Formica eyes India's untapped potential on expansion drive

Philip King, Fletcher Building investor relations general manager. Photo / Supplied

India, the world's second-biggest laminates market after China, is the next target for Formica - Fletcher Building's global panels business which has put the past behind it and is on an expansion drive.

Analysts were hosted on a site visit to Formica's world headquarters in Cincinnati on September 20, and Sydney-based Emily Behncke and John Hynd of Deutsche Bank told how India had huge untapped potential, its laminates market forecast to double in the next 10 years.

Analysts revealed how Formica had launched what it called "project reset" to turn the business around.

Formica, in Chapter 11 before Fletcher bought it, has a sales office at Pune, but the business has no manufacturing capability in India.

Philip King, investor relations manager, said an Indian factory was planned.

"We currently supply Formica product into India from our European plants. We therefore distribute in the country but don't have any manufacturing operations there. We do, however, see it as a potential growth market over time, much as China has been in the past decade for Formica," he said.

The two Sydney analysts said Formica was also poised to buy a European niche manufacturer.

Andrew Scott, an analyst at RBS Equities (Australia), said Formica was now in a position to contemplate incremental acquisitions.

"The Chinese market continues to grow rapidly with revenues up 22 per cent last year. Formica will prepare for future growth with the completion of the new $70 million Chinese facility [announced this week]. This will effectively double capacity with potential for this plant to scale up."

Behncke and Hynd said Formica had achieved $40 million cost savings in its 2011 financial year compared with 2010 and predicted further savings. They predicted a 41 per cent lift in earnings before interest and tax but said Formica was overweight in its exposure to China's commercial market, which accounted for 63 per cent of business there.