Sucheta Dalal :Asian Paints and ICI: Coming a full circle (27 Oct 2003)
Sucheta Dalal

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Asian Paints and ICI: Coming a full circle (27 Oct 2003)  

For Ashwin Dani, the Managing Director of Asian Paints, India’s largest paint company, the acquisition of a 9.2 per cent stake in ICI (India) Limited, would have had the sweet smell of a victory. Although he told the press that ‘‘ICI India Ltd offers a good investment opportunity and Asian Paints does not plan to destabilise the current management’’, he probably has a good idea of the suspicion with which his remark would be greeted. In October 1997, just six years ago, Dani was fighting the biggest battle of his life to ward off a serious takeover threat by the very same ICI, supported by the money power of its UK-based parent company ICI Plc. That was not all. Dani was also fighting to take charge of Asian Paints and to keep its three promoters — the Vakils, Danis and Choksis — together, and resist the blandishments of ICI UK to sell their stake. He faced an even greater challenge of proving to his partners, shareholders, dealers and stakeholders that he was just as capable of leading Asian Paints as Atul Choksey, the man who was, until then, the public face of Asian Paints. And, who had plunged the company in turmoil when he hatched a secret deal to sell his 9.1 per cent holding to ICI UK.

Asian Paints then had a 33 per cent market share and was already India’s biggest paint company. When the news of Choksey’s deal with ICI Plc hit the market, the stock price of Asian Paints rose in anticipation of the takeover tussle driving up the secondary market price. Either that, or the 28 per cent retail and institutional shareholders expected to benefit when ICI UK took over Asian Paints and formed India’s biggest paint conglomerate. But Dani decided to take charge of things and got ready for battle. He was up against the formidable and well-connected Dr Ashok Ganguly (former chairman of Hindustan Lever and a familiar figure in Delhi’s corridors of power.) ICI Plc probably thought it was only a matter of getting control over the Choksey shares and to wait for the company to disintegrate. That is why it could afford to call its purchase a benign investment. But the three promoters of Asian Paints dug in their heels and refused to transfer the shares. They also used all their connections to lobby politicians and play up the swadeshi v/s videshi factor. How could a multinational be allowed to gobble up a top Indian company, a market leader, just because one of its promoters struck a surreptitious deal to sell out his holding, they asked? By November that year, Asian Paints’ price had crashed to Rs 280 and Kotak Mahindra, which played intermediary for ICI Plc and held the Choksey shares that were acquired at Rs 346 each, was sitting on a loss. For ICI Plc, the hurdle was to obtain permission from the Foreign Investment Promotion Board (FIPB), which was rejected on November 5, 1998. The stock hit an all-time low of Rs 198 (during that phase) and very soon it was clear that ICI Plc was ready to give up its acquisition plans. Kotak Mahindra later sold 4.5 per cent of ICI’s holding, kept in its custody, to Unit Trust of India (UTI) and the remaining back to Asian Paints’ promoters at Rs 406 per share. Ironically, on the day that Asian Paints bought back the Choksey shareholding, the stock hit the upper circuit filter — this time in support of the Dani-led management. In 1998, Asian Paints was a Rs 1,128 crore company and still firmly the market leader.

In year 2003, when it is ready to turn the tables on ICI Plc by acquiring the government’s 9.2 per cent holding, Asian Paint’s turnover is Rs 2,040 crore and it has operations in 24 countries, with market leadership in 11 of them. In another reversal of the 1997 story, the price of ICI (India) shot up on October 23 to 9.4 per cent Rs 174.80 in anticipation of some corporate action. So far, ICI’s UK parent has not reacted to Asian Paints’ acquisition of a substantial stake in its Indian company, but notwithstanding Dani’s assertion, Asian Paints could hardly buy the stock as an investment. The share price of ICI (India) has been stagnating or has dropped over the last six years, after the skirmish with the market leader. On the other hand, ICI UK holds almost 51 of the Indian company so a hostile takeover is out of the question. To think that the two companies will seek out product synergies and work on a joint marketing strategy also seems a little fanciful. While Asian Paints is completely focussed on paints, it is only one of the five businesses of ICI (India), even after it shed some of its holding in Indian Explosives last month, and sold its fertiliser division to Duncans, fibre business to Reliance and got out of seeds and agrochemicals. ICI (India) is also rumoured to be planning to exit its Rubber Chemicals and Nitrocellulose businesses, and the company hasn’t exactly denied the reports.

Were those two divisions to be sold, ICI (India) would be predominantly a paint company. It is also increasing its paint manufacturing capacity with two new units and is working on expanding its distribution network. Does that seem like a company wanting to get out of India? Not really. Does it then mean that the acquisition of a 9.2 per cent stake in ICI (India) is more of an ego thrill for the promoters than a serious investment decision? That too is difficult to say with any certainty. But with ICI (India) continuing to restructure its operations, its senior management and its shareholding, it is a stock that is going to be keenly watched by the stock market after a long time.

-- Sucheta Dalal