CMP 856.75

Target Price 945.00

ISIN: INE021A01026

OCTOBER 24th 2015

12th h, 2013

ASIAN PAINTS LIMITED

Result Update (CONSOLIDATED BASIS): Q2 FY16

BUY

Index Details

Stock Data

Sector Paints

BSE Code 500820

Face Value 1.00

52wk. High / Low (Rs.) 924.65/634.10

Volume (2wk. Avg.) 90000

Market Cap (Rs. in mn.) 821794.60

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

YEARS FY15A FY16E FY17E

Net Sales 141828.10 154592.63 170051.89

EBITDA 24051.20 28486.98 30885.26

Net Profit 13951.50 16921.91 18432.57

EPS 14.54 17.64 19.22

P/E 58.90 48.56 44.58

Shareholding Pattern (%)

As on Sep 2015 As on June 2015

PROMOTER 52.79 52.79

FIIs 17.38 16.99

DIIs 9.5 9.84

OTHERS 20.33 20.38

1 Year Comparative Graph

ASIAN PAINTS LTD S&P BSE SENSEX

SYNOPSIS

Asian Paints is India’s leading paint company and ranked among the top ten Decorative coatings companies in the world with a consolidated turnover of Rs. 141.84 billion.

For the quarter ended September 30, 2015 Asian Paints Group Income from operations has risen by 4.03% to Rs. 37793.6 mn from Rs. 36329.5 mn in Q2 FY15.

During the quarter, PBDIT for the group increased by 16.11% to Rs. 6783.1 mn from Rs. 5841.9 mn in the previous corresponding period.

For Q2 FY16, PBT increased by 17.23% to Rs. 5982.1 mn from Rs. 5103.0 mn in Q2 FY15.

During Q2 FY16, Net Profit after Minority Interest increased by 14.9% to Rs. 3990.0 mn as compared to Rs. 3473.0 mn in Q2 FY15.

The Company has recommended payment of interim dividend of Rs. 2.20 per Equity Share of the face value of Rs. 1 each for the financial year ending March 31, 2016.

The Company is proposing to set up a paint manufacturing plant at Mysuru district, in the state of Karnataka. The ultimate capacity of 6 lakh KL p.a. would be achieved in a phased manner at an approximate cost of Rs. 2300 crores at the current prices.

For the quarter ended September 30, 2015, Standalone Income from operations increased by 2.3 % to Rs. 30647.0 mn from Rs. 29957.0 mn.

Standalone Net Profit for the quarter increased by 11.9% to Rs. 3645.0 mn as compared to Rs. 3257.0 mn in the previous corresponding period.

Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 13% over 2014 to 2017E 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 856.75 821794.60 14.54 58.90 17.33 610.00

Kansai Nerolac Paints Ltd 255.95 137936.50 5.88 43.53 8.64 140.00

Berger Paints India Ltd 220.80 153119.90 4.10 53.85 12.15 125.00

Akzo Nobel India Ltd 1380.00 64391.20 38.93 35.45 7.01 200.00

QUARTERLY HIGHLIGHTS (CONSOLIDATED)

Results updates- Q2 FY16,

Months Sep-15 Sep-14 % Change

Net Sales 37793.60 36329.50 4.03

Net Profit 3990.00 3473.00 14.89

EPS 4.16 3.62 14.89

PBDIT 6783.10 5841.90 16.11

The consolidated net profit jumps to Rs. 3990.00 million against Rs. 3473.00 million in the corresponding

quarter ending of previous year, an increase of 14.89%. Revenue for the quarter rose by 4.03% to Rs. 37793.60

million from Rs. 36329.50 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 4.16 a share during the quarter, registering 14.89% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 6783.10 million as against Rs. 5841.90 million in the

corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure

Rs. in millions

Q2 FY16 Q2 FY15 %

CHNG

Cost of Material Consumed

19520.40 21833.20 -11%

Purchase of Stock in Trade

1868.40 1449.50 29%

Employee Benefit Expenses

2466.20 2335.40 6%

Depreciation & Amortization Expense

708.80 668.80 6%

Other Expenditure 8797.20 8137.90 8%

Standalone Results (Q2 FY16):

For the quarter ended September 30, 2015, Income from operations increased by 2.3 % to Rs. 30647.0 mn

from Rs. 29957.0 mn. PBDIT for the quarter Increased by 11.4% to Rs. 5389.0 mn from Rs. 4836.0 mn. Net

Profit Increased by 11.9 % to Rs. 3645.0 mn as compared to Rs. 3257.0 mn in the previous corresponding

period.

Latest Updates

Asian Paints Ltd has recommended payment of interim dividend of Rs. 2.20 per Equity Share (220%) of the

face value of Rs. 1 each for the financial year ending March 31, 2016.

Asian Paints Ltd is proposing to set up a paint manufacturing plant at Mysuru district, in the state of

Karnataka. The ultimate capacity of 6 (six) lakh KL p.a. would be achieved in a phased manner at an

approximate cost of Rs. 2300 crores at the current prices.

Asian Paints Ltd has announced that as part of the Company’s plan to consolidate its investments in the

overseas subsidiaries, Asian Paints (International) Limited, Mauritius, a wholly owned subsidiary of the

Company has transferred its entire holding of 49% held in the subsidiary company viz., Asian Paints (Middle

East) LLC and 100% of holding in the subsidiary company viz., Asian Paints (Tonga) Limited to Berger

International Limited, Singapore, a wholly owned subsidiary of Asian Paints (International) Limited.

COMPANY PROFILE

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

the world with a consolidated turnover of Rs. 14,183.5 crores (Rs. 141.84 billion). Asian Paints along with its

subsidiaries have operations in 19 countries across the world with 26 paint manufacturing facilities, servicing

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

Taubmans and Kadisco. Asian Paints has also marked its foray into the Home Improvement and Décor space in

India with the acquisition of Sleek group – a kitchen solutions provider and Ess Ess Bathroom Products - a

prominent player in the bath and wash segment in India.

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

Balance Sheet as at March 31st, 2014 -2017E

ASIAN PAINTS LTD. FY14A FY15A FY16E FY17E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 959.20 959.20 959.20 959.20

Reserves and Surplus 39433.00 46464.40 57615.86 66834.39

1. Sub Total - Net worth 40392.20 47423.60 58575.06 67793.59

2. Minority Interest 2460.20 2636.70 2900.37 3074.39

Non Current Liabilities

Long term borrowings 414.00 782.80 892.39 981.63

Deferred Tax Liabilities 1900.10 1801.40 2161.68 2464.32

Other Long term Liabilities 91.30 111.30 148.03 174.67

Long Term Provisions 1085.30 1196.70 1304.40 1395.71

3. Sub Total - Non Current Liabilities 3490.70 3892.20 4506.50 5016.33

Current Liabilities

Short Term Borrowings 1986.30 3316.20 4145.25 4684.13

Trade Payables 17457.20 15487.50 18275.25 20468.28

Other Current Liabilities 9014.50 9974.50 14562.77 16892.81

Short Term Provisions 5593.20 6394.10 2685.52 2954.07

4. Sub Total - Current Liabilities 34051.20 35172.30 39668.79 44999.30

Total Liabilities (1+2+3+4) 80394.30 89124.80 105650.72 120883.62

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 23307.40 22901.60 25649.79 28214.77

Intangible assets 894.50 1240.70 1488.84 1712.17

Capital Work in Progress 716.00 1960.00 2391.20 2773.79

a) Sub Total - Fixed Assets 24917.90 26102.30 29529.83 32700.73

b) Goodwill on consolidation 1413.90 2458.10 2753.07 3028.38

c) Deferred Tax Asset 21.90 2.00 1.68 1.85

d) Non-current investments 1921.30 3858.80 5325.14 6496.68

e) Long Term loans and advances 1302.50 2784.60 3703.52 4444.22

f) Other non-current assets 252.20 367.10 403.81 436.11

1. Sub Total - Non Current Assets 29829.70 35572.90 41717.06 47107.97

Current Assets

Current Investment 5290.60 12019.10 13461.39 14807.53

Inventories 20698.60 22585.20 25747.13 29197.24

Trade receivables 11102.80 11798.50 14529.32 16999.30

Cash and Bank Balances 9316.60 2043.60 3126.71 3752.05

Short-terms loans & advances 2464.60 2619.50 3588.72 4450.01

Other current assets 1691.40 2486.00 3480.40 4569.51

2. Sub Total - Current Assets 50564.60 53551.90 63933.66 73775.65

Total Assets (1+2) 80394.30 89124.80 105650.72 120883.62

Annual Profit & Loss Statement for the period of 2014 to 2017E

Value(Rs.in.mn) FY14A FY15A FY16E FY17E

Description 12m 12m 12m 12m

Net Sales 127148.10 141828.10 154592.63 170051.89

Other Income 1342.20 1697.10 2206.23 2316.54

Total Income 128490.30 143525.20 156798.86 172368.43

Expenditure -107169.20 -119474.00 -128311.88 -141483.17

Operating Profit 21321.10 24051.20 28486.98 30885.26

Interest -422.20 -347.60 -389.31 -428.24

Gross profit 20898.90 23703.60 28097.66 30457.02

Depreciation -2456.60 -2659.20 -2871.94 -3072.97

Exceptional Items -99.60 -275.70 0.00 0.00

Profit Before Tax 18342.70 20768.70 25225.73 27384.04

Tax -5715.10 -6495.40 -7920.88 -8625.97

Profit After Tax 12627.60 14273.30 17304.85 18758.07

Minority Interest -439.50 -321.80 -382.94 -325.50

Net Profit 12188.10 13951.50 16921.91 18432.57

Equity capital 959.20 959.20 959.20 959.20

Reserves 39433.00 46464.40 57615.86 66834.39

Face value 1.00 1.00 1.00 1.00

EPS 12.71 14.54 17.64 19.22

Quarterly Profit & Loss Statement for the period of 31st Mar, 2015 to 31st Dec, 2015E

Value(Rs.in.mn) 31-Mar-15 30-Jun-15 30-Sep-15 31-Dec-15E

Description 3m 3m 3m 3m

Net sales 35350.30 36234.70 37793.60 39683.28

Other income 423.80 734.50 575.10 540.59

Total Income 35774.10 36969.20 38368.70 40223.87

Expenditure -29758.40 -29399.30 -31585.60 -33016.49

Operating profit 6015.70 7569.90 6783.10 7207.39

Interest -101.90 -89.10 -92.20 -106.95

Gross profit 5913.80 7480.80 6690.90 7100.43

Depreciation -671.70 -693.20 -708.80 -737.15

Exceptional Items -24.10 0.00 0.00 0.00

Profit Before Tax 5218.00 6787.60 5982.10 6363.28

Tax -1698.00 -2113.40 -1836.20 -1991.71

Profit After Tax 3520.00 4674.20 4145.90 4371.57

Minority Interest -110.30 -122.40 -155.90 -96.66

Net Profit 3409.70 4551.80 3990.00 4274.92

Equity capital 959.20 959.20 959.20 959.20

Face value 1.00 1.00 1.00 1.00

EPS 3.55 4.75 4.16 4.46

Ratio Analysis

Particulars FY14A FY15A FY16E FY17E

EPS (Rs.) 12.71 14.54 17.64 19.22

EBITDA Margin (%) 16.77% 16.96% 18.43% 18.16%

PBT Margin (%) 14.43% 14.64% 16.32% 16.10%

PAT Margin (%) 9.93% 10.06% 11.19% 11.03%

P/E Ratio (x) 67.43 58.90 48.56 44.58

ROE (%) 31.26% 30.10% 29.54% 27.67%

ROCE (%) 55.57% 51.84% 49.30% 46.23%

Debt Equity Ratio 0.06 0.09 0.09 0.08

EV/EBITDA (x) 37.97 33.75 28.44 26.19

Book Value (Rs.) 42.11 49.44 61.07 70.68

P/BV 20.35 17.33 14.03 12.12

Charts

OUTLOOK AND CONCLUSION

At the current market price of Rs.856.75, the stock P/E ratio is at 48.56 x FY16E and 44.58 x FY17E

respectively.

Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs.17.64 and

Rs.19.22 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 13% over 2014 to 2017E

respectively.

On the basis of EV/EBITDA, the stock trades at 28.44 x for FY16E and 26.19 x for FY17E.

Price to Book Value of the stock is expected to be at 14.03 x and 12.12 x for FY16E and FY17E respectively.

The demand conditions in the Indian Economy remained subdued and growth of decorative coatings business

segment in India continued at a lower level than it did in the decade prior to 2012. Material prices remained

benign in the quarter aiding margins. The Industrial Coatings JV (AP-PPG) registered good growth in the

Industrial Liquid Paints and Road markings segment. In the Automotive coatings business JV (PPG-AP), the Auto

OEM and Refinish segment registered reasonable growths. The International business did well aided by

contribution from the units in Middle East and in Ethiopia, although Egypt and Nepal were adversely affected in

this period. The company continues to remain very cautious on the domestic demand outlook. Hence, we

recommend ‘BUY’ in this particular scrip with a target price of Rs.945.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

DECORATIVE INDIA BUSINESS

Environment

The overall weak demand environment in the economy was also reflected in the decorative paints demand in the

domestic market. Demand conditions have been challenging across most of the markets – more severely so in

states of Punjab, Delhi, Tamil Nadu and Kerala. A short Diwali festival season, unseasonal rains and prolonged

winter in Northern India have also added to the woes of the paint industry. The Institutional sales business also

faced a slowdown of demand. Notwithstanding the trying circumstances, Asian Paints did well to manage and

grow its business in most parts of the country. And while this growth was lower than expected, profitability

improved on account of reduction in key raw material prices, specifically in the second half of the year, on the

back of significant drop in crude prices.

Emulsions

At a product category level, the growth in interior emulsions continues to be led by ‘Tractor Emulsion’ with

advertising and field initiatives focused on the proposition of ‘smart choice’. The growth in top end ‘Royale

Emulsion’ has been on a lower side. However, the top end variant ‘Royale Aspira’, which had a nationwide launch

in the previous year, has done well across markets.

In the exterior emulsion category, the top end brand ‘Ultima’ continues to grow well. ‘Ultima Protek’, that offers

best in class benefits, has grown rapidly across retail and projects segments. The economy segment in exterior

emulsions has witnessed slowdown in growth. With sustained efforts in educating the customers and painters on

the use of correct painting system, the growth of exterior undercoats has been good.

Wood Finishes

In the wood finishes category, the high end finishes like Polyester and Polyurethane (PU) launched in

collaboration with Renner Italia of Italy have performed well across markets. ‘Aquadur’, water- based PU, has

been well accepted in the market. Asian Paints has extended the concept of ‘inspiration décor’ even in the wood

finishes category by launching full range of clear and opaque colours across different products and exclusive

special effects in wood and glass coatings.

Outlook

Crude prices have declined significantly in past six months and are hovering at around a six –year low. Lower

input costs and volume growth may lead to a 300 basis points (bps) margin expansion for Asian Paints. Even

other paint companies may see earnings and margin expansion.

Some paint companies might pass on the benefit of softening oil prices to consumers to propel volume growth by

keeping realizations low, while others might resort to brand investments or capacity expansion. Lower prices

and an improvement in demand from the automotive and industrial segment as economic recovery gathers

steam should help paint companies clock volume growth in the range of 9-13 percent for FY15-16.

Indian paint industry is likely to see a 20 percent compounded annual growth rate until 2016 on the back of

increasing demand from retail consumers, on rapid urbanisation, and development of rural markets. A rise in

disposable income of the average middle class coupled with increasing investment on education, urbanisation,

development of the rural market and various launches of many innovative products will also be major drivers.

Disclaimer:

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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. Firstcall Research and/ or its affiliates and/or employees will not be liable for

the recipients’ investment decision based on this document.

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