Asian Paints to exit chemicals business

Cyclical downswings hit profitability; turnover was a meagre Rs 111 cr in FY04

Asian Paints India has put its chemical business on the block, as part of a restructuring exercise.

The chemicals business contributed Rs 111.3 crore to the company's turnover of Rs 1742.5 crore in 2003-04. The chemicals business comprise pthalic anhydride and pentaerythritol, which are used in paints, plasticizers, inks and dyes.

The company's two chemcial units are located at Ankleshwar in Gujarat and Cuddalore in Tamil Nadu.

Ashwin S Dani, vice chairman and managing director, Asian Paints, said, "We have identified chemical as a non-core business and are open to divesting our stake in the business. As and when we get the right value for this business, we will go ahead with the sale."

The capacity of both the units has been ramped up in the last year, Dani added. Asian Paints had set up these chemical units as part of its backward integration initiative.

While the company consumes a third of the total chemical production, the remaining is sold in the open market. Asian's Paints chemical business has been facing margin pressures owing to cyclical downswings in the industry.

As a result, it did not generate as much profit as it did in the previous financial year.

In 2003-04, external net sales from the business was Rs 63.7 crore, an 8.5 per cent drop compared with the previous year. The annual report for 2003-04 states that the per cent contribution of the chemical business to the company's sales will decline over time.

The report further stated that the company does not see this business as a major growth driver and that it has been facing severe pricing pressure as well as the change of catalyst, which has increased revenue expenditure and loss of production for over a month.

Analysts said the chemicals industry is likely to face pressure on margins and high raw material costs in the current year.