Nippon JV can fetch Rs 125-130cr rev in 1 yr: Berger Paints

Berger Paints India Ltd entered into a joint venture (JV) with Japan's Nippon Bee Chemical Co Ltd on Friday to make and sell auto coatings in India. Speaking to CNBC-TV18, Abhijit Roy, MD and CEO of Berger Paints says the company will use the existing plants for the purpose and expects Rs 125-130 crore revenue in the first year. With this move, the company will enter the four-weeler automotive business and get international approvals for companies like Toyota and Honda, he adds.Roy also expects Berger's third quarter volumes to be better going forward.Below is the verbatim transcript of Abhijit Roy’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: Can you tell us what exactly is the rationale behind this move and what kind of revenues or profits can we expect from the joint venture (JV) post the transfer of the business?A: What we were trying to do is in terms of if you look at the automotive business we are fairly represented in the two-wheeler and commercial vehicle category. However, we were unable to make any inroads into the four-wheeler category especially the passenger car segment and the SUV’s.Now this is a category where you need international approvals and that is very difficult to come by for an Indian company based out of India. So, we were in the lookout for a partner who can help us in getting this inroad into the four-wheeler category and Nippon has that technology. They have the approvals required with a major players including Honda, Toyota and they supply to all of them abroad. Therefore it would have been easier if we join hands together in India to get into this one segment where we were unrepresented so far.We are fairly reasonably strong player in the decorative segment. We have a leadership status in protective coatings. In automotive we were totally left out of this four-wheelers segment and that is why we decided to tie up with Nippon.Latha: Does it come with a cost? Do you all have to pay a royalty or do they transfer technology?A: It is a joint venture like we had this already for the plastic coatings of cars. Now we are extending it to the metal coatings also. We are transferring from our side our three-wheeler business and they will bring in the four-wheeler business on to this JV. Sonia: I wanted to ask you, you were saying that they will give you inroads into the four-wheeler category what kind of growth do you expect from the four-wheeler segment itself and what kind of export potential could this bring about for Berger Paints?A: The four-wheeler category is growing reasonably good in India and it is expected that it will accelerate further in the light of the Pay Commission bounty which is going come in. It is expected that the four-wheeler demand will perk up a little bit.In that case the demand will further be relatively more stable in the next two to three years that is what we feel.In any case the four-wheeler manufacturers were looking for alternative vendor to the current position where two players are there actually. So, there is a choice available to them also in terms of Berger and Nippon joining hands and providing the requisite material and technology.Latha: What is the money that each of you bring into the JV?A: It is a business which has been brought in it is not the money.Latha: Won’t you set up another plant or something?A: Initially no because we have our Howrah plant and we have a plant which Nippon had in Bangalore which will be utilised for manufacturing products. Later on down the line one and a half years may be we will have to set up a plant depending on the demand situation. Latha: What will be the revenue of this JV in the first year, in the second year?A: In the first year itself we expect it to be around Rs 125-130 crore. It can have a massive growth from there on; probably touch about Rs 180 crore in no time. Probably another one year and it should be around Rs 180-200 crore range.Latha: What margins will it operate at? What would the bottom-line be?A: Car margins are reasonably decent so far what we have seen. It is a reasonably good margin unless we get in we don’t know but I think it will be a decent margin.Sonia: So you say the revenues could go up to Rs 180 crore as well of which 49 percent is what you will be entitled to. What about the profits, how much could the profits grow to?A: As I said, normally if you look at automotive industry car industry is the most profitable so it should have a good margin.Sonia: One final word on the volume growth. Overall in the quarter gone by you saw about 10 percent volume growth how is the second half looking and do you think you can do better than this 10 percent?A: It is looking better, third quarter definitely should be better than the first half largely because October as I had mentioned earlier also this season had been postponed a little bit this year. So, October went off well for most companies I presume. At last we did reasonably well and therefore the volume growth is expected to be much better in the third quarter.