Mumbai: Asian Paints, India's largest paint company, is considering setting up a new plant at an estimated cost of Rs 120 crore over the next two years.

Its growth strategy hinges on increasing volumes both in the domestic and international markets through a more comprehensive product portfolio. The company operates 28 paint-manufacturing facilities in 23 countries with a combined capacity of 330 million litres per annum.

The company's management aims to make Asian Paints one of the top five decorative paint companies worldwide by 2007, according to a report by Morgan Stanley. The company initially used the greenfield route but later shifted to acquisitions.

So far, Asian Paints has set up 10 greenfield operations, acquired four companies abroad and absorbed 1,300 workers in the process. Its consolidated revenue was about $450 million in F2003, and its current market capitalisation is $641 million.

Asian Paints is the leader in nine overseas markets. In India, it is the leader in the paint market with a 39 per cent share in F2003. The company is the dominant leader in decorative paints with a 43 per cent share and is the second-largest player in industrial paints. The company's product profile encompasses all segments in the Indian paint market.

Its operations are focused in emerging markets with a presence in South Asia, Southeast Asia, the Middle East and Africa, the report said. The investment in IT infrastructure is almost complete and the colour-tinting machines are now being financed by banks instead of the company.

"We believe that bulk of the investment phase is behind the company and that the company is likely to generate strong free cash flows in the next three years," the Morgan Stanley report added.

Asian Paint's efficiency in manufacturing is evident from the improvement in its asset turnover ratios. Its sales-total asset ratio has improved from 1.7 for F2000 to 2.0 for F2003 although its sales-net fixed assets turnover has improved from 3.9 to 4.8 for the same period. "We expect the sales-total assets ratio to improve to 2.4 in the next three years," the report said.

With its acquisitions of Berger International (Singapore) in November 2002 and SCIB (Egypt) in December 2002, it ranks among the top 10 decorative coatings companies in the world with a group revenue of $450 million. Asian Paints is the market leader in 10 countries, including India.

The company is globally competitive, and it has tremendous brand equity and a strong distribution network in India with a 39 per cent share of the overall domestic paint market.

Already the company is the dominant market leader in the decorative paint market (43 per cent share) and the second-largest player in the industrial paint segment. "We expect its sales to rise 13 per cent a year for the next three years mainly driven by industry growth and an increase in its market share," the Morgan Stanley report said.

The drivers of demand growth are secular increases in housing industry growth for the decorative segment and automobile industry growth for the industrial segment. All of the company's acquisitions have been used to enhance its competitive position either in the Indian market or significantly enhance its geographical presence globally.

This was especially true when the company bought the powder-coating company, Howcoplast Chemicals, which enabled Asian Paints to competitively position itself in the domestic industrial paint segment, the report said. The company's acquisition of Berger International and SCIB significantly enhanced its global presence with operations in 23 countries.