HOLD CMP 475.00 Target Price 522.00 ASIAN PAINTS LIMITED Result Update: Q3 FY14 JANUARY 21 st 2014 ISIN: INE021A01026 Index Details Stock Data Sector Paints BSE Code 500820 Face Value 1.00 52wk. High / Low (Rs.) 560.00/376.35 Volume (2wk. Avg.) 67000 Market Cap (Rs. in mn.) 455620.00 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY13A FY14E FY15E Net Sales 109707.40 126007.06 139867.84 EBITDA 18464.60 21509.03 23590.66 Net Profit 11138.80 12289.54 13320.52 EPS 116.13 12.81 13.89 P/E 4.09 37.07 34.20 Shareholding Pattern (%) 1 Year Comparative Graph ASIAN PAINTS LTD S&P BSE SENSEX SYNOPSIS Asian Paints is India's largest paint company and Asia's third largest paint company, with a turnover of Rs. 109.70 billion. Asian Paints consolidated income from operations has risen by 13.2% to Rs. 34,519 million from Rs. 30,496 million in Q3 FY13. Profit before depreciation interest and tax (PBDIT) for the group increased by 4.8% to Rs. 5673.8 million from Rs. 5413.4 million in Q3 FY13. Net Profit after Minority Interest was decreased by 1.75% to Rs. 3293.5 million as compared to Rs. 3352.3 million in Q3 FY13. Standalone income from operations increased by 12.2% to Rs. 28430 million from Rs. 25337 million in Q3 FY13. During the quarter, Asian Paints (international) Ltd has acquired an additional stake of 12.8% in Berger International Limited, Singapore and it is increased to 96.5% stake as on 31 st Dec 2013. For the 9 Months period ended 31 Dec 2013, consolidated net profit was up by 8% to Rs. 9313.9 million. The Capex plan for FY 2014 at the standalone company level is around Rs. 2000 million. The Decorative paints business in India did well and registered double digit growth. Other income for the 9 Months at Rs 1031.60 million. Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 11% over 2012 to 2015E 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 475.00 455620.00 116.13 4.09 1.35 460.00 Kansai Nerolac Paints Ltd 1128.00 60790.10 52.74 21.39 4.73 110.00 Berger Paints India Ltd 219.70 76120.80 6.55 33.54 7.73 90.00 Shalimar Paints Ltd 92.50 1750.80 5.83 15.87 2.33 0.00
Recommendation & Analysis - HOLD For the quarter ended December 31, 2013, on consolidation of accounts of the subsidiaries and joint venture of Asian Paints Income from operations has risen by 13.2% to Rs. 34,519 million from Rs. 30,496 million in previous year period. Profit before depreciation interest and tax (PBDIT) for the group increased by 4.8% to Rs. 5673.8 million from Rs. 5413.4 million in Q3 FY13. Net Profit after Minority Interest was decreased by 1.75% to Rs. 3293.5 million as compared to Rs. 3352.3 million in the previous corresponding period. Profit before Tax (PBT) decreased by 0.6% to Rs. 4940.6 million from Rs. 4968.8 million in Q3 FY13. For the Nine months ended 31 st December 2013, Asian Paints Group Income from operations has increased by 14.3% to Rs. 94,077 million from Rs. 82,286 million. Net Profit was increased by 8.0% to Rs. 9314 million as compared to Rs. 8628 million in the previous corresponding period. For the quarter ended December 31, 2013, standalone Income from operations increased by 12.2% to Rs. 28430 million from Rs. 25337 million in Q3 FY13. PBDIT for the quarter is increased by 5.6% to Rs. 5124 million from Rs. 4853 million. Net Profit decreased by 1.5% to Rs. 3075 million as compared to Rs. 3120 million in the previous corresponding period. The Decorative paints business in India did well and registered double digit growth. Overall market remained challenging during the quarter. While the demand conditions improved in Oct 13, they were subdued in Nov 13. Asian Paints have announced a price increase of 2.1% wef 1 st Feb 2014. Cumulative price increase for 9M-FY14 is around 4.1% (1 st May 13 1.2%, 1 st Aug 13-1%, 1 st Sept 13-1.8%). Industrial paints segment continued to be impacted by sluggish manufacturing environment in the economy, with no major capex activity. Automotive coatings growth was affected due to the subdued demand in the automotive sector. International Business registered well growth. Middle East and Asia have done well even though some countries continued to be affected by political events and macro economic uncertainty. The Capex plan for FY 2014 at the standalone company level is around Rs. 2000 million towards facility optimization and regular maintenance. Going forward, the growth outlook is expected to be challenging. However, the pre-election spending may have a positive impact on the rural demand. Internationally, political instability in countries like Egypt and Bangladesh would be a concern area. Over FY2012-15E, we expect the company to post a CAGR of 13% and 11% in its topline and bottom-line respectively. Hence, we recommend HOLD for Asian Paints with a target price of Rs. 522.00 on the stock.
QUARTERLY HIGHLIGHTS (CONSOLIDATED) Results updates- Q3 FY14, Asian Paints is India's largest paint company and Asia's third largest paint company, with a turnover of Rs 109.70 billion, reported its financial results for the quarter ended 31 st Dec, 2013. Months Dec-13 Dec-12 % Change Net Sales 34519.20 30530.70 13.06 PAT 3293.50 3352.30 (1.75) EPS 3.43 34.95 (90.18) PBDIT 5673.80 5413.40 4.81 The consolidated net profit slightly decreased to Rs. 3293.50 million against Rs. 3352.30 million in the corresponding quarter ending of previous year, a decrease of 1.75%. Revenue for the quarter rose by 13.06% to Rs. 34519.20 million from Rs. 30530.70 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 3.43 a share during the quarter, registering 90.18% decrease over previous year period. Profit before interest, depreciation and tax is Rs. 5673.80 millions as against Rs. 5413.40 millions in the corresponding period of the previous year. Break up of Expenditure During the quarter the total expenditure rose by 16 percent mainly increase in Cost of Material Consumed along with Depreciation in the rupee impact. Total expenditure in Q3 FY14 was at Rs. 29779.50 million as against Rs. 25756.70 million in Q3 FY13. Employee benefit expenses increased to Rs. 1968.90 millions against Rs. 1531.70 millions in the corresponding period of the previous year. Other Expenditure was at Rs. 6798.40 million and Material consumed cost is Rs. 18452.10 millions in Q3 FY14 are the primarily attributable to growth of expenditure.
Latest Updates During the quarter, Asian Paints (lnternational) Limited, Mauritius (APIL), wholly owned subsidiary of the Company, acquired an additional stake of 12.8% in its subsidiary, Berger International Limited, Singapore (BlL). The shareholding of APIL in BIL is 96.5%. The Company has invested Rs. 99.79 crores for 51% stake by subscription to equity shares of Sleek International Private Limited (SIPL) on 8 th August, 2013. The Company further invested a sum of Rs. 19.69 crores on 10 August, 2013, as second tranche to this transaction by further subscription to equity shares of SIPL with a corresponding proportionate investment by the existing promoters of SIPL. On completion of the second tranche of investment, the Company continues to hold 51% stake in SIPL. This acquisition of the Sleek Group has a strategic fit and is a step in the Company s foray into Home Improvement. COMPANY PROFILE Asian Paints is India's largest paint company and Asia's third largest paint company, with a turnover of Rs 109.70 billion. The group has an enviable reputation in the corporate world for professionalism, fast track growth, and building shareholder equity. Asian Paints operates in 17 countries and has 25 paint manufacturing facilities in the world servicing consumers in over 65 countries. Besides Asian Paints, the group operates around the world through its subsidiaries Berger International Limited, Apco Coatings, SCIB Paints 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 March31st, 2012-2015E FY12A FY13A FY14E FY15E SOURCES OF FUNDS (Rs.in.mn) Shareholder's Funds Share Capital 959.20 959.20 959.20 959.20 Reserves and Surplus 26525.80 32883.70 42748.81 52581.04 1. Sub Total - Net worth 27485.00 33842.90 43708.01 53540.24 2. Minority Interest 1366.90 1607.70 2540.17 2667.17 Non Current Liabilities Long term borrowings 553.20 478.00 473.22 482.68 Deferred Tax Liabilities 945.60 1567.30 1852.55 1667.29 Other Long term Liabilities 134.70 93.90 180.22 198.24 Long Term Provisions 783.50 985.70 1163.13 1302.70 3. Sub Total - Non Current Liabilities 2417.00 3124.90 3669.11 3650.92 Current Liabilities Short Term Borrowings 2800.00 1898.60 2563.11 2896.31 Trade Payables 12624.50 14415.70 17875.47 18948.00 Other Current Liabilities 6780.30 8591.60 9278.93 9742.87 Short Term Provisions 3665.50 4408.20 1763.28 1921.98 4. Sub Total - Current Liabilities 25870.30 29314.10 31480.79 33509.16 Total Liabilities (1+2+3+4) 57139.20 67889.60 81398.08 93367.49 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible assets 12339.80 23656.80 26069.79 29198.17 Intangible assets 250.50 310.60 341.66 368.99 Capital Work in Progress 6170.80 592.10 657.23 716.38 a) Sub Total - Fixed Assets 18761.10 24559.50 27068.68 30283.54 b) Goodwill on consolidation 415.20 442.30 1351.50 1594.77 c) Deferred Tax Asset 17.30 23.50 28.91 33.53 d) Non-current investments 697.20 1501.20 990.79 1188.95 e) Long Term loans and advances 1964.60 1064.90 1512.16 1935.56 f) Other non-current assets 217.10 233.20 244.86 264.45 1. Sub Total - Non Current Assets 22072.50 27824.60 31196.90 35300.80 Current Assets Current Investment 2850.20 1305.60 6540.50 7848.60 Inventories 15988.9 18302.90 21973.46 25928.68 Trade receivables 7812.50 9808.80 10789.68 11941.22 Cash and Bank Balances 6243.10 7519.80 6918.22 7610.04 Short-terms loans & advances 1329.80 2146.00 2575.20 2940.88 Other current assets 842.20 981.90 1404.12 1797.27 2. Sub Total - Current Assets 35066.70 40065.00 50201.17 58066.69 Total Assets (1+2) 57139.20 67889.60 81398.07 93367.49
Annual Profit & Loss Statement for the period of 2012 to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales 96322.40 109707.40 126007.06 139867.84 Other Income 1074.10 1145.20 1368.38 1491.54 Total Income 97396.50 110852.60 127375.44 141359.38 Expenditure -81234.70-92388.00-105866.41-117768.72 Operating Profit 16161.80 18464.60 21509.03 23590.66 Interest -409.70-366.50-413.68-450.91 Gross profit 15752.10 18098.10 21095.35 23139.74 Depreciation -1211.30-1546.00-2582.31-3305.36 Profit Before Tax 14540.80 16552.10 18513.04 19834.38 Tax -4335.00-4956.90-5785.41-6049.49 Profit After Tax 10205.80 11595.20 12727.63 13784.90 Minority Interest -318.50-456.40-438.09-464.37 Net Profit 9887.30 11138.80 12289.54 13320.52 Equity capital 959.20 959.20 959.20 959.20 Reserves 26525.80 32883.70 42748.81 52581.04 Face value 10.00 10.00 1.00 1.00 EPS 103.08 116.13 12.81 13.89 Note: Declines EPS of the Company due to Stock Split from Rs. 10/- to Rs. 1/-. Quarterly Profit & Loss Statement for the period of 30 th June, 2013 to 31 st March, 2014E Value(Rs.in.mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E Description 3m 3m 3m 3m Net sales 28410.90 31146.70 34519.20 31930.26 Other income 277.30 453.60 300.70 336.78 Total Income 28688.20 31600.30 34819.90 32267.04 Expenditure -23764.40-26038.70-29146.10-26917.21 Operating profit 4923.80 5561.60 5673.80 5349.83 Interest -85.50-119.60-99.80-108.78 Gross profit 4838.30 5442.00 5574.00 5241.05 Depreciation -598.90-602.60-633.40-747.41 Profit Before Tax 4239.40 4839.40 4940.60 4493.64 Tax -1389.80-1449.20-1539.90-1406.51 Profit After Tax 2849.60 3390.20 3400.70 3087.13 Minority Interest -97.60-121.80-107.20-111.49 Net Profit 2752.00 3268.40 3293.50 2975.64 Equity capital 959.20 959.20 959.20 959.20 Face value 10.00 1.00 1.00 1.00 EPS 28.69 3.41 3.43 3.10
Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) 103.08 116.13 12.81 13.89 EBITDA Margin (%) 16.78% 16.83% 17.07% 16.87% PBT Margin (%) 15.10% 15.09% 14.69% 14.18% PAT Margin (%) 10.60% 10.57% 10.10% 9.86% P/E Ratio (x) 4.61 4.09 37.07 34.20 ROE (%) 37.13% 34.26% 29.12% 25.75% ROCE (%) 56.33% 55.25% 51.54% 47.25% Debt Equity Ratio 0.12 0.07 0.07 0.06 EV/EBITDA (x) 2.64 2.19 21.00 19.13 Book Value (Rs.) 286.54 352.82 45.57 55.82 P/BV 1.66 1.35 10.42 8.51 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs.475.00, the stock P/E ratio is at 37.07 x FY14E and 34.20 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.12.81 and Rs.13.89 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 11% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 21.00 x for FY14E and 19.13 x for FY15E. Price to Book Value of the stock is expected to be at 10.42 x and 8.51 x respectively for FY14E and FY15E. We recommend HOLD in this particular scrip with a target price of Rs.522.00 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. ndian 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. In FY12, the paint industry stood at Rs 26,040 crore, out of which the decorative segment contributed nearly 71 per cent at Rs 18,490 crore, while the remaining Rs 7,550 crore was contributed by the industrial segment. In terms of volume, the industry stood at 3.11 million tonnes, of which decorative segment accounted for nearly 77 per cent share. We expect the 70:30 trends of decorative and industrial segments to continue even in future, mainly because of the growing urbanisation and increase in disposable income. 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 C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods B. Anil Kumar Diversified Ashish.Kushwaha IT, Consumer Durable & Banking Suhani Adilabadkar Diversified M. Vinayak Rao Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071 Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089 E-mail: info@firstcallindiaequity.com www.firstcallindiaequity.com