Company Research. Result Highlights: EBITDA margin improve substantially by 120bps y-o-y: Date:

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1 Asian Paints Ltd posted strong revenue growth due to festive season. Date: Result Highlights: Top-line grows by 18.61% yoy: Asian paints recorded sales of Rs mn against corresponding quarter for the previous year of Rs mn, a growth of per cent on y-o-y basis. The company recorded profit after tax ( PAT) of Rs mn for the Q2 FY13 against corresponding quarter for the previous year of Rs mn, a growth of per cent y-o-y basis. The company has reported earnings per share ( EPS) of Rs for the quarter ended December 31, 2012 against the corresponding quarter of the previous year of Rs Shareholders Information Date 23-January-13 CMP (Rs) Year Price Var% Week High (Rs) Week Low (Rs) 2764 Industry PE Share Holding Pattern As on 30th December 2012 Promoters 52.79% FII 18.64% EBITDA margin improve substantially by 120bps y-o-y: EBIDTA margin increased substantially by 120bps y-o-y on account of decline in titanium dioxide prices (20% of total raw material) and some other chemicals. Titanium di-oxide prices are expected to reduce further, given lower demand from China and Europe. Other expenditure has increased by 20 per cent primarily on account of advertisement expenditure. The peak season for painting is post monsoon and festive season which resulted in heavy advertisement expenditure. DII 8.55% Others 20.02% Total % Stock Performance (1 year) Research Associate: Pooja Jain Pooja.jain@frrshares.com, Tel:

2 Profit before tax increased by 30.69% y-o-y primarily on account of decrease in interest cost by 13.07%. International business registered strong performance in Middle East and Asia. Segment wise performance: Decorative Segment: Demand was robust due to festive season: Decorative Paints business contributes around 94% of the total paint business. Sales increased for the quarter ended December 2012 on account of peak season for paint products. Industrial Segment: Weak demand in Auto and Non-Auto industry The Industrial segment continued in subdued performance and registered weak growth. The automotive and protective segment performance was affected due to subdued environment in auto industry and drying up investment cycle. We expect the performance of industrial segment to remain weak in coming few quarters due to slow revival in GDP growth. However, these segments contribute less to the topline and hence the impact will not be very high. The margins in industrial business segment business continued to remain constrain on account of increasing material cost and weak currency. New product launched by Asian paints with unique service: Asian paint is the only company which has started with color consulting at home services. They have also launched a new product known as water proofing in Kerala through home solution on direct demand of customer. The company is continuously focusing on new innovation and aggressive advertising and marketing activities

3 Financial Highlights: Q-O-Q Performance (In Rs Mn) Particulars Q3 FY13 Q3 FY12 YoY (%) Q2 FY13 QoQ (%) Net Sales 30, , % 26, % COGS 18, , % 15, % Gross Profit 12, , % 10, % Employee Cost 1, , % 1, (4.29%) % of Sales 5.02% 5.15% (13bps) 5.76% (74bps) Other Expenditure 5, , % 5, % % of Sales 18.87% 18.75% 12bps 20.16% (129bps) Total Expenditure 25, , % 22, % EBIDTA 5, , % 3, (14.53%) Depreciation % % EBIT (ex other income) 4, , % 3, (16.27%) Other Income % (9.19%) EBIT 5, , % 3, (15.88%) Interest (13.07%) % EBT 4, , % 3, (16.59%) TAX EXPENSES 1, , % 1, (18.21%) PAT 3, , % 2, (15.90% MINORITY INTEREST (150.90) (95.60) 57.85% (122.40) 15.91% Consolidated Net Profit 3, , % 2, (17.07%) EPS % (17.07%) Margins (%) Gross Profit 40.60% 39.41% 119 bps 40.40% 20 bps EBIDTA 16.72% 15.52% 120 bps 9.66% 706bps EBIT 16.53% 15.20% 133bps 13.95% 258bps EBT 16.28% 14.85% 143bps 13.48% 280bps PAT 11.47% 10.40% 107bps 9.54% 193bps

4 Y-o-Y Performance (In Mn.) Particulars FY12 FY11 % Change Total Income % Total Expenses % Operating Profit (Excl OI) % Other Income % Operating Profit % Interest % PBDT % Depreciation % PBT % Tax % PAT % Balance Sheet (Rs. Mn) Year End March FY11 FY12 Share Capital Reserves & Surplus Total Debt Deferred Tax Liabilities Net Block Capital Work-inprogress Investments Current Assets Current Liabilities Net Current Assets Cash Flow Statement (Rs. Mn) Year End March FY 11 FY 12 OP/(loss) before Tax Interest/ Div. Received Interest Paid (232) (410) Direct Taxes Paid (3,502) (4,274) (Incr)/Decr in WC (784) (1,075) CF from Operations CF form Invest. 345 (6,204) CF FROM FINANCING Activity (4,584) (4,219) Net Change 5204 (19) Add: Opening Balance Closing Balance

5 NET SALES (CONSOLIDATED festive season D): Strong growth due to pick up in demand during % 35.00% 30.00% 25.00% % 23.96% 21.95% 20.00% % 16.54% 18.61% 15.00% 10.00% % 0 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY % Net Sales Y-o-Y Growth EBIDTA (CONSOLIDATED): M material prices Margins has improved largely due to softening of raw % Q1FY % Q2FY % 16.81% 15.83% 15.07% 14.59% Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY % 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% EBIDTA EBIDTA Margin (%)

6 Investment rationale Robust financial performance: Asian paints consolidated net sales has grown at a decent CAGR of 16.92% in the last five years. Continuous focus on expanding geographical coverage through a large dealer network and more innovative products for its customers boosted its top line. 120, % 100, % 22.27% 24.73% 25.00% 80, % 20.00% 60, % 15.00% 40, % 20, % % Consolidated Net Sales (Rs.Mn) Growth Y-o-Y (%)

7 Largest player with a strong distribution network: Asian paint is an established player in the Indian paint industry in revenue terms. It owns strong and established paint brands. It has large distribution network with over 27,000 retailers and 90 depots spread across the country. Sales breakup of top 5 paint companies 16.56% 3.10% 12.66% Akzo Nobel India Ltd. Asian Paints Ltd % 50.72% Berger Paints India Ltd. Kansai Nerolac Paints Ltd. Shalimar Paints Ltd. Geographically diversified: Asian Paints group has presence in five regions (South Asia, South East Asia, South Pacific, Middle East, & Caribbean) through its corporate brands which include Asian Paints, Berger International, SCIB Paints, Apco Coatings and Taubmans. The company and its subsidiaries have operations in 17 countries across the world with 24 manufacturing facilities, servicing consumerss spread across 65 countries. It is the largest paint company in eleven countries. Phthalic anhydride (PAN) is manufactured from orthoxylene, which is a key raw material for production of paint along with titanium dioxide. Asian Paints is the only paint company that manufactures PAN. The raw material requirement of majority of paint companies is met through imports. PAN prices generally outpace international orthoxylene prices by almost 50% which result in paint companies end up paying a fortune for the increase in price. In such a situation Asian Paints benefits by selling PAN in the open market. Product innovation to match changing consumer needs and dynamic business environment: In Decorative paints, Asian Paints is present in all the four segmentss v.i.z Interior Wall Finishes, Exterior Wall Finishes, Enamels and Wood Finishes. It introduced many innovative concepts in the Indian paint industry which includes 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.

8 Continuous Capacity expansion: The installed capacity of the company stands at 644,000 tons, which increased by 50,000MT (expansion at Rohtak). Installed capacity is expected to increase over 1.2mn MT by FY15, including the new plant at Khandala with installed capacity of 0.4mn tons; the first phase of 0.3mn tons of this plant would be commissioned in 4QFY13. The total capex for setting up additional manufacturing facility will be about Rs.10bn of which Rs5bn will be spend during the current fiscal. Rebranding - Change to generate positive market growth: Asian paints, one of the pioneers who made a low involvement category like paint into a high involvement category. The company has recently undertaken rebranding by change in their logo. 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. Peer Comparison: Akzo Nobel India Ltd Kansai Nerolac Berger Paints Shalimar Paints Asian Paints Sales growth (5 yr CAGR) 4% 16% 19% 14% 21% Net Profit growth (5 yr CAGR) -15% 15% 15% 25% 29% Operating Margin (5 yr avg) 15% 13% 10% 7% 15% Net Margin (5 yr avg) 14% 8% 6% 2% 10% Return on Equity (5 yr avg) 18% 21% 24% 23% 47% Return on Assets (5 yr avg) 17% 19% 15% 8% 38% Return on Capital Employed (5 yr avg) 23% 27% 25% 22% 56% TTM PE Asian Paints has delivered superior returns as compared to its competitors. Over the past five years, the company has seen dynamic growth in both its revenue as well as earnings. On a consolidated basis, revenues grew at a compounded annual growth rate (CAGR) of 21% while net profits grew at a CAGR of 29%. Moreover, it was able to maintain profitability margins. FY12

9 operating and net margins were 14.9% and 9.4% respectively; while Return on Equity and Return on Capital employed were 41.4% and 54.7% respectively. Valuation- We expect FY14 EPS to be at Rs. 139 and its FY14E P/E to be 33 times hence we raised our target for the stock to Rs 4587 from Rs At the current market price of Rs , the stock trades at about 31 times its likely FY14 per share. Slow down in GDP growth, high inflation and drying up of investment cycle has resulted into subdued demand for discretionary sector like painting industry. Asian Paints is most affected as they are the market leader. Thus, we recommend you to HOLD the stock at the current prices or lower. Given the company s stable balance sheet, expanding product range, expanding product market and steady growth, we believe these valuations provide a good entry point for long term investors. Long term investors should ACCUMULATE the stock at every decline. Disclaimer: The information in this document has been printed on the basis of publicly available information, internal data and other reliable source believed to be true and is for general guidance only. While every effort is made to ensure the accuracy and completeness of information contained, the company makes no guarantee and assumes no liability for any errors or omissions of the information. No one can use the information as the basis for any claim, demand or cause of action. FRR Shares And Securities Ltd., and affiliates, including the analyst who have issued this report, may, on the date of this report, and from time to time, have long or short positions in, and buy or sell the securities of the companies mentioned herein or engage in any other transaction involving such securities and earn brokerage or compensation or act as advisor or have other potential conflict of interest with respect to companies mentioned herein or inconsistent with any recommendation and related information and opinions. FRR Shares And Securities Ltd. and affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.