PPG's India JV Gets Go-Ahead

Specialty coatings and paints giant PPG Industries (PPG - Analyst Report) has received the green light from the Indian regulatory authorities to expand its coatings joint venture with Asian Paints Ltd, the biggest coatings company in India. PPG has also secured the necessary approvals to form a second joint venture with Asian Paints.

Asian Paints is the 10^th largest decorative paint company in the world with operations across 17 nations. It has 24 manufacturing locations globally and serves customers in 65 countries through its subsidiaries.

The regulatory clearance enables PPG and Asian Paints to expand their existing 50-50 joint venture “Asian PPG Industries”, allowing them to serve industrial liquid, marine, consumer packaging and transportation coatings customers in India. The entities will also set up a second joint venture dubbed “Asian Paints PPG Limited” to address the protective, industrial powder, industrial container and light industrial coatings markets.

The joint ventures will leverage PPG’s global scale, technology and customer associations and Asian Paints’ commanding presence in the Indian market along with its manufacturing and distribution capabilities to accelerate coatings growth in India. PPG will lead Asian PPG Industries while Asian Paints will assume management control in Asian Paints PPG Limited.

Pennsylvania-based PPG Industries is a leading supplier of paints, coatings, optical products, specialty materials, chemicals and fiber glass. It competes with the DuPont Performance Coatings segment of EI DuPont de Nemours & Co. (DD - Analyst Report).

PPG Industries continued its positive surprise streak in first-quarter 2012 with adjusted earnings of $1.81 a share beating the Zacks Consensus Estimate by a couple of cents. The results were aided by strong domestic demand and growth in emerging markets.

While the company foresees a weak European market, it expects accelerated growth in emerging markets, buoyed by increased industrial activity in China.

PPG Industries’ strategy of diversifying its business across various products and geographies has come in handy in testing times. It has a strong cash position and continues to utilize cash on growth initiatives. However, raw material costs remain a matter of concern for the company.

Currently, we have a long-term Outperform recommendation on PPG Industries. The stock retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.