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SYNOPSIS
• Asian Paints is India’s largest paint
company & Asia’s third largest paint
company, with a turnover of Rs 77.06
billion.
• Asian Paints has been included for
the first time in Forbes Asia's Fab 50
List of companies.
• During the quarter ended, the robust
growth of Net Sales is increased by
21.95% to Rs. 25605.30 million.
• The company’s Decorative Paints
business segment contributes around
94% in the total paint business.
• Net Sales and PAT of the company
are expected to grow at a CAGR of
19% and 8% over 2010 to 2013E
respectively.
• Asian Paints, the group operates
around the world through its
subsidiaries Berger International
Limited, Apco Coatings, SCIB Paints
and Taubmans.
Years Net sales EBITDA Net Profit EPS P/E
FY 11 77062.40 13956.00 8432.40 87.91 34.01
FY 12E 97602.37 15978.98 9723.49 101.37 29.50
FY 13E 112242.72 18089.60 10920.69 113.85 26.26
Stock Data:
Sector: Paints
Face Value Rs. 10.00
52 wk. High/Low (Rs.) 3365.95/2395.05
Volume (2 wk. Avg.) 8649.00
BSE Code 500820
Market Cap (Rs in mn) 286800.80
Share Holding Pattern
1 Year Comparative Graph
ASIAN PAINTS BSE SENSEX
C.M.P: Rs. 2990.00 Target Price: Rs. 3378.00 Date: Feb. 11th 2012 BUY
Asian Paints Ltd Result Update: Q3 FY 12
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Peer Group Comparison
Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
Asian Paints Ltd 2990.00 286800.80 87.91 34.01 13.11 320.00
Kansai Nerolac Paints 878.00 4731.72 42.66 20.58 4.16 100.00
Berger Paints India Ltd 100.00 3461.42 4.80 20.83 4.80 65.00
Shalimar Paints Ltd 449.00 169.97 31.70 14.16 3.35 80.00
Investment Highlights
� Q3 FY12 Results Update
Asian Paints Ltd has posted net sales of Rs 25605.30 million for the quarter ended
on Dec. 31, 2011 as against Rs 20996.00 million in the same quarter last year, an
increase of 21.95%. It has reported net profit of Rs 2568.60 million for the quarter
ended on Dec. 31, 2011 as against Rs 2203.30 million in the same quarter last
year, an increase of 16.58%. Total income grew by 21.90% to Rs 25830.70 million
from Rs. 21189.70 million in the same quarter last year. During the quarter, it
reported earnings of Rs 26.78 a share.
Quarterly Results - Consolidated (Rs in mn)
As At Dec-11 Dec-10 %change
Net sales 25605.30 20996.00 21.95%
Net Profit 2568.60 2203.30 16.58%
Basic EPS 26.78 22.97 16.58%
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• Break up of Expenditure
Company Profile
Asian Paints is India’s largest paint company and Asia’s third largest paint company,
with a turnover of Rs 77.06 billion. The group has an enviable reputation in the
corporate world for professionalism, fast track growth, and building shareholder
equity. Asian Paints operates in 22 countries and has 27 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.
Global Presence
• Caribbean- Barbados, Jamaica, Trinidad & Tobago
• Middle East - Egypt, Oman, Bahrain & UAE
• Asia – India, Bangladesh, Nepal, Sri Lanka & Singapore
• South Pacific - Fiji, Solomon Islands, Samoa, Tonga & Vanuatu
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Subsidiary Companies
� APCO Coatings
� Asian Paints Industrial Coatings Limited
� Berger International Ltd
� SCIB paints
� Asian PPG Industries Ltd (JV)
� Taubmans Paints
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.
The company ranks no. 1, in the country in this segment with around 8500 colors
to offer to its customers. 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 72% 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.
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Business 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.
Segments
Paints
Decorative Paints
Interior Wall
Finish
Exterior Wall
Finish
Enamels
Wood
Finishes
Industrial Paints
Industrial Paints
Powder Coating
Other Industrial
Paints
Chemicals
Phthatic Anhydride
Penraerythritol
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Financial Results
12 Months Ended Profit & Loss Account (Consolidated)
Value(Rs.in.mn) FY10 FY11 FY12E FY13E
Description 12m 12m 12m 12m
Net Sales 66809.40 77062.40 97602.37 112242.72
Other Income 1405.00 826.30 1037.23 1140.95
Total Income 68214.40 77888.70 98639.60 113383.67
Expenditure -54533.20 -63932.70 -82660.61 -95294.07
Operating Profit 13681.20 13956.00 15978.98 18089.60
Interest -284.70 -222.30 -341.22 -409.47
Gross profit 13396.50 13733.70 15637.76 17680.13
Depreciation -835.60 -1131.30 -1222.60 -1344.86
Exceptional Items 9.30 0.00 0.00 0.00
Profit Before Tax 12570.20 12602.40 14415.15 16335.27
Tax -3731.10 -3788.90 -4331.88 -5047.60
Profit After Tax 8839.10 8813.50 10083.27 11287.67
Minority Interest -482.70 -381.10 -359.79 -366.98
Net Profit 8356.40 8432.40 9723.49 10920.69
Equity capital 959.20 959.20 959.20 959.20
Reserves 16140.60 20915.00 30998.27 42285.95
Face value 10.00 10.00 10.00 10.00
EPS 87.12 87.91 101.37 113.85
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Quarterly Ended Profit & Loss Account (Consolidated)
Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E
Description 3m 3m 3m 3m
Net sales 22603.70 22507.80 25605.30 26885.57
Other income 305.30 292.40 225.40 214.13
Total Income 22909.00 22800.20 25830.70 27099.70
Expenditure -18682.00 -19279.00 -21631.80 -23067.81
Operating profit 4227.00 3521.20 4198.90 4031.88
Interest -65.10 -88.30 -90.30 -97.52
Gross profit 4161.90 3432.90 4108.60 3934.36
Depreciation -291.10 -299.70 -306.70 -325.10
Exceptional Items 0.00 0.00 0.00 0.00
Profit Before Tax 3870.80 3133.20 3801.90 3609.25
Tax -1154.90 -954.70 -1137.70 -1084.58
Profit After Tax 2715.90 2178.50 2664.20 2524.67
Minority Interest -79.30 -91.20 -95.60 -93.69
Net Profit 2636.60 2087.30 2568.60 2430.99
Equity capital 959.20 959.20 959.20 959.2
Face value 10.00 10.00 10.00 10.00
EPS 27.49 21.76 26.78 25.34
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Key Ratios
Particulars FY10 FY11 FY12E FY13E
No. Of Shares(in mn) 95.92 95.92 95.92 95.92
EBITDA Margin (%) 20.48% 18.11% 16.37% 16.12%
PBT Margin (%) 18.82% 16.35% 14.77% 14.55%
PAT Margin (%) 13.23% 11.44% 10.33% 10.06%
P/E Ratio (x) 34.32 34.01 29.50 26.26
ROE (%) 51.69% 40.29% 31.55% 26.10%
ROCE (%) 74.86% 62.29% 49.97% 42.40%
Debt Equity Ratio 0.13 0.11 0.08 0.06
EV/EBITDA (x) 20.96 20.55 17.95 15.85
Book Value (Rs.) 178.27 228.05 333.17 450.85
P/BV 16.77 13.11 8.97 6.63
Charts:
Net Sales & PAT
9
P/E Ratio(x)
Debt Equity Ratio
10
EV/EBITDA(x)
P/BV
11
Outlook and Conclusion
At the current market price of Rs.2990.00, the stock is trading at 29.50 x
FY12E and 26.26 x FY13E respectively.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E
is seen at Rs. 101.37 and Rs.113.85 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 19% and
8% over 2010 to 2013E respectively.
On the basis of EV/EBITDA, the stock trades at 17.95 x for FY12E and 15.85 x
for FY13E.
Price to Book Value of the stock is expected to be at 8.97 x and 6.63 x
respectively for FY12E and FY13E.
We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.3378.00 for Medium to Long term investment.
Industry Overview
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.
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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
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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.
Decorative paint (including interior and exterior wall finishes, enamels, wood finishes
and ancillary products) constitutes around 72% of the paint market in India. 2010-11
was a good year for the paint industry.
Sharp increase in raw material prices was one of the key concerns identified by
Company for FY 2010-11 and as expected, it posed significant challenges throughout
the year. The recovery of the global economy leading to a revival of demand especially
in countries like India, China and the U.S., coupled with the rise in crude prices and
shortage of key raw materials has led to a steady increase in prices across all
categories of raw materials. In India, factors like power shortages, increase in labour
and transportation cost also contributed to the inflation. The overall impact of
inflation during the year was in excess of 13%. This was countered through price
increases at regular intervals (five in all totaling over 12% for the year). Fortunately,
this substantial increase in prices did not affect demand which continued to be
robust. Margins, however, were under severe pressure during the year and continue to
be a concern going forward
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.
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______________ ____ _________________________ 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.
15
Firstcall India Equity Research: Email – [email protected]
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