CMP 529.00

Target Price 595.00

ISIN: INE021A01026

MAY 15th

2014

ASIAN PAINTS LIMITED

Result Update: Q4 FY14

BUY

Index Details

Stock Data

Sector Paints

BSE Code 500820

Face Value 1.00

52wk. High / Low (Rs.) 565.00/376.35

Volume (2wk. Avg.) 81000

Market Cap (Rs. in mn.) 507416.80

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 127148.10 142405.87 158070.52

EBITDA 21321.10 23664.89 26555.18

Net Profit 12188.10 13517.84 14946.95

EPS 12.71 14.09 15.58

P/E 41.63 37.54 33.95

Shareholding Pattern (%)

1 Year Comparative Graph

ASIAN PAINTS LTD S&P BSE SENSEX

SYNOPSIS

Asian Paints is India’s largest paint company and ranked among the top ten Decorative coatings companies in the world with a consolidated turnover of Rs. 127.15 billion.

Asian Paints consolidation income from operations increased by 22% to Rs. 33071.30 mn from Rs. 27099.80 mn in previous year period

PBDIT for the group increased by 20% to Rs. 5161.90 mn from Rs. 4312.50 mn in Q4 FY13.

Net Profit after Minority Interest for the quarter was increased by 14.46% to Rs. 2874.20 mn as compared to Rs. 2511.20 mn in Q4 FY13.

For the quarter ended March 31, 2014, standalone income from Operations has increased by 22.2% to Rs. 27240 mn from Rs. 22296 mn in Q4 FY13.

During Q4 FY14, Net Profit on a Standalone basis increased by 11.5% to Rs. 2671 mn from Rs. 2396 mn in Q4 FY13.

Asian Paints had entered into an agreement with Kadisco Chemical Industry Plc, Ethiopia to acquire 51% of its share capital.

The Company has entered into a binding agreement with Ess Ess Bathroom Products Pvt Ltd and its Promoters to acquire its entire front end sales business, including brands, network and sales infrastructure.

Asian Paints has recommended payment of final dividend of Rs. 4.20 per share of the face value of Rs. 1 each for the financial year ended March 31, 2014.

During the period, Asian Paints (lnternational) Ltd, Mauritius (APIL) acquired an additional stake of 46.69% in Berger International Ltd, Singapore.

Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 10% over 2013 to 2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Asian Paints Ltd 529.00 507416.80 12.71 41.63 12.56 530.00

Kansai Nerolac Paints Ltd 1259.80 67893.10 38.34 32.86 5.28 110.00

Berger Paints India Ltd 241.00 83500.80 6.56 36.74 8.48 90.00

Shalimar Paints Ltd 83.00 1555.90 4.17 19.71 2.07 0.00

Recommendation & Analysis - ‘BUY’

For the quarter ended March 31, 2014, on consolidation of accounts of the subsidiaries and joint venture of Asian

Paints – Income from operations increased by 22% to Rs. 33071.30 mn from Rs. 27099.80 mn in previous year

period. Profit before depreciation interest and tax (PBDIT) for the group increased by 20% to Rs. 5161.90 mn

from Rs. 4312.50 mn in Q4 FY13. Net Profit after Minority Interest for the quarter was increased by 14.46% to

Rs. 2874.20 mn as compared to Rs. 2511.20 mn in Q4 FY13.

Decorative paint demand in India remained resilient inspite of the overall sluggish environment. The Company

registered double digit volume growth with good growth from Tier 2 & Tier 3 cities. Industrial coatings business

continues to be affected by the economic slowdown. Automotive coatings growth was subdued due to poor

demand in the automotive sector. International business performed well led by good growth in some key

markets like Bangladesh, Nepal and Emirates. However, performance in some markets was impacted by

continued political unrest and weak economic activity. In order to expand its international presence, Asian Paints

had entered into an agreement with Kadisco Chemical Industry Plc, Ethiopia to acquire 51% of its share capital.

The Company is focusing on expanding the kitchen business of Sleek through expansion of the network and

working on synergies with the paints dealer network. Asian Paints has entered into a binding agreement with

ESS ESS Bathroom Products Pvt Ltd. Going forward, the growth outlook is expected to be challenging. Over

FY2013-16E, we expect the company to post a CAGR of 13% and 10% in its top-line and bottom-line respectively.

Hence, we recommend ‘BUY’ for ‘Asian Paints’ with a target price of Rs. 595.00 for medium to long term

investment.

QUARTERLY HIGHLIGHTS (CONSOLIDATED)

Results updates- Q4 FY14,

Asian Paints is India's largest paint company and

Asia's third largest paint company, with a turnover

of Rs 127.15 billion, reported its financial results for

the quarter ended 31st March, 2014.

Months Mar-14 Mar-13 % Change

Net Sales 33071.30 27099.80 22.04

Net Profit 2874.20 2511.20 14.46

EPS 3.00 26.18 (88.55)

PBDIT 5161.90 4312.50 19.70%

The consolidated net profit jumps to Rs. 2874.20 million against Rs. 2511.10 million in the corresponding

quarter ending of previous year, an increase of 14.46%. Revenue for the quarter rose by 22.04% to Rs. 33071.30

million from Rs. 27099.80 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 3.00 a share during the quarter, registering 88.55% decrease over previous year period.

Profit before interest, depreciation and tax is Rs. 5161.90 million as against Rs. 4312.40 million in the

corresponding period of the previous year.

Break up of Expenditure

During the quarter the total expenditure raised by

22 percent mainly an increase of Cost of Material

Consumed along with Depreciation. Total

expenditure in Q4 FY14 was at Rs. 28841.70 million

as against Rs. 23658.10 million in Q4 FY13.

Employee benefit expenses increased to Rs. 1760.70

millions against Rs. 1600.90 millions in the

corresponding period of the previous year. Other

Expenditure was at Rs. 7233.00 million and Material

consumed cost is Rs. 18615.70 million in Q4 FY14

are the primarily attributable to growth of

expenditure.

Latest Updates

• Asian Paints Ltd has recommended payment of final dividend of Rs. 4.20 per equity share of the face value of

Rs. 1 each for the financial year ended March 31, 2014. Together with the interim dividend of Rs. 1.10 per

Equity Share of the face value of Rs. 1 each approved by the Board on October 21, 2013, the total dividend

aggregates to Rs. 5.30 per Equity Share of the value of Rs. 1 each for the financial year ended March 31, 2014.

• The Company has entered into a binding agreement with Ess Ess Bathroom Products Private Limited and its

Promoters to acquire its entire front end sales business, including brands, network and sales infrastructure.

Ess Ess Bathroom Products Private Limited is a prominent player in the bath and wash segment in India and

has high quality products in this segment.

• During the period, Asian Paints (lnternational) Limited, Mauritius (APIL), wholly owned subsidiary of the

Company, acquired an additional stake of 46.69% in its subsidiary, Berger International Limited, Singapore

(BlL) through a voluntary unconditional cash offer, off market transactions and open market purchases. As

on 31st March, 2014 the shareholding of APIL in BIL was 96.79%.

• Asian Paints (International) Limited, Mauritius, has signed an agreement with the shareholders of Kadisco

Chemical Industry PLC, Ethiopia (“Kadisco”) to acquire either directly or through its subsidiaries, 51% of the

equity share capital of Kadisco.

COMPANY PROFILE

Asian Paints is India’s largest paint company and ranked among the top ten Decorative coatings companies in the

world with a consolidated turnover of Rs. 12,714.8 crores (Rs. 127.15 billion). Asian Paints along with its

subsidiaries have operations in 17 countries across the world with 23 paint manufacturing facilities, servicing

consumers in 65 countries through Berger International, SCIB Paints – Egypt, Asian Paints, Apco Coatings and

Taubmans.

Forbes Global magazine USA ranked Asian Paints among the 200 Best Small Companies in the World for 2002

and 2003 and presented the 'Best under a Billion' award, to the company. Asian Paints is the only paint company

in the world to receive this recognition. Forbes has also ranked Asian Paints among the Best under a Billion

companies in Asia In 2005, 06 and 07.

The company has come a long way since its small beginnings in 1942. Four friends who were willing to take on

the worlds biggest, most famous paint companies operating in India at that time set it up as a partnership firm.

Over the course of 25 years Asian Paints became a corporate force and India's leading paints company. Driven by

its strong consumer-focus and innovative spirit, the company has been the market leader in paints since 1968.

Today it is double the size of any other paint company in India. Asian Paints manufactures a wide range of paints

for Decorative and Industrial use.

In Decorative paints, Asian Paints is present in all the four segments v.i.z Interior Wall Finishes, Exterior Wall

Finishes, Enamels and Wood Finishes. It also introduced many innovative concepts in the Indian paint industry

like Colour Worlds (Dealer Tinting Systems), Home Solutions (painting solutions Service), Kids World (painting

solutions for kid's room), Colour Next (Prediction of Colour Trends through in-depth research) and Royale Play

Special Effect Paints, just to name a few.

Vertical integration has seen it diversify into products such as Phthalic Anhydride and Pentaerythritol, which are

used in the paint manufacturing process. Asian Paints also operates through APPG (50:50 JV between Asian

Paints and PPG Inc, USA, one of the largest automotive coatings manufacturer in the world) to service the

increasing requirements of the Indian automotive coatings market. Another 50:50 JV with PPG has been

proposed which will service the protective, industrial powder, industrial containers and light industrial coatings

markets

Global Presence

Today the Asian Paints group operates in 17 countries across the world. It has manufacturing facilities in each of

these countries and is the largest paint company in eleven countries. The group operates in five regions across

the world viz.

� Asian Paints in South Asia (India, Bangladesh, Nepal and Sri Lanka)

� SCIB Paints in Egypt

� Berger in South East Asia (Singapore), Middle East (UAE, Bahrain and Oman), Caribbean (Jamaica,

Barbados, Trinidad & Tobago)

� Apco Coatings in South Pacific (Fiji, Tonga, Solomon Islands and Vanuatu)

� Taubmans in South Pacific (Fiji and Samoa)

Business Segments

Company business is divided mainly into two segments as follows:

• Paints Segment

This is the primary business of the company. Out of the total revenue earned by the group 9% is generated

from this segment. This segment is divided into two.

� Decorative Paints:

Decorative Paints business contributes around 94% in the total paint business. It has 5 manufacturing

plants operating all over the country, which is strategically located in-order to cater to market.

In Decorative paint segment, the Company operates in four main segments i.e. interior wall finish,

Exterior wall finish, Enamels and Wood Finishes. Besides, the company outsources around 25-30% of its

total production. Decorative paints segment constitute around 75% of the paint market in India.

� Industrial Paint Segment:

In this business, the company caters to automotive, powder, protective coatings, road markings segment,

floor coatings and General Industrial Paints. Most of the industrial paints business is operated by two

companies’ viz. Asian PPG Ltd. and Asian Paints Industrial Coating Ltd. The company ranks first in the

automotive paints business in domestic market. The company ranks second in protective segment and

first in the road-marking segment. Recently it has entered in floor coating segment.

• Chemicals Segment

Chemical business includes manufacturing of Phthalic Anhydride (PAN) and Penraerythritol (PENTA). APL

has its PAN manufacturing plant at Gujarat (capacity –25,200 MT) and PENTA manufacturing facility at Tamil

Nadu (capacity – 3000 MT). The company consumes nearly 50% of its production as captive consumption

and sells the remaining in the open market. This business contributes around 3% to company’s consolidated

revenues.

FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March 31st, 2013 -2016E

ASIAN PAINTS LTD. FY13A FY14A FY15E FY16E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 959.20 959.20 959.20 959.20

Reserves and Surplus 32883.70 39433.00 46530.94 53975.89

1. Sub Total - Net worth 33842.90 40392.20 47490.14 54935.09

2. Minority Interest 1607.70 2460.20 2853.83 3196.29

Non Current Liabilities

Long term borrowings 478.00 414.00 368.46 338.98

Deferred Tax Liabilities 1567.30 1900.10 2185.12 2403.63

Other Long term Liabilities 93.90 91.30 95.87 99.70

Long Term Provisions 985.70 1085.30 1172.12 1242.45

3. Sub Total - Non Current Liabilities 3124.90 3490.70 3821.56 4084.76

Current Liabilities

Short Term Borrowings 1898.60 1986.30 2065.75 2127.72

Trade Payables 14415.70 17457.20 19552.06 21507.27

Other Current Liabilities 8591.60 9014.50 9375.08 9843.83

Short Term Provisions 4408.20 5593.20 6376.25 6886.35

4. Sub Total - Current Liabilities 29314.10 34051.20 37369.14 40365.18

Total Liabilities (1+2+3+4) 67889.60 80394.30 91534.68 102581.32

APPLICATION OF FUNDS

Non-Current Assets

a) Fixed Assets 24559.50 24917.90 26911.33 28526.01

b) Goodwill on consolidation 442.30 1413.90 1640.12 1836.94

c) Deferred Tax Asset 23.50 21.90 22.56 23.91

d) Non-current investments 1501.20 1921.30 2228.71 2496.15

e) Long Term loans and advances 1064.90 1302.50 1536.95 1752.12

f) Other non-current assets 233.20 252.20 264.81 280.70

1. Sub Total - Non Current Assets 27824.60 29829.70 32604.48 34915.84

Current Assets

Current Investment 1305.60 5290.60 6877.78 8253.34

Inventories 18302.90 20698.60 22975.45 25043.24

Trade receivables 9808.80 11102.80 13158.04 16178.51

Cash and Bank Balances 7519.80 9316.60 10993.59 12642.63

Short-terms loans & advances 2146.00 2464.60 2760.35 3036.39

Other current assets 981.90 1691.40 2164.99 2511.39

2. Sub Total - Current Assets 40065.00 50564.60 58930.20 67665.49

Total Assets (1+2) 67889.60 80394.30 91534.68 102581.32

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 109707.40 127148.10 142405.87 158070.52

Other Income 1145.20 1342.20 1449.58 1580.04

Total Income 110852.60 128490.30 143855.45 159650.56

Expenditure -92388.00 -107169.20 -120190.56 -133095.38

Operating Profit 18464.60 21321.10 23664.89 26555.18

Interest -366.50 -422.20 -472.86 -515.42

Gross profit 18098.10 20898.90 23192.03 26039.76

Depreciation -1546.00 -2456.60 -2997.05 -3836.23

Exceptional Items 0.00 -99.60 0.00 0.00

Profit Before Tax 16552.10 18342.70 20194.98 22203.53

Tax -4956.90 -5715.10 -6220.05 -6772.08

Profit After Tax 11595.20 12627.60 13974.92 15431.45

Minority Interest -456.40 -439.50 -457.08 -484.50

Net Profit 11138.80 12188.10 13517.84 14946.95

Equity capital 959.20 959.20 959.20 959.20

Reserves 32883.70 39433.00 46530.94 53975.89

Face value 10.00 1.00 1.00 1.00

EPS 116.13 12.71 14.09 15.58

Note: Declines EPS of the Company due to Stock Split from Rs. 10/- to Rs. 1/-.

Quarterly Profit & Loss Statement for the period of 30th Sep, 2013 to 30th June, 2014E

Value(Rs.in.mn) 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14E

Description 3m 3m 3m 3m

Net sales 31146.70 34519.20 33071.30 34394.15

Other income 453.60 300.70 310.60 335.45

Total Income 31600.30 34819.90 33381.90 34729.60

Expenditure -26038.70 -29146.10 -28220.00 -28977.07

Operating profit 5561.60 5673.80 5161.90 5752.53

Interest -119.60 -99.80 -117.30 -133.72

Gross profit 5442.00 5574.00 5044.60 5618.80

Depreciation -602.60 -633.40 -621.70 -733.61

Exceptional Items 0.00 0.00 -99.60 0.00

Profit Before Tax 4839.40 4940.60 4323.30 4885.20

Tax -1449.20 -1539.90 -1336.20 -1524.18

Profit After Tax 3390.20 3400.70 2987.10 3361.02

Minority Interest -121.80 -107.20 -112.90 -117.42

Net Profit 3268.40 3293.50 2874.20 3243.60

Equity capital 959.20 959.20 959.20 959.20

Face value 1.00 1.00 1.00 1.00

EPS 3.41 3.43 3.00 3.38

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 116.13 12.71 14.09 15.58

EBITDA Margin (%) 16.83% 16.77% 16.62% 16.80%

PBT Margin (%) 15.09% 14.43% 14.18% 14.05%

PAT Margin (%) 10.57% 9.93% 9.81% 9.76%

P/E Ratio (x) 4.56 41.63 37.54 33.95

ROE (%) 34.26% 31.26% 29.43% 28.09%

ROCE (%) 55.25% 55.57% 53.40% 52.95%

Debt Equity Ratio 0.07 0.06 0.05 0.04

EV/EBITDA (x) 2.47 23.47 21.08 18.72

Book Value (Rs.) 352.82 42.11 49.51 57.27

P/BV 1.50 12.56 10.68 9.24

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.529.00, the stock P/E ratio is at 37.54 x FY15E and 33.95 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.14.09 and

Rs.15.58 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 10% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 21.08 x for FY15E and 18.72 x for FY16E.

� Price to Book Value of the stock is expected to be at 10.68 x and 9.24 x respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.595.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

The Indian paint industry is approximately valued at INR 24,500 Cr. with a growth potential to reach INR 1 Lakh

Cr in the next 10 years. The industry has achieved growth of around 15%-16% per cent per year in the past five

years, which is 1.5 times India’s Gross Domestic Product growth. The industry is broadly divided into two sectors

- organized and unorganized which contribute around 65% and 35% of revenues respectively. It is primarily

segmented into two categories – decorative paints and industrial paints which account for 72% and 28% of

revenues respectively. However, this ratio is reverse globally. This indicates enormous growth potential for the

market players in the industrial paint segment.

India’s strong economic growth has propelled the paint industry to double-digit growth over the past few years

and has made it Asia Pacific’s fastest growing paint market. Despite fast growth, India’s per capita paint

consumption is still abysmally low at ~2kg/year. Due to increased Government funding for infrastructure,

demand for paints both in industrial and decorative segment is set to rise, thereby rendering Indian paint

industry to be poised for further growth.

Paint is defined as the group of emulsions, consisting of pigments suspended in a liquid medium, for use as

decorative or protective coatings. “Paint” ranges from the broad group of environmentally-sound latex paints

used to decorate and protect homes and the translucent coatings that line the interior of food containers, to the

chemically-complex, multi-component finishes that automobile manufacturers apply on the assembly line.

Paint industry is going through a colorful & happy time with demand rising sharply. Growth in housing,

automobiles and construction are all driving the rise in current consumption.

Decorative paints cater to the housing sector; industrial paints cater to automobile original equipment

manufacturers (OEMs), industries and railways.

Paint demand can also be categorized into new or refinish/refurbishment demand. Fresh demand depends on

the construction, housing and auto sectors, while refinish/refurbishment demand is directly related to the

disposable incomes and higher aspirations of consumers i.e. both the ability as well as the willingness to spend.

A boom in the Indian housing sector, increasing urbanization, easy availability of housing loans and a shift from

semi-permanent to permanent housing structures have been driving growth in the decorative paints segment,

which accounts for nearly 65-70% of the Indian paint industry. There is seasonality involved in the demand for

decorative paints. Consumption peaks around festive time.

Market Structure

The paint industry volume in India has been consistently growing at more than 15% per annum for some years

now. The strong growth was supported by a favourable monsoon and good industrial growth especially in the

automotive sector. Growth in turnover was significantly higher than the volume growth as large price increases

had to be affected during the year.

In International Business, political turmoil in Egypt and Bahrain impacted business conditions in these countries

during the last quarter of the year. While South Asian markets fared relatively better, the impact of economic

slowdown persisted in some of the other international markets where your Company operates.

Indian Paints Industry can be classified into two sub-segments:

• Decorative Paints

• Industrial Paints

The paint industry is divided into organized and unorganized sector. The unorganized segment plays a huge role

in decorative paint segment due to low technical know-how and highly scattered market. The organized segment

constitutes around 54% of the total volume and 65% of value of paints industry. Again the whole paints industry

can be classified into decorative (75% of total industry size) and industrial paints (25% of total industry size).

Further, in organized segment, the top 6 players account for around 84% by volume and 63% by value. The

remaining players in organized business are largely present in non-auto industrial segment, and the unorganized

players are mainly operational in decorative paints segment as industrial paints requires high technological

know how and client tie-ups.

Conclusion

With the revival of the construction boom post recession also the resurgence of the automotive and consumer

durable industries, the Indian paint industry is heading for an exciting phase of growth and profitability. Demand

in case of industrial segment is also expected to increase going forward. Domestic and global auto majors have

long term plans for the Indian market, which augur well for automotive paint manufacturers like Kansai Nerolac

and Asian-PPG. Increased industrial paint demand, especially powder coatings and high performance coatings

will also propel topline growth of paint majors in the medium term. A better focus on supply chain or

distribution mechanism backed by aggressive promotion will drive the fortunes of the Indian paint industry like

never before over the years to come.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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