See strong rural demand on good monsoon: Asian Paints boss Anand

Asian Paints is targeting a double-digit volume growth, said KBS Anand, MD and CEO of the company. He expects a good monsoon and pay hikes for government employees to boost demand for decorative paints. In an exclusive interview to CNBC-TV18, Anand said the decorative paints market has picked up in the last three quarters.Growth in the company's international business is picking up, but Anand said it does not have a significant impact at the consolidated level. "Increase in margin was on account of lower commodity prices," he added. The EBITDA margin expanded 180 basis points to 20.1 percent from 18.3 percent percent in the June quarterThe company's first quarter (April-June) earnings surpassed analysts' expectations on Wednesday with consolidated profit growing 18.7 percent year-on-year to Rs 553 crore, on strong operational performance.Anand is of the opinion that rural demand will grow faster than urban demand, because of good monsoons, which will boost farm income.Below is the verbatim transcript of KBS Anand's interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: This is an extraordinary performance that you have managed. Let me come to the growth in volume and value itself, what kind of a volume could you generate in terms of a growth this quarter?A: We have indicated a low double digit volume growth.Latha: Your decorative volume growth is 12-13 percent we understand. Will you be able to maintain that?A: We don’t give false future guidance but the market has definitely picked up in the last three quarters and given the onset of a decent monsoon as well as the increase in government salaries, one rank one pension (OROP) etc, things look okay.Sonia: I was going through your press release yesterday post the earnings and you did mention that the international markets are also picking up for you as far as business is concerned whether it is Nepal or UAE, what kind of value can you achieve from those markets and how much of incremental gains do you see in margins purely because of the international business?A: The international business last year was about Rs 2,000 crore out of our Rs 15,500 crore turnover. So it has an impact but not a very significant impact in our consolidated turnover. Each of these markets is  competitive on its own and the increase in margin is essentially because of commodity prices being much softer than the similar quarter in the previous financial year.Anuj: Give us a word on the industry growth and your own growth. Do you think the industry itself will continue to grow like this and you will maintain your market share or grow your market share?A: We think the industry has grown at least at our levels in Q1 or similar to our levels in Q1 not very different and we would like the industry to continue to grow.Latha: You spoke about the possible impact of the OROP and 7th Pay Commission and probably rural markets already showing some improvement. Can you give us a little more colour on that? Compared to year ago and the previous couple of years where we had seen very poor demand, can you distinctly say you are seeing a recovery?A: I would still say, it is a little too early to say that because good demand is -- like I mentioned yesterday in the decade from 1999 to maybe 2010 when it was high double digit volume growth. So we are still far from that and I think if the gross domestic product (GDP) numbers improve, the economy grows, those type of volumes should be feasible but finally it is dependent on the overall economy.Latha: I agree that we are not in that great period of growth that we saw in first decade of this millennium but is it at least better than the previous three years, can you at least say that it is a recovering demand?A: If you look at our performance except for a year where I would say volume was not in double digits. We have had double digit growth almost every year in the last 15 years.Sonia: Can you throw some more colour on what the improvements you are seeing on the ground both in terms of rural and urban? Where do you see a faster pick up and some channel checks indicate to us that the repainting cycles are improving so now it is approximate about four-five years, what is the feedback that you are getting on the ground?A: Because of the increasing urbanisation in small towns and villages, rural demand at least in the paint category has always been growing faster than the urban demand over the last twenty years. So that continues, no different.The difference was a little muted in the previous year because of the second year of the monsoon failure. So that should improve but otherwise rural demand has always been significantly higher than the urban demand.Anuj: You also have the home improvement segment, you had acquired Sleek and that is also done well. We believe you are also targeting adhesive space now?A: We have got a tie-up with Henkel and we have entered the adhesive space. We are just testing out the market and distribution channels etc. So we have had a decent response, let us see how it goes further.Anuj: Any inorganic moves that are planned there like you did with Sleek in the home improvement segment?A: I have to first announce it to the stock exchanges before I tell you anything. When anything is done, we will tell you.Latha: The adhesives sector -- Pidilite has done a lot over there and expanded the market considerably. What are your plans, are you looking at it as the genesis of a very big business?A: I think it will never be as big as the paint business. It is a much smaller segment but we have a fairly common distribution network and it complements our network both in terms of demand as well as the supply chain. So it is an interesting area to get into and the market can expand significantly. So while Pidilite has done an excellent job over the last decade, I think there is phenomenal potential for it to grow.Sonia: Asian Paints has been growing in low double digits for a while now. How high is the possibility of your growth trajectory accelerating to high teens over the next few quarters or maybe even couple of years?A: Paint is not the most essential item in the world. It is related to purchasing power of larger part of the economy, the construction and the growth of the GDP. So paint demand booms if the GDP starts booming.Latha: Considering that demand is still a little subdued as you put it, is it that you will try and concentrate more on higher value added paints, higher value paints?A: That is something that we have always been doing. We will do that, we have launched premium products last year, we would launch more products this year. So that is a continuing, ongoing phenomena, upgradation from the lower end to the higher end has been something we have been doing for decades now.