAL RESULT

10. COMPANY PROFILE

11. COMPETATIVE STRATEGIES OF MAJOR PLAYERS

12. FUTURE PROSPECTS

13. IMPACT ON BUDGET

14. CONCLUSION

SUMMARY:

The Indian paint industry worth Rs 43 bn has consolidated over the past four

years with the organized sector taking away share from unorganized segment. The

paint market is expected to grow at 8-10% p.a.over the next few years. The growth

could be high if industrial activity picks up as the industrial paint segment is gaining

more importance. Asian paints offer the best exposure being the market leader and an

innovative marketing company.

Paint can be broadly classified as decorative and industrial on the basis of the end use.

The Indian market is dominated by the decorative segment, which comprise almost

70%of consumption as compared to developed countries where the segment is more

dominated. The ratio is also likely to shift more towards industrial segments,

especially with growth in the auto and white goods industry.

The unorganized sector has historically been dominant due to high excise structure.

Over the last five years, the excise rate has come down drastically from 40% to 18%

resulting in erosion of unorganized sector share.

The paint industry is characterized by low fixed asset intensity (As essentially it is

mixing process). But the high working capital intensity (as the number of shades is

large and there is seasonally in demand). The main investments are in brand building

and distribution infrastructure.

New trends are emerging in technology and marketing. Introduction of tinting

machines at the dealer/retailer level will bring down working capital costs. Also new

technology is being used for increasing the utility and life span of paints. Indian

industry will have to keep pace with global technology changes to maintain their

competitiveness. Already, a few alliances have entered into and the number is likely

to increase in future.

INTRODUCTION:

Paint is a generic term for a range of chemical substances that help protect

surface a keep them looking good.Paint is defined as a group of emulsion, consisting

of pigment suspended in a liquid medium, for use as decorative or protective coating.

Today, contemporary paints and coatings consist of countless compounds uniquely

formulated to fulfill the varied requirements of hundreds of thousands of application.

“paint” ranges from the broad group of environmentally-sound latex paint that many

consumers use to decorate and protect their homes and the translucent coating that line

the interior of food containers, to the chemically-complex, multi-components finishes

that automobile manufacturers apply on assembly line.

Though there are different types of paint for different surface, all paints are mixture of

four elements- solvent which gives it its flow and enable it to brush on the surfaces,

binders for cohesion as well as adhesion to the surfaces, pigments for colour and

capacity, and additives which give paint certain special characteristics such as

resistance to fungus, algae and rust.

A variety of paint exist fir different purpose. Emulsion, Distempers, Lustre and matt

finished and exterior finishes for walls; melanine based polyurethane metal and wood.

This large number of paint type combine with the range of products manufactured

within each type by any company constitutes a rather complex market.

INDUSTRY STRUCTURE:

The Indian paint industry worth Rs 43 bn has been consolidated over the past

four years with the organized sector taking away share from unorganized segment.

The paint market is expected to grow 8-10%p.a over the next few years. The growth

could be higher if the industrial sector picks up as the industrial paint segment is

gaining more importance. Asian paints offer the best exposure being the market leader

and an innovative company.

PER CAPITA CONSUMPTION OF PAINTS (KG):

While high excise duties hindered the growth of the industry in the early

1990’s, growth picked up after 1992, mainly due to reduction of duties and

acceleration of industrial growth. The growth of the paint industry is mainly attributed

to urban markets. Consolidation is taking place in favor of large players; an increasing

cost and intense competition afflict smaller companies.

PER CAPITA CONSUMPTION (KG)

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MAJOR PLAYERS:

1. ASIAN PAINTS LTD :

Asian paints are the largest player in India, and also the market leader in decorative

paint, with a 41%market share. It has a domestic installed capacity of 1, 62,700 tpa for

paint. With the government planning thrust in the housing sector, players like Asian

paints stand for the benefit, as the demand for decorative paints will grow.

Taking advantage of the increase in the automatic approval of overseas investment,

Asian paints recently acquired the entire paint business pf pacific paints company pvt

ltd. Australia for Aus $ 375000. Last year Asian paints had acquired the largest paint

company in Sri-lanka. Asian paints vision is to be among the top five decorative paint

companies in the world by 2007.

2. GOODLASS NEROLAC PAINTS LTD:

Goodlass nerolac paint is the leader in the industrial paint segment. Earlier this year,

kansai paint of Japan brought out the tata’s stake in goodlass nerolac paints, to raise its

stake in the company to 65%. Goodlass nerolac paint manufacturing capacity is

88,140 TPA.

3. BERGER PAINTS LTD:

Berger paint ltd acquired Rajdoot paints ltd in FY 1999. Thus, it has consolidated its

position within the decorative segments. Installed capacity is 56,420 TPA. In addition

to focus on its existing industrial paints/protective coating business, the company is

entering into a 50:50 joint venture with ICI India ltd, exclusively for automobile and

industrial paints. Both companies will have equal representation of board of joint

ventures.

4. ICI INDIA LTD:

ICI India, is a subsidiary of ICI plc of UK, has hived of its explosive division and is

concentrating on the paints and rubber chemical business.

MAJOR FOREIGN COLLABORATION OF PAINT COMPANIES:

company collaboration Areas Of

collaboration

Asian paints PPG Ind.Inc

Sigma coatings

Nippon paints

Automotive Paints

Electro deposition

Primers; high

performance coatings

Powder coating

Good lass Kansai Paints Auto and industrial

coatings

BERGER

PAINTS

Herberstone gmbh

Val spar corp. Inc

Teodur bv

Auto coatings;

Heavy duty coatings

Powder coating

J&N HerHerberstone gmbh Auto coating

ICI (INDIA) ICI Plc Auto refinish

MARKET SEGMENTATION:

Paint can be broadly be classified as decorative and industrial on the basis of end use.

INDUSTRIAL PAINTS:

This material can be further divided into following four sub-segments depending on

end user profile.

Automotive paints

Marine paints

Powder coating

High performance coating

Other general industrial finishes

Coil coating

DECORATIVE/ARCHITECTURE FINISH PAINTS:

This market can be further segmented on the basis of the following:

Customer’s type : institutional/retail or domestic use.

Product Features/Categories: Distempers, enamels, emulsion.

Price: Premium, medium, economy.

The Indian market is dominated by decorative segment, which comprises of

almost 70% of consumption as compared to developed countries where the industrial

segment is more dominant. The ratio in India is also more likely to shift towards

industrial segments, especially with growth in the auto and white goods industry.

The unorganized sector has historically been dominant by high excise structure.

Over the last five years the excise rates have come down drastically from 40% to 18%

resulting in erosion of unorganized sector’s share.

The paint industry is charatererised by low fixed asset intensity (as essentially it is a

mixing process) but high working capital intensity (as the number of shades is large

and there is seasonal demand). The investments are in brand building and distribution

infrastructure.

New trends are emerging in technology and marketing. Introduction of tinting

machine at the dealer/retailer level will bring down working capital cost. Also new

technology is being used to increase the utility and lifespan of paints. Indian industry

will have to keep pace with global technological changes to maintain their

competitiveness. Already a few alliances have entered and the number is likely to

increase in future. Asian paint is a market leader with 41% market share followed by

Goodlass nerolac and ICI respectively. However, APL is primarily present in

decorative segment. It has entered into joint venture with PPG of US to cater to fast

growing industrial segment.

The outlook for the industry is positive especially given the good prospect for

automotive and white goods Industry. Moreover, housing is expected to grow rapidly

on the back of rising incomes and government incentives. The supply situation

remains a cause for concern and will keep prices under check. The key to success will

be innovative marketing. Thus, we prefer Asian paints within the sector, which has

proven track record in innovation and is indomitable in the decorative segments.

RAW MATERIALS AND MANUFACTURING FACILITIES:

The companies paint manufacturing facilities are located at Bhandup (Mumbai),

Ankleshwar (Gujarat), Patancheru (Andhra Pradesh) and Kasna (near Delhi).and

Taloja (Thane).

The company’s plant at Bhandup was, till the fire in 1996, the largest single paint

manufacturing facility in south Asia. Located on a 34000 sq. meter plot, its production

capacity was 30000 metric tones per annum. The second plant at ankleshwar has a

production capacity of 80,000 M.T annually. The plant makes most products in

company consumer range and also sophisticated automotive finished based on

indigenous technology. The third plat set up at Hyderabad has a production capacity of

90,000 M.T.annually. The fourth paint plant set up at kasna (in U.P) has a production

capacity of 45000 M.T>annually. The Bhandup plant has been resurrected with a

production capacity of 20,000 M.T and production capacity at Ankleshwar,

Patancheru and kasna are being scaled.

There are two chemical factories producing phallic and penta two essential raw

materials for paints. These factories are situated at Ankleshwar and Cuddalore

respectively.

Industrial Paints

Decorative Paints

INDUSTRY CHARACTERSTICS:

Raw material shortage:

Till sometime ago, the bete-noire of the Indian paint industry was the high

excise duty. When the government was finally convinced that paints were a necessity

and not a luxury, excise duty was slashed across the board from high of 60% excise

duty reduced to around 20%of the benefits were passed on to the customers and there

was a temporary surge in demand. But all this stopped when raw material prices took

an upward sprint. Pthalic anhydride (PAN) prices all over the world started increasing.

This has resulted in high input cost. The other raw material in short supply in titanium

dioxide. This has prompted many large players to integrate backward to hedge

uncertainty of raw material costs.

Working capital intensive:

The number of shades is very large and a sufficient stock of every shades has to be

matained at all levels of the distribution channel, the working capital cycle is very

high. The extent can be gauged from the fact that has a 12000 stronger dealer network

selling more than 1500 shades through ‘Dealer Tinting Systems’. Also, the number of

raw materials required can stretch upto 300, as majority of these raw material are

either imported or sourced from small chemical manufacturers. A large stock pile

needs to be maintained.

Low fixed asset requirement:

A plant for manufacture of decorative paint can be set up with small capital

investment. However major investment is in setting up distribution channels and

building up a brand.

Seasonal Nature of demand:

The demand peak during festival season is very high especially for decorative

paints, while is very lean during monsoons. Thus, a major part of the sales are

achieved in the second half of the fiscal year

Entry Barriers:

Huge investments are required for capacity creation and also to maintain the

strong distribution network which is a critical success factor.

With the reduction in excise duties, the price advantage of unorganized sector is

being eroded. This has meant the reduction in the market share of unorganized sector.

The reputed paint companies have invariably collaborated with foreign

companies for technology support. For example, Asian Paints with Devoe marine

(USA) and Nippon (JAPAN) Berger paints with Valspan Corporation (USA),

Goodlass Nerolac with Kansai paints (JAPAN).

Critical Success Factors in the Industry:

1. Cost And Price Drivers:

The paint industry costs and prices are driven by raw material costs which constitutes

about 57% of the costs of sales, and government levies which constitutes 38% of the

cost of paints. There are more than 300 inputs going into the manufacturing of paints

and about 70% of them are based on petroleum. The petroleum prices are therefore

one of the most important cost drivers. The paint industry includes the extent of

concentration in the paint industry which is very high. This lead to very low margin at

each level with the final retailer as little as 4-5%.

2. Working Capital management:

The industry has high raw material content; the number of finished product is also

large with varying pack sizes. Sales in decorative paint are seasonal with more than

half of sales coming in September – November festival season. Debtor levels also rend

to be high in this industry.

Distribution:

Marketing of decorative paint requires extensive dealer networks, especially in

the urban and the semi-urban markets.

Plant Location:

Plant location helps service distribution network and bulk consumers.

Technology:

Paint is highly raw material intensive commodity, which have protective functions

in addition to decorative one. An average range of trade sale, industrial, automotive

and maintenance coating employs well over 900 raw materials. This posses a constant

challenge for research and development efforts in formulating and reformulating

products for better performance, cost reduction, new application, shade development

and exploitation of new materials. As the environment in which paint is used, keeps on

changing with expanding problem of industrialization and attendant pollution, the

expectation of paint performance keeps on changing , demanding evolution in paint

technology.

At a time the Indian paint industry was dominated by foreign paint companies of

mostly British origin, Asian paint started operation as a wholly Indian company in

small way with its own in house technology. Over the years, based upon its R&D

efforts, the company has made tremendous progress and achieved leadership position

in the country, which it has consistently maintained for over the years.

Asian paint has one of India’s largest paint research laboratories, recognized by the

department of science &technology, Government of India. The R&D group is

structured to provide separate focus to industrial paint technology and decorative paint

technology. Our ‘firsts’ in the paint industry include specialized chemical resistant

coating, computerized colour matching, thermosetting acrylic finishes and economic

plastic emulsion paint.

Naturally the company has always placed very high emphasis on its in house R&Dand

built both, manpower resources and facilities commensurate with its requirements.

The dependence on his R&D efforts has paid rich dividends, as the company was able

to meet the market challenges with expansion of available market and penetration of

new markets segments with the new products.

Five Forces in Present Paint Industry:

1. Supply:

Supply exceeds demand in both decorative as well as the industrial paint.

2. Demand:

Demand for decorative paints depends on housing sector and good monsoon.

Industrial paint demand is linked to users industries like auto, engineering and

consumer durables.

3. Barriers to Entry:

Brand, distribution network, working capital efficiency and technology play a crucial

role.

4. Bargaining Power of Suppliers:

Price increase constrained with the presence of the unorganized sector for the

decorative segment. Sophisticated buyers of industrial paint also limit the bargaining

powers of the suppliers. It is therefore that margin is better in decorative segments.

5. Bargaining Power of Customers:

Bargaining power of customers of paint products is high due to availability of wide

choice.

6. Competition:

In both the categories, companies in the organized sector focus on brand building.

Higher prices through product differentiation are also followed as a competitive

strategy.

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DEMAND-SUPPLY SCENARIO:

Paint demand is intrinsically related to economic development. The demand for

decorative paint in India mainly arises from two segments viz construction of new

building and retail demand for refurbishment. While the demand for industrial paint

comes from industries like automobile, consumer durable, shipping engineering etc.

the demand for paint has grown at 10% for last five years. After the sluggish growth in

late 80’s and early 90’s, industry grew at rapid pace of more than 12% from 1992-96.

High excise duties and lack luster industrial growth resulted in low growth of 2-4%

during 1987-92. After 1992, the industry picked up aided by improving economic

condition and rationalization of excise structure. Almost the entire growth can be

attributed to volume increase as price realization has increase at less than 5%p.a. over

the last two years demand slows down due to economic slow down.

According to Indian Paint Association, demand will rise from current 0.6mn tones per

annum to 1mn tpa by 2003.demand from decorative paint will be led by the household

construction industry which is expected to grow almost 8% over the next five years

considering the extreme shortage of housing and the government thrust on

encouraging the housing activity are also likely to shift more towards rural areas. The

industrial segment will grow faster due to the lower base and fast growth in major

users like consumer durable and automobile.

INTERNATIONAL SCENARIO:

The global demand for paint is estimated at over 21mtpa. At valued at about

$60 bn. The industry is expected to grow at 3% over the next few years. The high

growth regions are the developing countries of Southeast Asia and Latin America.

While the mature markets of North America and Western Europe are likely to witness

very low growth.

The share of industrial paint is 70% and rest is accounted by decorative segment. Also,

almost 60% of the world market. The largest player is ICI of UK with a share of

around 10% followed by Akzo-Nobel (Netherlands), PPG (US), NIPPON (JAPAN),

BASF (GERMANY), KANSAI (JAPAN). Over the last few years the industry has

been consolidating with an objective to strengthen the product lines and distribution

chains. This has led to series of mergers and acquisitions. India’s market is only 0.65

mn tones, roughly 2.7% of world demand, but is growing at annual clip of 10%.

THE WORLD COATING SCENARIO:

The total output of the world paint and manufacturing industry was valued at $54

billion in 1996. The industry supported some 12,250 active firms. This industry is

expand to forecast 3.5 percent annually to nearly 26 million tones. By the year 2002

the valued will be $72 billion. Tonnage gains in the industrial coating segment will be

constrained by a shift in trend towards higher solid coatings (such as powder

coatings), which often weigh less per kilo than solvent brone coatings, and require

generally fewer, thinner coats. On the other hand, the architectural segment is seeing a

continuous shift towards water-based paints, which weigh more than their solvent-

brone counter parts, and will promote stronger tonnage gains. These trends have

evident around the world but have had the most impact in more mature markets.

Most of developed world has already effected such as switch to water-based

formulations for most architectural applications. The developing world is also

experiencing this trend- India included. The world paint and coatings industry is

becoming increasingly dominated by a small group of highly focused, globally

positioned firms. For many of these companies (E.g. Sherwin Williams, Kansai Paints,

and Nippon Paints) coating represents the primary line of business. In other cases

(e.g.; AKZO NOBEL, ICI, HOECHST DUPONT and COURTALDS) the firm strong

position has arisen from involvement in various upstream petro chemical activities,

including production of many of basic raw material used in coating production. The

most rapid gain in paints and coatings production will be registered in the developing

regions of Latin America and Asia-Pacific. Although the Asia Pacific region hold the

long term prospects as a market for paints and coating, regional production has been

lower, primarily due to financial crises has hit this region. However, India was not

severely affected by this crisis.

The wave of currency devaluation and shape rise in interest rate will seriously dram

pen spending in key paint sector such as construction and durable in short term,

particularly in Indonesia, South Korea and Thailand. India, in a earlier budget have

announce a new housing policy, which should result in boom for the construction

sector, which will boost demand for architectural coatings.

A very interesting trend is emerging in the architectural coatings segment, we are

experiencing a shift from solvent based coating to water based coatings. Water based

coatings now account for most of house-hold paint demand in developed countries and

is gaining ground in developing countries too. During 1990’s, the drive has spread to

industrial and specialty coatings segment. The higher performance standards for

industrial coatings have necessitated intense product reformulation efforts, leading to a

number of alternatives technologies.

Meeting environmental regulation is another challenge for paint companies in

developed world. Even companies in developed regions should be prepared in this

area, as paint product as soon adopting global standards, hence all paint companies

will have to comply the environmental regulations. Global trend towards free trade

will have an impact on product mix, since exported goods must meet the

environmental codes of the target market. The formation of trading blocks like

NAFTA will involve the establishment of more environmental regulation of member

nations.

Global production of paint and coatings can be divided in two broad sectors:

Architectural Paint and Industrial Coatings. In 1996 Architectural Paint accounted for

58% of the total output with the industrial coatings accounting for the remainder.

However, the industrial coating segment is slightly larger in value (Dollar) terms

because industrial coating trends to cost significantly more than architectural paint. In

1998, the worlds top ten Paint and coatings suppliers accounted for nearly 42 percent

pf the market. The next ten producers accounted to additional 13 percent of sales,

which gives a top 20 firms a collective market share of over 50 percent.

The most basic division is between architectural coating and industrial coating. AKZO

NOBEL, the world’s top player has a strong presence in both the segments. (60:40 in

favor of industrial coating) Sherwin William, ICI, Asian Paints, and Benjamin Moore

focus primarily on architectural paint. Whereas PPG, KANSAI Paint, courtyards,

NIPPON Paint and RPM focus heavily on the industrial segment. BASF, DUPOINT,

LILY industries and DAI NIPPON focus entirely on industrial coatings.

Globally Industrial paint are the major segment accounting for around 70% of the

market, global trade is overall sparse, due relatively simple technology, and especially

to maintain high inventory and the dealer level and high transportation cost. Per capita

consumption is 26 kg in the USA, 4 kg in Philippines and 16 kg in Taiwan.

Emerging Trends and Opportunities:-

1) Technology:-The introduction of tinting machine has changed significantly changed

marketing technology. These machines each costing approximately Rs 60mn are installed at

dealer outlets and enable the customers to choose between any of several hundreds shades.

These are then generated by mixing colourants with the base paint, and delivered almost

instantly. The two major implications of these machines are differentiation on color ranges is

reduced; prior to this technology, a major competitive advantage of a company was the range

of color it offered. For instance, Asian Paints offered almost 150 shades in its synthetic

enamel range, unmatched in the industry. This now stands changed as almost 2000 shades can

be created in seven minutes through these machines.

Simplified logistics management: with the machines generating shades instantly, dealer can

now stock only the base material and thus save almost 20-25% in the working capital cycle.

2) Expansion of product profile:- The lowering of excise has opened the high volume but low

value market is semi urban and rural areas, which is currently dominated by the unorganized

sector.

3) Niche marketing: - By concentrating on certain niches, some companies have earned good

result. For instance, good lass Nerolac paint found a lot of its in automotive paints for

maruti.Nerolac has a lions share in the industrial market segment and virtual monopoly over

the automotive paints.

This however, does not mean that niche strategy is bound to succeed. ICL ended up raid

in the faces with its niche marketing strategy with natural hints, a paint with a suitable

fragrance. This brand received no more than lukewarm response in the market. This was sold

along with a roller for the Venetian glass look. ICL is also hoping the duette will be used

instead of wallpaper. The future of this brand is yet uncertain.

4) Increased thrust on brand creation and distribution: - The increase share of organized sector

implies that brand awareness will be a thrust area. Also, strong brands are emerging as the

most important entry barrier. The opening of rural market has also necessitated the expansion

of distribution reach.

5) Industry consolidation: - The small scale industry is expected to witness a shake out as the

share of organized sector increases. Also, outsourcing requirements are likely to be reduced as

new capacities go on stream in the organized sector.

Fifty Two Week High Low

ExchangeName FiftyTwoWeekHigh HighDate FiftyTwoWeekLow LowDate

NSE 1,334.00 07/05/2008 903.00 22/01/2008

BSE 1,319.95 31/01/2008 875.00 22/01/2008

Yearly High Low : BSE

Year Ending High HighDate Low LowDate

14/08/2008 1,319.95 31/01/2008 875.00 22/01/2008

31/12/2007 1,125.00 31/12/2007 642.00 05/03/2007

29/12/2006 790.00 07/02/2006 501.10 02/06/2006

03/10/2005 520.00 28/09/2005 302.60 06/01/2005

31/12/2004 352.00 23/01/2004 245.00 17/05/2004

31/12/2003 472.35 19/08/2003 257.00 22/08/2003

31/12/2002 399.00 25/07/2002 250.10 04/01/2002

31/12/2001 289.95 26/11/2001 229.00 12/04/2001

31/12/2000 501.00 27/01/2000 205.00 13/10/2000

31/12/1999 451.25 30/08/1999 195.00 26/04/1999

31/12/1998 370.00 22/04/1998 198.00 23/06/1998

31/12/1997 378.50 01/08/1997 265.00 25/11/1997

31/12/1996 480.00 17/06/1996 250.00 04/12/1996

31/12/1995 690.00 26/07/1995 256.00 23/11/1995

31/12/1994 640.00 01/08/1994 340.00 06/01/1994

31/12/1993 420.00 02/12/1993 245.00 10/03/1993

31/12/1992 515.00 09/06/1992 255.00 20/11/1992

FY 2007 – Annual Results of Asian paints:

Presentation structure

• Results: Q4 – FY 2007

• Results: FY 2007

• Outlook: FY 2008

Highlights: Q4 – FY2007

Consolidated Net sales and operating income. Increased by 25.4 % to Rs. 9,589 million. Good

growth witnessed by all business units. Volume growth has been impressive for the Quarter.

-Net Profit has risen by 43 % to Rs. 666 mn.

– Good performance by the Decorative Business Unit

– Improved performance by International operations

• Material costs have risen during the quarter

• Operating margins have improved due toimpressive volume growth

Consolidated P&L – Q4 FY07:

Standalone P&L – Q4 FY07:

EOI (Extra Ordinary Item) – Provision for diminution in value of Investment.

Presentation structure

• Results: Q4 – FY 2007

• Results: FY 2007

• Outlook: FY 2008

7. Highlights - Consolidated results –FY2007:

• Paint volumes for the year including international increased by 18.7 % to 481,976 KL.

– All three business units registered in excess of 15% volume growth.

• Value Sales have grown by 21.5 % driven by

– Good growth registered by Paints-India business and theMiddle East region

• Material costs as a percentage to sales have gone up marginally

• HR costs have risen by 17.4 % to Rs. 2621 mn

• However operating margins have been maintained due to control on other overheads.

8 .Consolidated P&L –FY 2007

9 .50 % of Asian PPG Industries sales are included

Consolidated Sales breakup:

FY 2007 & Q4 FY 07

10 Asian Paints Consolidated Results FY2007

• Asian Paints Standalone Results

• Decorative Business – India

• Industrial Operations – India

• International Operations

11 Asian Paints - Standalone P&L :

FY2007

EOI (Extra Ordinary Item) – Provision for diminution in value of Investment.

12 • Net Sales grew by 21.7 % due to strong growth by all segments of the paints business

• Net profit has increased by 45.7% to Rs. 2720 mn

– Due to the performance of the Decorative – India business

– In FY’2006 results, Rs. 336 million was provided towards diminution in the value of

investments in overseas units

– Adjusting for EOI, Net profit has risen by 23.5 %

• Chemicals business registered revenue growth of 12.9% to Rs. 961.5 mn (adjusting for inter

segment revenue)

– PBIT for this business increased by 105.9 % to Rs. 246.3million

Asian Paints - Standalone P&L :

FY2007

Environment – FY2007

• India

• GDP growth at 9.0 % for FY07

– Estimated at 9.2 % for FY 08 aided by a surge in industry

and services sector

– Higher growth than FY07 predicted for services and

industrial sector

• Inflation and rising interest rates are a cause for

concern

• Manufacturing, Capital goods, consumer goods,construction, cement, automobiles – all have

registered good growth for FY2007

14 .Paint Industry – India : FY 2007

• Paints industry estimated between Rs. 112 and Rs.

115 billion for FY2007

– Value growth is estimated at around 18% in FY2007

• Decorative paints estimated to have grown by

around 19 % in value

• Industrial Paints is estimated to have grown by

around 17 % in value

• Demand conditions have been good in most

segments of the paint industry

• Input costs continued its upward trend during the year putting pressure on operating margins

of paint companies.

15.Asian Paints Consolidated Results FY2007

• Asian Paints Standalone Results

• Decorative Business – India

• Industrial Operations – India

• International Operations

16. Demand for decorative paints was good nearly throughout the year and in most parts of

the country.

– While Southern region of the country continues to do very

well, the exceptions were Delhi and North East region

• All segments for Decorative India registered

double digit growth.

• Excellent growth in all wall finish products

– Impressive growth recorded by interior and exterior

emulsions

• 8500 Colour Worlds now installed in the country

– Penetration into small towns continues.

Paints : Decoratives India

17. Pricing FY 2006

– Four price increases effected during the year.

– Overall prince increase in the year was around 4.25%

– All price increases have been absorbed well by the market

• New Products

– Royale Play range expanded

– Luxury Ultra Gloss enamel launched in many markets

• Colour Next 2007 launched

– The company is beginning to be recognised as an authority in

forecasting colour trends.

18.Paints : Decoratives India

• Asian Paints Home Solutions

– Added 2 cities in FY2007 i.e. Jaipur and Baroda

– APHS is now present in 12 cities in the country

• Manufacturing facility

– Ankleshwar plant has received environmental

clearance for 100,000 kl from 80,000 kl.

19. Paints : Decoratives India

• Price of TiO2 have been fairly stable during the year

• Prices of raw materials increased sharply in 2nd and 3rd

quarter in FY 2007

– Major increases were in Xylene, Phthalic Anhydride and vegetableoil.

• Prices of solvents have eased in Q4’FY07 due to lower crude oil prices

COMPANY PROFILE:

Asian Paints Limited

Company Analysis 17thJuly2007 Price target-1,150

Shareholding Pattern (as on 31 March’07)

Key Statistics (as on 16 July’07)

COMPANY OVERVIEW:

Asian Paints is India's largest paint company and the third largest paint company in Asia

today, with a turnover of Rs 36.7 billion(around USD 851 million). The company has an

enviable reputation in the corporate world for professionalism, fast track growth, and building

shareholder equity. Asian Paints operates in 21 countries and has 29 paint manufacturing

facilities in the world servicing consumers in over 65 countries. Besides Asian Paints, the

group operates around the world through its subsidiaries Berger International Limited, Apco

Coatings, SCIB Paints and Tubman’s.

INVESTMENT RATIONALE :

The first phase of the Greenfield industrial liquid paints facility at Taloja, Maharashtra was

commissioned during last quarter of FY06-07.The production is being ramped up at the

facility and it is expected to reach the installed capacity of 14,000 KL by the month of

September 2007.This will help the company to improve its service levels to Industrial

customers and also bring about cost efficiencies Associated with manufacturing the bulk of

industrial Products at a single location.

The Company in order to meet market requirements is Planning to enhance the capacity of the

plant at Sarigam. Plans are being drawn up and work on the civil structure is Expected to

commence from October, 2007. The enhanced capacity will be available during the second

quarter of the FY08-09. With these capacities at Baddi and Sarigam, APICL will be placed to

service the powder coating requirements. During last year, the capacity of the Sriperumbudur

plantwas raised to 50,000 KL per annum early in 2006-07. This capacity came in handy as

emulsion paints sales grew well.

The company is adding a polymer plant at Sriperumbudur which is expected to be

commissioned in the first quarter of 2007-08. The plant at Ankleshwar has received

environmental and other clearances to produce up to 1,00,000 KL, per annum. Some

additional facilities, especially storage and handling, need to be installed at Ankleshwar as

well as Patancheru and Kasna plant so as to produce at the rated capacity on consistent basis.

COMPANY OVERVIEW

Rolta India Limited is an Indian Information Technology company with its corporate

headquarter in Mumbaithe company operates through a network of 42 regional offices across

India combined with its seven subsidiaries,located in USA, Canada, UK, Netherland,

Germany, Saudi Arabia and the United Arab Emirates. Rolta is todaya market leader in

Geospatial and Engineering segments with a unique combination of IT-based solutions and

services, with wide array of multi-million dollar projects in over 35 countries. This

combination of Geospatial,Engineering design, e-security services and solution is unique to

Rolta because no other company is providingsimilar combination anywhere in the world. This

combination provides Rolta with competitive advantage overother companies by being able to

combine its domain knowledge to tailor solutions more precisely to itscustomer needs.

ROLTA TO SET UP IT PARK IN KOLKATA

Rolta India Limited has announced the setting up of Information Technology Park at Kolkata

as a part of its expansion plan. This IT park will have facilities for delivery of Information

Technology based Geospatial services, Engineering design services, Software development

and ERP implementation services worldwide. This facility once completed will be providing

employment to 5,000 technical professionals and domain experts from talent available in

West Bengal. This facility will be set-up in phases with an investment of about Rs

2,500million. This Information Technology park will add another milestone to the success

story of the Rolta India Limited and will intensify its competitive edge.

JOINT VENTURES

Rolta India Limited joint venture with Thales, France, will be providing a broad spectrum of

cutting-edge technologies, systems and solutions for developing state-of-the-art Command,

Control Communications, Computers, Intelligence, Surveillance, Target Acquisition and

Reconnaissance Information Systems (C4ISTAR) for the defense and homeland security

sectors, both in the domestic and international markets. Rolta is a leader with a market share

of over 85% in the Engineering Design Automation segment in India and one of the major

Plant Information Management Services providers worldwide. Rolta provides a complete

range of advanced engineering design services, encompassing the entire product, plant

lifecycle designing, modeling, detailing, analysis, tooling, manufacturing, operations,

maintenance and simulation. Taking this leadership further, Rolta's strategic joint venture with

Stone & Webster, Inc., provides high-quality cost-effective engineering, design and

procurement management (EPCM) services to power, refinery and petrochemical projects

worldwide. This partnership has evolved into an independent full service engineering and

procurement operation, pursuing large contracts business.

FINANCIAL STATEMENT ANALYSIS

Rs. mn

Revenues 17424.62 19415.15 23191.55 28212.93

Growth (%) 11.42 19.45 21.65

Total Expenditure 14729.24 16477.39 19672.35 23995.37

Operating Profit 2695.38 2937.76 3519.2 4217.56

Growth (%) 8.99 19.79 19.84

OPM 15.47 15.13 15.17 14.95

Other Income 216.77 316.14 359.26 359.26

EBIDT 2912.15 3253.90 3878.46 4622.07

Interest 52.65 27.54 38.31 68.73

Depreciation 480.1 476.05 455.28 454.15

PBT 2379.40 2750.31 3384.87 4099.19

Tax 835.54 969.84 1170.82 1399.94

Adjusted PAT 1543.86 1780.47 2214.05 2699.25

Growth (%) 15.33 24.35 21.91

Adjusted NPM 8.86 9.17 9.55 9.57

2005 2005-06 2006-07

For the financial year ended 2006-07 company has displayed good financial performance. The

revenues for the Company stood at Rs 28,212.93 mn for the FY06-07 in comparison to the

FY05-06 revenues of Rs 23,191.55 mn with the growth rate of 21.65%. The company

reported the operating profit of Rs 4,217.56 mn for the FY06-07 Compounding at the growth

rate of 19.84% against the operating profit of Rs 3,519.20 for the FY05-06. The EBITDA for

the company rose to Rs 4,622.07 mn with the growth rate of 19% in comparison to FY05-06

EBITDA of Rs 3,878.46 mn. The company net profit is up by 22% to stand at Rs 2,720.48 mn

for the FY06-07 in comparison to FY05-06 net profit of Rs 1,867.80 mn.

Research

The company has reported the EPS of Rs 28.10 for the FY06-07 in comparison to FY05-06

EPS of Rs 23.10 with the growth rate of 22%. This has been followed by rising return on net

worth .of the company. The company has reported the 36% return on net worth for the FY06-

07 in comparison to FY05-06 return of 34% on the net worth. Therefore company has been

consistently generating good return for its shareholders and in future it is likely to add more to

the wealth.

VALUATION

The stock of Asian Paints appears to be a good addition to the portfolio for conservative

investors. Strong growth prospects for decorative paints arising from the higher pace of

construction activity and a ramp-up in revenues from international operations could aid sales

growth over the next couple of years. Profit margins may receive help from moderating input

prices and an appreciation in the rupee. At the current market price of Rs 872, the stock trades

at a price earnings multiple of about 25 times expected FY08 earnings. Therefore, we

recommend the stock for the long term investment with price target of Rs 1,150.

Disclaimer: This document is prepared on the basis of publicly available information and

other sources believed to be reliable. Whilst we are not soliciting any action based on this

information, all care has been taken to ensure that the facts are accurate and opinions given

fair and reasonable. This information is not intended as an offer or solicitation for the

purchase or sell of any financial instrument. Hem Securities Limited, Hem Finlease Private

Limited, Hem Multi Commodities Pvt. Limited and any of its employees shall not be

responsible for the content. The companies and its affiliates, officers, directors, and

employees, including persons involved in the preparation or issuance of this material may

from time to time, have long or short positions in, and buy or sell the securities there of,

company (ies) mentioned here in and the same have acted upon or used the information prior

to, or immediately following the publication.

GOODLASS NEROLAC PAINT LTD:

1. Background:

GNPL was established in 1920, by Tata steel in collaboration with goodlass, of UK, a part of

cookson group. The tata’s had 40% stake in the company through group company Forbes

Gokak ltd. In 1983, the company entered into technical cum financial collaboration with

kansai paints, Japan. Kansai who currently has a stake of 40% is the other major shareholder.

Manufacturing activities began with the establishment of paint unit at parel in 1920. In 1971

another plant was established at Thane. The Thane plant had also facilities of manufacturing

pigments, one of the indegredents in paint manufacture. In FY92 the company made a right

issue for funding its new Kanpur plant, which was commissioned in august 1993. Last year

Kansai brought over stake of Tata’s, thus making GNPL its subsidiary.

KANSAI PAINT COMPANY:

Kansai Paint Company is the largest company in Japan and among the top ten in the

world with 1991 consolidated sales of $2bn. It has 21 subsidiaries in 12 countries. Kansai has

its 45% sales coming from automotive coating, 26% from decorative paint and 29% from

containers, marine, metal, and heavy duty coatings. Last year company spends close to Rs

2.4bn on R&D with the thrust being on high technology, environment friendly products. India

accounts for 40% of kansai investment subsidiaries.

BUSINESS:

GNPL one of the oldest paint manufacturing companies, has concentrated on the

industrial paint segment. Its product range also includes decorative paints and organic and

inorganic paint. GNPL has technical collaboration with a number of manufacturers that gives

it a competitive edge over the competitors in the industrial paint segment. Its collaboration

with different companies to cater to different segment as follows.Kansai paint co ltd, Japan –

for all automotive coatings.Nihon Parkerizing co ltd, Japan- sealands and underbody

compounds. Nihon tokushue toryo, Japan- for pretreatment chemicals. Valspar Corporation,

USA- powder coating. Ameron coating Inc, USA- high performanance coating.

INDUSTRIAL PAINT:

GNPL is the market leader in the industrial paint. With a 43% share. GNPL dominates

the OEM share with the 70% of share of passenger cars OEM market, a 40% share of two

wheeler and 20% share of commercial vechicles OEM market. It has a major share of alkyd

and amino paints, which are rapidly replacing NC lacquers, traditionally used for automotive

coatings.

GNPL has almost all the major automotive OEM as its customers except the Korean ones.

Other key accounts are Bajaj Auto, Whirlpool, Hero Honda etc. suppliers to maruti 70% of

maruti’s paint requirements account for 12% of sales. In the automotive segment, GNPL has

launched low brake ED primers and common base coats to remove body and lumper colour

mismatch. GNPL is also trying to regain its market supremacy in markets like General

industries and Auto ancillaries, which it had exited due capacity constraints.

DECORATIVE PAINTS:

GNPL has a stronger presence in distempers and emulsions. Emulsions are the fastest

growing segment in the decorative paints. It has alls capes as a premium segment product. Its

super acrylic distemper is claimed to be the first water-based, any-surface, environment

friendly painting segment. It has recently launched acrylic system. It has recently launched

paint excel to counter competition in exterior paint segment. GNPL has launched three

technology led products namely Zola coat (multi-colour designer finish paint) satin emulsion

(acrylic emulsion for premium silky finish) and nerosign (colour specifically for sign board

painting). However, it is a distant #2 in the decorative paint segment, way behind industry.

MANUFACTURING FACILITIES:

GNPL has plants at Lower Parel (MUMBAI), lote Parshuram (RATNAGIRI), and Dehat

(KANPUR). Last year GNPL has expanded capacity at two its plants and set up new plant.

All this has taken the total capacity to 101000 TPA from 57500TPA. For FY06/07. GNPL

achieved sales of 61000 tonnes, up from 52057 tonnes.

It also has two more plants through 100% subsidiaries at Madras (capacity 27,000 TPA) and

vatva in Gujarat (9000 TPA). It has 62 sales offices and depots and more than 7000 dedicated

dealers. Its paints are sold under brand name of Nerolac. The company has introduced VRS to

employees of kavesar plant at Thane.

THRUST ON IT:

GNPL is planning a major push in the IT segment; in fact a major portion of its apex plan of

Rs 400 mn is earned market towards IT. This includes implementing ERP program to improve

it operational efficiencies and integrating all of its 60 odd depots.

Amalgamation of Polycoat Powders Ltd. with the Company

Polycoat Powders Ltd. (PPL), a Company engaged in the manufacture of powder coatings, has been amalgamated

with the Company with effect from 1st April, 2006, pursuant to the approval of the Hon'ble High Court of Judicature

at Bombay. The amalgamation is expected to result in better internal economies such as reduction in administrative

costs, exercise of effective control, synergistic operational advantages, better use of infrastructure facilities and

increased productivity of the combined resources. The figures of PPL for the financial year ended 31st March, 2007

are included in the financial results of the Company for the current year. For the above reason, financial results for the

current year are not comparable with those of the previous year.

Dividend

The Company declared and paid an interim dividend of Rs. 11.50 per share (115%) in March 2007. The Directors

recommend that this interim dividend already paid in March 2007 be confirmed as the final dividend. The dividend

paid for the financial year ended 31st March, 2007 is the same as that for the previous year ended 31st March, 2006,

though for the last financial year 2005-06 an additional special dividend of Rs. 8.50 per share (85%) had been paid, on

account of extraordinary income recorded in that year from sale of investment in an associate company, Polycoat

Powders Ltd.

Management Discussion and Analysis

(A) Information about the Company:

Kansai Nerolac Paints Limited (formerly Goodlass Nerolac Paints Ltd.), established on 2nd September 1920, is an 86

years old company. Being India's second largest paint company, it enjoys clear market leadership in Industrial,

Automotive and Powder Coating business. The main strength of the organization lies in its employees and the

technological superiority of the products manufactured, which has enabled the Company to maintain a steady growth

over the years.

The Company has an open culture with transparency in operations and a professional approach. The stated purpose is

Innovations for evolving surfaces. Innovation here means new ways of looking at business, which also implies

innovation in products, work and processes. Evolving surfaces indicates future possibilities. The Company has a

strong value system that serves as guidelines for exhibiting appropriate behaviour, internally and externally. This year,

Kansai Nerolac Paints Limited (KNP) re-looked at the changing business environment and the organization's core

values.

The Company has 67 sales locations to serve its customers and is well supported by five strategically located

factories. The proximity of plants to the customers' base offers logistical advantage and an edge over others, when it

comes to service. The Company operates on SAP R-3 platform and uses Advanced Planning Optimizer for Demand

Planning, Forecast and Demand Fulfillment. While Data Intelligence Warehousing supports day to day decisions

within the Company, Knowledge Portal serves as repository of accumulated knowledge within the organization.

Information Technology (IT) is centralized with online connectivity and security framework. The performance at all

levels of employees is reviewed on the platform of the Balanced Score Card. Management Committee (MC)

comprising of Top Management decides on broad policies and sets direction of organization and reviews results.

Business Analysis Team (BAT) analyzes business problems, opportunities and supports MC.

KNP has been consistently meeting challenges of the dynamic business, rising costs, industry demands and

competitive scenario, in order to meet profitability objectives, by taking measures to increase productivity and manage

the resources more effectively, meeting customers' expectations at the same time.

(B) How the industry fared:

Paint industry continues to do well riding high on the growth in housing and the automobile sectors. GDP growth of

8.5% for the year has been supporting and so has been the growth of 10.5% in Manufacturing and 3% in agriculture.

These are the indicators of the buoyant economy. Only concern has been the inflation, which has been hovering

around 6%. The Raw Material prices for the majority of the period in this year have been on a rise.

The paint industry growth of 15% has not been surprising, thus taking the industry size to Rs. 10000 crores, both for

organized and unorganized sectors put together. The share of the organized sector is estimated to be Rs. 7400 crores.

Sales growth for KNP is in line with the industry growth. The growth this year is led by decorative business and

within the decorative business, by Interior and Exterior emulsions. The paint industry is likely to do well in the next

two years as well. The management therefore looks to the future with confidence, even though there is increasing

competition from international paint companies.

(C) Marketing initiatives:

The Company went though the exercise of new brand architecture as a part of its Corporate Identity (CI) initiative.

Products were re-branded as per new classification/brand architecture and the pack designs changed. The new product

packs now look more contemporary, futuristic and have been well accepted by the consumers. Continuing to take the

platform of Innovation, new products have been launched in the decorative business like Nerolac Impressions Metallic

and plain finishes, Excel Total with seven years warranty for exterior application, Suraksha Advanced with four years

warranty for exteriors. Beauty Flexi Coat, a crack free finish Emulsion in premium range for the interiors has also

been launched along with Designer finishes.

The back end support service, under Nerolac Assured Paint Service (NAPS), in select towns, is doing well with more

and more consumers passing on supply & apply contracts to KNP's trained applicators. The Company's Institutional

cell has also done extremely well by lapping up more contracts.

Setting up an Impressions Experience Center, at the Company's Head Quarters has been another major initiative to

provide touch & feel facility for the consumers and serve as a learning centre before this concept is taken to the retail

market. In Industrial business, General Industrial, High Performance Coatings and Powder coating business has done

extremely well. The growth in automotive business has been in line with sector growth.

The new technology introduced of three coats - one bake has been well accepted by the automobile industry, resulting

into high productivity and savings in power cost at the customers' end. UV cure technology has been introduced in the

market paving the path for KNP to make rapid strides into the futuristic technology.

Multiple CED lines have been awarded in this year at the new and existing plants of the Automobile manufacturers,

thus further strengthening the Company's position in this area.

(D) Opportunities & Threats:

The Company continues to identify gaps in the customers' needs and the products available and has been expanding

its brand portfolio. The current customer is well enlightened, demanding, is clear on the choice of finishes unique to

his personality and is open on experimentation. More over, customer is looking for a back end support. The Company

is geared up to exploit these opportunities and grow its business.

Value additions, customer responsiveness and satisfaction are keys to performance and for retaining the market

shares. Delivering the products at the prices which are competitive, inspite of rise in raw material cost and still

maintain profitability is an ongoing challenge requiring a continuous working on improving internal operational

efficiencies. KNP has been therefore continuously working in the areas of product improvements, innovation in

products and services. Various products and finishes have been offered both in decorative and industrial business,

addressing the needs of customers both on quality and price.

There is a growing competition visible with more and more international players entering the industry and the way

business is being transacted getting redefined.

(E) Segment wise performance:

The Company has only one segment of activity namely paints, in accordance with the definition of Segment as per

the Accounting Standard 17 issued by the Institute of Chartered Accountants of India. The performance of the

Company is discussed separately in this Report.

(F) Risks & Concerns:

The Company has identified risk areas along with its probability and severity, department wise. The Company has in

place, a detailed Enterprise Risk Management (ERM) framework to mitigate the risks. A detailed Risk Register is

maintained functionwise to monitor and mitigate risks.

Macro economic conditions do affect the Company operations as is the industry. Low demand, political instability,

crop failures, natural calamities may affect the business. Business, therefore, cannot be risk free. What is important is

to correctly assess risks area wise, understand the impact and initiate action to mitigate the risks. General Risk areas

are classified under heads like statutory compliances, economy, financial, government regulations and policies, market

related, operational, products and technology, intellectual property. The technology provides a cutting edge to offer

products innovatively and at a competitive price, thus improving sales. Availability of raw material at the right price

and at the right time is crucial for maintaining steady supplies to the customers. Rising prices of crude oil and its

derivatives could be a cause of concern and similarly for Forex. Getting into new areas of business, products would

carry the associated risk.

The Company has not been significantly affected on account of these risks due to proactive actions against

anticipated hindrances. The Company enjoys strong brand equity amongst consumers, is known for superior

technology and service backup, has a strong distribution network and follows systems and processes. Efficient

materials and foreign exchange management is followed and statutory compliances are proactively auctioned upon.

(G) Research & Development (R&D) and Technology:

Research & Development department of the Company continued carrying out research in specific areas like

development of new coatings/paints, quality upgradation of existing products, development of resins and polymers for

paints, value engineering, process development and import substitution.

The benefits derived as a result of R&D have been in development and

commercialization of new products. This year, developments have been:

* 3 wet coat automobile coating system.

* Hybrid Technology for Automotive metallic base coats

* Glass clear lacquer

* Premium Exterior Architectural Paint.

* Advanced Economy Exterior Emulsion.

* Interior Flexi Stain Resistant Architectural Paint.

* Premium Interior Water Borne metallic finish Architectural paint.

R&D has played a crucial and a supportive role in KNP maintaining leadership in Industrial/automotive coatings and

making inroads in the decorative sector.

(H) Financials:

Gross sales for the year aggregated to Rs. 1484 crores reflecting a growth of around 21% over the previous year.

During the year, Polycoat Powders Ltd. (PPL), a 100% subsidiary of Kansai Paint Co. Ltd., Japan

was merged with Kansai Nerolac Paints Ltd. Thus current year's sales includes sales of PPL. The growth on a stand

alone basis is at 14.9%. Raw material inflation during the year was high at 7% impacting profitability of the

Company. Overheads were kept under control. Overall overheads as a percentage to sales, dropped from 13.3% to

12.4%. Profit Before Depreciation, Interest and Taxes (PBDIT) (without other income) for the year is higher at Rs.

171.44 crores as compared to Rs. 157.14 crores of previous year reflecting a growth of 9.1%.

Depreciation for the year is slightly higher at Rs. 33.56 crores as against Rs. 31.78 crores of previous year.

Other income is lower at Rs. 24.05 crores as compared to Rs. 75.01 crores of previous year. Previous year's other

income includes extraordinary gain of Rs. 50.40 crores by way of profit on sale of shares of Polycoat Powders Limited

to Kansai Paint Co. Ltd., Japan. If this is excluded, then other income for the current year is more or less at the same

level as the previous year.

Profit Before Tax is at Rs. 160.97 crores as compared to Rs. 149.20 crores (normal profit) of the previous year which

is a growth of 7.9%.

(I) Collaboration

The Directors record their appreciation for the contribution made and support provided by Kansai Paint Co. Ltd.,

Japan (Kansai). Kansai continues to provide support on process design, quality improvement, world class technology,

which has helped the Company in maintaining market leadership in the industrial business including automotive

coatings, by servicing existing customers better and adding new lines. Kansai also provides technology for

manufacture of architectural coatings.

The Company also has Technical Assistance Agreement with Oshima Kogyo Company Ltd., Japan for manufacturing

heat resistant paints, Dupont Performance Coatings GmbH & Co. KG, Germany, for Anodic Electrodeposition

Coating System and PPG International Performance Coatings and Finishes, USA (formerly Ameron International

Performance Coatings and Finishes) for high performance coatings. The Directors record their appreciation of the

cooperation from these collaborators.

(J)Directors

In accordance with the Articles of Association of the Company, Dr. J. J. Irani, Mr.Y. Kawamori and Mr.Y.Tajiri

retire by rotation and being eligible, offer themselves for re-appointment. Mr. Pradip P. Shah was appointed as a

Director of the Company with effect from 30th January, 2007, in the casual vacancy caused by the resignation of Mr.

K.C. Mehra. Pursuant to Section 262 of the Companies Act, 1956, Mr. Shah holds office upto the date of the Annual

General Meeting, but being eligible, offers himself for re-appointment. The Directors have placed on record their

sincere appreciation for the valuable services rendered by Mr. K.C. Mehra during his Directorship with the Company.

None of the Directors of the Company is disqualified under Section 274(1)(g) of the Companies Act, 1956. As

required by law, this position is also reflected in the Auditors' Report.

3. Further Plan of Action:

- Development of eco-friendly coating products.

- Development of UV curable plastic coatings.

- Development of water borne tile coatings.

- Development of Waterborne Exterior Metallic finish Paint

ICI IANDIA LTD:

BACKGROUND:

ICI’S presence to India dates back to 1911, when brwnner mond &co. one of the four

companies that combined to form ici in uk in 1926, opened a trading office to sell alkyls and

dyes in Calcutta. In 1929 companies name was changed to Imperial chemical industry

(INDIA) ltd. ICI began with manufacturing chlorine and caustic soda at Rishra, West Bengal.

The site was later expanded to manufacture paints and rubber chemicals and fibers of India

ltd. (CAFI) were incorporated to manufacture polyester operations in panki at Kanpur. In the

early 1970’s IcI established additional manufacturing capacity for paints at Hyderabad and in

1978, ici diversified into crop protection chemicals and pharmaceuticals at Ennore near

Chennai. In 1976 a research facility was established at Thane, now known as ICI India

research and technology centre. In 1984, the ici companies in Indian merged. In 1987, ICI

formed Nalco chemical ltd. With Nalco company USA with each holding 40% of the equity.

In 1989 specialty chemical plant was commissioned at Thane. In 1993, the first phase of ICI

India’s restructuring was completed with the disinvestment of the fibers, fertilizers and seed

business. In 1995 agrochemical business was transferred to a joint venture with Zeneca

limited in UK. In1996, ICI established a joint venture called initiating explosive system India

ltd. In 1997 the new paint plant and polyurethanes systems house were commissioned at

Thane. In 1998 ICI acquired the nitrocellulose business of asha nitrochem industry ltd at

valaspar, Gujarat. Another paint plant was commissioned at mohali near chandigharh and the

surfactants innovation centre opened at Thane. IcI also exited from its joint venture with

Nalco chemical company, USA and Zeneca, UK. Plant locations are;

LOCATION PRODUCT MANUFACTURED

ROURKELA, ORRISA Bulk explosive

SINGRAUIL, MO Bulk explosive

GOMIA, BIHAR Bulk explosive

VALSAD, GUJARAT Catalysts

HYDERABAD, AP Nitrocelluse

MOHALI, CHANDIGARH Paints

ENNORE, CHENNAI Paints

BUSINESS:

ICI’s main business is of paints, specialty chemicals and materials.Paints ICI has

around 35% of its turnover from paints. Of these Decorative paints contributes 55%, Auto-

refinish 30%, Motors and Industrial 15%. ICI major brands in decorative paints are Terrene,

Deluxe. ICI launched new products “Wasr Swear” and “Supercote Textured finish” and also

expanded its colour solution to 200 outlets.Honda and Tafe. Major brands are Duco for

automotive refinish and In industrial paints segment the client list include Fiat, Daewoo,

Perspex for acrylic sheets. The newly commissioned plant at Mohali has pioneered the

movable mixer manufacturing technology for Refinish paints and has also developed and

implemented ACS Market mix system for Autocolour in India. Under its ICI has Permosel

brand in solid and metallic colours. With the commissioning of the Chandigarh facility the

total paint capacity has gone up to 6000 KL, ICI has four plans strategically located in four

different regions Situated at Calcutta, Mumbai, Hyderabad and Chandigarh with the Addition

of 1500 outlets. The total number of retail network hasBeen expanded to more than 6500.

Rubber Chemicals:

ICI India is a market leader in the rubber chemical in India at the new state of the art an

horizontal plant set up in technical collaboration with sumita chemicals of Japan, at rishra,

West Bengal. ICI manufactures a wide range of rubber chemicals acceletors, antioxidants,

peptisers, retanders etc. used in wide variety of end products with around 50% consumed by

tyre industry with other based products accounting for the rest. In year 2005 sales decline due

to recession in automobile segment. The plant near Calcutta has been recently expanded and

modernized at a cost of Rs 50 mn to manufacture products for domestic market and experts.

SURFACTANTS: (UNIQUEMA)

The division has started operating by the name of uniquema. Starting with textile

auxiliaries the surfactants business has developed and diversified portfolio for supply of

products of textile, cosmetic and pharmaceuticals companies, pesticides industry and general

industry sector. With its manufacturing unit and research and technology centre focused on

textile auxiliaries has been put up at thane near Mumbai. ICI launched 200 new products in

surfactants. Last year catalyst syntax is the new name of ICI’s expanded catalyst business

formed by the merger of ICI katalca, unichema, crossfield, htc, and ICI tracerco. The

manufacturing plant at Kanpur caters the supply of catalyst to the Indian customers and some

of the catalyst. The Indian operations are covered under the global operations of ISO 9001

certification. The major customers are refiners and fertilizers

POLYURETHANE:

ICI India set up the polyurethane business at Ennore, Chennai with the establishment

of a 1000 TPA blending operation. Subsequently the main office was moved from Ennore to

Thane. The appliances, automotive, footwears, construction, furniture, CASE and eco-

blinders sector offers major opportunities for the polyurethane business in India.

ICI has set up plant at Thane to enhance value addition through tailor made products.

PHARMACEUTICALS:

While the pharmaceuticals business of ICI worldwide has been hived off into another

company called Zeneca. In India it still operates under ICI banners. The pharmaceutical

business is amongst the fastest growing and profitable one. The business portfolio includes

both human and veterinary pharmaceuticals. In human pharmaceuticals there are three major

portfolios cardiac, anesthetic and antiseptic. Most of the product being marketed is original

ICI research product. ICI has a state art manufacturing plant at Ennore near Madras. In

cardiac vascular main brands are tenormiu, Inderal and tetmosal. ICI India also exports to

Europe and Middle East. It also acquires the businee of nitrrocellouse business of Asha

ntrochem last year. Industrial nitrocellulose finds application into auto-refinish paints, wood

lacquers, printing inks, leather finish lacquers, foil coatings, artificial jewelry etc. ICI acrylics

are the world’s largest acrylic company with 55% of world volumes.ICI India mainly import

product from the parent and market it. For this it has tied up with GSFC. ICI is the trading

group of ICI India offering a wide variety of chemicals for import and export with the main

focus on chlorine chemical and titanium dioxide. It sold up its 49%stake in Zeneca

Agrochemical for Rs 194.7 mn. It receives Rs 911 mn net of its investments of Rs 76.4 as

equity. It has also sold properties in Delhi and kolkatta for a total sum of Rs 840 mn.

May 7, 2008

Financial highlights *

In € millions Q1 2008Q1 2007

**% change

Revenue 3,506 3,486 1

EBITDA 398 403 (1)

EBITDA margin (in %) 11.4 11.6

EBIT 257 254 1

EBIT margin (in %) 7.3 7.3

Earnings per share (in

€)0.52 0.49 6

Net income 136 142 (4)

* Continuing operations before incidentals Pro forma.

Operational highlights for the quarter

Ongoing trend of underlying growth, in local currencies, in most businesses

Autonomous growth of 6 percent offset by currency headwind

ICI integration and synergies on track

Earnings per share of continuing operations up 6 percent

Total net income €118 million, up €40 million

AkzoNobel today reported 6 percent autonomous growth for the first quarter of 2008,

indicating a strong underlying trend. However, this was offset by a similar negative

currency impact. Operational margins of continuing operations were flat. Although net

income from continuing operations of â‚136 million was down 4 percent, earnings per share

increased 6 percent, due to the share buyback programs .The company achieved underlying

growth in local currencies in most of its businesses, reaching double digit levels in emerging

markets. Autonomous top line growth of 6 percent was reduced to a positive benefit of just 1

percent due to the currency translation impact.

AkzoNobel CFO Keith Nichols commented: I am pleased with the stable performance which

demonstrates the strength of our transformed company. The testing environment continued in

the first quarter, as expected. However, I remain confident for the remainder of the year that

we will deliver on our promises of outgrowing our markets, and continuing with the

successful integration of ICI .Looking at the results in more detail, Specialty Chemicals

realized strong autonomous growth of 11 percent, supported by almost all businesses. Growth

at Performance Coatings was offset by currency pressure, although Marine & Protective

Coatings produced another strong quarter.

There was double digit revenue growth at Decorative Paints in the emerging markets, but due

to negative currency effects, total revenue was down 4 percent. The first quarter is not

traditionally strong within the decorative sector. This seasonality was compounded by the

poor weather conditions and an early Easter holiday.

Total revenue developed as follows:

 In % versus

Q1 2007

pro forma

Total Volume Price CurrencyAcquisitions/

divestments

Decorative

Paints(4) (2) 3 (6) 1

Performance

Coatings1 2 2 (6) 2

Specialty

Chemicals5 4 7 (6)

AkzoNobel 1 2 4 (6) 1

Decorative Paints

The year began well, but adverse weather conditions in Europe and eastern Canada

towards the end of the quarter resulted in a delay in market demand. Performance was strong

in the emerging markets, with double digit growth in Asia and Latin America. Growth was

also healthy in most Central and East European countries. In the US, the trading environment

continued to be soft. In most mature markets, the trade business performed well, while the

retail segment faced weaker market conditions. Despite the significant currency impact on the

top line, EBITDA and EBIT margins improved compared with the first quarter of 2007,

benefiting from changes in product mix and a continuing focus on cost control.

Performance Coating

Although the achievement of 4 percent autonomous growth was encouraging, this was

offset by the currency headwind of 6 percent, which was felt by all businesses. Acquisitions

added 2 percent to revenue, resulting in flat total first quarter revenue. Despite the tough

currency conditions, Marine & Protective Coatings delivered another strong quarter, with all

activities contributing. Industrial Activities performance was impacted by currencies and the

soft economic conditions in the US. EBITDA and EBIT margins were down compared with

last year, mainly due to the impact of currencies.

Specialty Chemicals

It was another good quarter, with revenue up 5 percent on last year. Autonomous

growth was 11 percent, indicating that most businesses have continuing high asset utilization.

Higher raw material and energy prices were compensated by price increases of 7 percent.

Before incidentals, EBITDA increased to €205 million (up 1 percent), while the EBITDA

margin amounted to 17.1 percent, slightly below the first quarter of 2007. The Surface

Chemistry, Polymer Chemicals and Chemicals Pakistan businesses in particular are operating

at a clearly improved level.

Net Income

Net income from continuing operations before incidentals amounted to €136 million, down

4 percent compared with last year. During the quarter there were incidental charges of €151

million (2007: €90 million), largely related to ICI integration costs (€84 million), and an

amortization of the step-up of acquired inventories totaling €42 million. Net income

including incidentals from continuing operations was €36 million (2007: €78 million).

Discontinued operations realized a net income of €82 million. Total net income for the first

quarter of 2008 was €118 million, up €40 million compared with the previous year.

Cash Position and strong financial position

On January 2, 2008, ICI was acquired for a gross price of €11.5 billion, of which

5 billion related to assets and liabilities held for sale. Prior to the Henkel on sale at the

beginning of April “ for cash proceeds of €4 billion “ AkzoNobel concluded a legal

restructuring of National Starch. This explains a relatively high cash and short-term borrowing

position at the end of the first quarter of 2008. Invested capital increased due to the ICI

acquisition and the related goodwill and intangibles of €8.1 billion. In mid-March,

AkzoNobel embarked on a new €1 billion share buyback program as a first tranche of a €3

billion program. It is expected that the full €3 billion programs will be completed in

approximately 12 months.

Trading conditions

Despite softer economic conditions in the mature markets and the negative impact of

currencies, AkzoNobel remains confident of outgrowing its markets and at least maintaining

results in line with 2007.

BERGER PAINT INDIA LTD:

Profile

Berger Paints is the third largest paint manufacturer in India with an overall market share of 19%. It is India's

second largest decorative paint manufacturer (11% share) and also the third largest industrial paint manufacturer

(14%). Over two-thirds of its turnover comes from decorative paints and the balance from industrial paints.

1923

- The Company was incorporated on 17th December, in West Bengal. The Company manufacture and sell

paints, varnishes, dry colours, enamels, pastes, distemper, ships paints, boiler components and various other

kinds of paints to meet the requirements of trade, commerce and industry. Some of the brands manufactured

are Castle, Parrot, Duroglaze, Luxol, Murisan, Synthetic, Soligum, Apexior, etc.

2000

The Company proposes to expand its operation through acquisitions, both internally and externally, and

strategic partnership, preferably with foreign firms. Crisil has upgraded the fixed deposit programme of Berger

Paints from FAA to FAA+.

2001

Berger Paints India Ltd. has unveiled a new brand promotion Strategy which it claims to be the first of its kind

in the industry. Despite a slight increase in sales, the net profit of Berger Paints India Ltd has dropped by

around 10 per cent for the half-year ended September 30, 2001. Berger Paints Ltd and ICI Ltd, have formed a

50:50 joint venture to manufacture auto and industrial coatings at Rishra in West Bengal.

2002

Board decides to pay interim dividend @25% on the ordinary shares.Acquires 50% stake in Berger Auto &

Industrial Coating Ltd. Signs term sheet for acquiring the entire paint business(including the entire intellectual

property rights ) of Snowcem India Ltd. inducts Jalal Dani as the Chairman of the company , after buying out

50.1% stake in the Singapore based paints company.

2003

-BOD decided not to amalgamate Berger Auto & Industrial Coatings Ltd with the company.Board recommends

a dividend @ 60% on equity capital of the company.Posts 54% growth in the net profit to Rs.14.14cr for the

second quarter end.

2004

Delhi based Punjab National Bank (PNB) and Bangalore-based Vijaya Bank enter into a four-way partnership

with Principal Financial of the US and Berger Paints to set up an insurance broking company

2006

Berger Paints India Ltd has entered into a Joint Venture Agreement (JV) with Nippon Bee Chemical Co Ltd of

Japan for the purpose of formation of a Company for manufacture and sale of coatings for plastic substrates

used in automobiles and parts thereof in India.

2007

Berger Paints India Ltd has entered into a Joint Venture Agreement (JV) with Nippon Bee Chemical Co Ltd of

Japan for the purpose of formation of a Company for manufacture and sale of coatings for plastic substrates

used in automobiles and parts thereof in India.

BERGER PAINTS INDIA LIMITED  (BRGR)

 Price History Top

Price Rs 30.3   P/E X 10.4

% ch % 0.0   P/CF X 8.5

Mkt

Cap

Rs

m9,647.3  

EPS (31/03/2008

)

R

s2.9

Vol'00

03.1   Shares O/S m 318.92

% ch

week% -1.3   % ch 1-month % -5.9

% ch

12-month% -36.8   52 week H/L

R

s68.6/25.8

(Price History as on 05/12/08)

 Interim Results Top

No. of Months

Year Ending

3

31/03/2008

3

30/06/2008

3

30/09/200

8

NET SALES Rs m 3,363 3,782 4,238

Other income Rs m 34 70 24

Turnover Rs m 3,397 3,852 4,262

Expenses Rs m 3,006 3,466 3,832

Gross profit Rs m 357 317 406

Depreciation Rs m 49 50 47

Interest Rs m 40 22 33

Profit before Rs m 302 315 350

tax

Tax Rs m 61 83 59

Profit after tax Rs m 241 232 291

Gross profit

margin% 10.6 8.4 9.6

Effective tax

rate% 20.2 26.3 16.9

Net profit

margin% 7.2 6.1 6.9

* Results Consolidated | Interim results exclude extraordinary /

exceptional items | Historical Quarterly Results

IMPACT ON BUDGET:

Market size of the Indian paint industry –Rs 5000crore.While the organize sector accounts

for Rs 3500 Crore, the unorganized sector accounts for the balance of rs1500crore.

In terms of volume, the unorganized sector accounts a major portion of supply.

Decorative paints and industrial paints accounts for around 70% and 30%of the total demand

respectively.

In decorative paints, enamels accounts for the maximum share followed by wall finishes,

primers and wood finishes.

In industrial paints, while automotive paints accounts for around 30 to 35%.General

engineering paints accounts for balance.

While Asian paints is the market leader in decorative paints, Goodlass Nerolac is the market

leader in the industrial paint.

Raw materials accost account for around 50%of the total cost of production.

Demand is seasonal. Most of the demand comes during the October to March period.

Industry is working capital intensive.

Technology, distribution network, product innovation, service, brand recall, and geographical

reach are the key success factor.

Budget paints 2008-09

Given that the growth of the Indian paints industry to a large extent hinges on GDP

growth, the performance of the paints industry last year was healthy on the back of a robust

growth in the Indian GDP. Demand especially for decorative paints was strong led by

increased construction activity and in the industrial paints business, powder and protective

coatings logged in healthy growth rates. In the next five years, the industry is expected to

grow at a CAGR of around 11% to 12% and paint companies are expected to clock strong

growth rates backed by capacity additions undertaken by them. Having said that, rising crude

prices will have a major bearing on the operating margins going forward.

Budget measures

Customs duty exemption to be withdrawn on naphtha for use in the manufacture of polymers

in order to correct price distortions and revenue losses.

Naphtha for use in the manufacture of polymers will be subjected to normal rate of 5%.

Increased emphasis on Bharat Nirman and improving infrastructure.

Budget Impact

Reduction in excise duty on small cars, two wheelers and three wheelers will benefit

paint companies, as the prices of cars will decline thereby boosting volumes.

Increased emphasis on bolstering infrastructure in the country is a positive for

companies, as it will enhance the performance of powder and protective coatings.

Company Impact

Reduction in excise duty on small cars, two wheelers and three wheelers will benefit Kansai

Nerolac and Asian Paints given their strong presence in the automotive paints segment.

Emphasis on improving infrastructure such as roads, capital goods and power will be

beneficial to Asian Paints, which has been witnessing strong growth in its powder and

protective coatings businesses.

Reduction of duty on import of raw materials used in the paints industry. All raw materials

imports to attract a common duty.

Budget 2005-06

Construction of residential complexes having more than twelve residential houses or

apartments together with common areas and other appurtenances. Exemption on tax

deductible housing loan to continue. Under the rural development programme, 6 m additional

houses to be constructed for the poor.Peak customs duty reduced from 20% to 15% The new

income tax brackets, the change in exemption and deductions available to individuals and the

increase in exemption for women. IT to generate around 7 m jobs till 2009.

Budget 2006-07

Peak rate of customs duty reduced from 15% to 12.5%. Basic inorganic chemicals

reduced from 15% to 10%. Excise duty is being reduced from 24% to 16% on small motor

vehicles. Duty to be reduced on major bulk plastics like PVC, LDPE and PP from 10% to 5%;

on naphtha for plastics to nil; on styrene, EDC and VCM which are raw materials for plastics

to 2%. Emphasis on the Bharat Nirman project and its timely completion.

Budget 2007-08

Hike in allocation for rural and urban housing infrastructure development. Reduction in

custom duty on chemicals from 12.5% to 7.5%.Dividend distribution tax to be hiked from

12.5% to 15%.Additional education cess of 1% to fund secondary and higher education.

Key Positives

Steady growth: The Indian paint industry has very low consumption levels as

compared to the other developing economies. While the decorative segment is growing at 1%

per annum, the industrial paint segment (led by powder and protective coatings) is also

expected to record strong growth rates going forward.

A mixed bag: A robust housing sector is likely to boost demand in the decorative

segment. Long-term growth potential of the auto sector is also a big positive.

Structural shift: Continuous fall in excise duty in the past has benefited organised players

and the impending consolidation will add to the pricing power.

Capex cycle booster: With investment cycle showing signs of momentum, industrial paint

demand could grow at a much higher rate than the last five years.

Key Negatives

Raw material worries: Since the paint sector is highly raw material intensive, rise in

crude and petrochemical prices affects performance and the reliance is unlikely to reduce

going forward.

Monsoon blues: The performance of the decorative division also hinges on rainfall. In

the last six years, the country has witnessed three years of poor rainfall, which has impacted

paint demand.