CMP (Rs) 4376.00

Target Price (Rs) 4901.00

ISIN: INE021A01018

Jan 22nd

, 2013

ASIAN PAINTS LIMITED Result Update: Q3 FY13

BUYBUYBUYBUY

Stock Data

Sector Paints

BSE Code 500820

Face Value 10.00

52wk. High / Low (Rs.) 4494.00/2764.00

Volume (2wk. Avg ) 5178.00

Market Cap ( Rs in mn ) 419745.92

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

Years FY12A FY13E FY14E

Net Sales 96322.40 113665.43 128441.94

EBITDA 16161.80 19592.30 22519.73

Net Profit 9887.30 12012.42 13938.78

EPS 103.08 125.23 145.32

P/E 42.45 34.94 30.11

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX ASIAN PAINTS LTD

SYNOPSIS

Asian Paints is India's largest paint

company and Asia's third largest paint

company, with a turnover of Rs. 96.32

billion.

During the quarter, the robust growth of

Net Profit is increased by 30.51% to Rs.

3352.30 million.

The construction work at the Khandala

plant near in Maharashtra is on schedule.

The first phase of 3,00,000 KL per annum

is expected to be on stream in Q4-FY13.

Asian Paints Ltd has decided to explore

opportunities in areas of Home

Improvement and Decor.

For Decorative products, Material price

index for Q3 was at 102.56 with 2011-12

as base 100 and for YTD Dec 2012, index

was at 105.56. Material price index for Q2-

FY13 was 107.71 and Q1-FY13 was

106.67.

The company has launched the first

branded home painting service under the

brand name ‘Asian Paints Home

Solutions’.

Net Sales and PAT of the company are

expected to grow at a CAGR of 19% and

18% over 2011 to 2014E 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 4376.00 419745.92 103.08 42.45 15.27 400.00

Kansai Nerolac Paints 1104.00 59550.60 38.65 28.59 5.60 110.00

Berger Paints India Ltd 167.50 57847.70 5.41 30.88 6.85 70.00

Shalimar Paints Ltd 134.65 2453.10 8.78 14.76 4.03 100.00

Investment Highlights

Results updates- Q3 FY13,

Asian Paints is India's largest paint company and

Asia's third largest paint company, with a turnover

of Rs 96.32 billion, reported its financial results for

the quarter ended 31st Dec, 2012. Growth in the

third quarter was good for decorative business

across the country. The Quarter witnessed improved

demand conditions during Diwali season.

Months Dec-12 Dec-11 % Change

Net Sales 30529.20 25605.30 19.23

PAT 3352.30 2568.60 30.51

EPS 34.95 26.78 30.51

EBITDA 5413.40 4198.90 28.92

The company’s net profit jumps to Rs.3352.30 million against Rs.2568.60 million in the corresponding quarter

ending of previous year, an increase of 30.51%. Revenue for the quarter rose 19.23% to Rs.30529.20 million

from Rs.25605.30 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.34.95 a share during the quarter, registering 30.51% increase over previous year period.

Profit before interest, depreciation and tax is Rs.5413.40 millions as against Rs.4198.90 millions in the

corresponding period of the previous year.

Expenditure :

During the quarter the total expenditure rose by 18

percent mainly increase in Cost of Material

Consumed along with Depreciation in the rupee

impact. Total expenditure in Q3 FY13 was at Rs.

25791.00 million as against Rs. 21925.20 million in

Q3 FY12. Employee benefit expenses increased to

Rs. 1531.70 millions against Rs. 1317.90 millions in

the corresponding period of the previous year. Other

Expenditure was at Rs. 5759.90 million and

Consumption of Raw Materials is Rs. 15723.00

million in Q3 FY13 are the primarily attributable to

growth of expenditure.

Segment Revenue

Latest Updates

• During the quarter, International business has registered strong performance with in the Middle East and

Asia region.

• The construction work at the Khandala plant near Pune in Maharashtra is on schedule. The first phase of

3,00,000 KL per annum is expected to be on stream in Q4-FY13. The plant can be further scaled upto

4,00,000 KL per annum.

• For Decorative products, Material price index for Q3 was at 102.56 with 2011-12 as base 100 and for YTD

Dec 2012, index was at 105.56. Material price index for Q2-FY13 was 107.71 and Q1-FY13 was 106.67.

• Berger International Limited (BIL), Singapore has given a copy of the announcement to Asian Paints which is

listed on the Singapore Stock Exchange Limited. BIL is an indirect subsidiary of the Company. Further BIL,

Singapore, has no operations in India.

• The company has expanded its capacity at Rohtak plant in Haryana by 50,000 KL per annum to 2,00,000 KL

per annum.

• The company has launched the first branded home painting service under the brand name ‘Asian Paints

Home Solutions’ and the colour inspiration concept store.

• Asian Paints Ltd has decided to explore opportunities in areas of Home Improvement and Decor.

Company Profile

Asian Paints is India's largest paint company and Asia's third largest paint company, with a turnover of Rs 96.32

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 24 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)

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. 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.

• 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

Balance sheet as at March31st, 2012

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

Particulars March (Rs.in.mn) FY12A FY13E FY14E

1.Shareholder’s Funds

a) Capital 959.20 959.20 959.20

b) Reserves & Surplus 26525.80 39071.03 53569.28

Total Net worth 27485.00 40030.23 54528.48

2.Loan Fund

a) Secured loans 423.40 376.83 346.68

b) Unsecured loans 2935.10 3287.31 3517.42

c) Minority Interest 1366.90 1476.25 1535.30

d) Differed Tax liability 928.30 965.43 984.74

Total Liabilities (1+2) 33138.70 46136.05 60912.63

1.Fixed Assets

a) Gross block 21043.00 22095.15 22978.96

b) Depreciation 8452.70 9128.92 9676.65

c) Net Block 12590.30 12966.23 13302.31

d) Capital Work in Progress 6170.80 8330.58 10663.14

e) Good will on Consolidated 415.20 448.42 475.32

Total Fixed Assets 19176.30 21745.23 24440.77

2. Investments 3547.40 3902.14 4175.29

Current Assets, Loans & Advances (A)

a) Inventories 15988.90 19346.57 22635.49

b) Sundry Debtor 7812.50 10156.25 12796.88

c) Cash & Bank Balance 6243.10 9988.96 14184.32

d) Other Current Assets 1059.30 1239.38 1388.11

e) Loans & Advances 5134.60 8215.36 11506.47

Total Current Assets 36238.40 48946.52 62511.26

Less: Current Liabilities & Provisions (B)

a) Liabilities 21374.40 23519.45 24930.62

b) Provisions 4449.00 4938.39 5284.08

3. Net Current Assets (A-B) 10415.00 20488.68 32296.57

Total Assets( 1+2+3 ) 33138.70 46136.05 60912.63

Annual Profit & Loss Statement for the period of 2011 to 2014E

Value(Rs.in.mn) FY11 FY12 FY13E FY14E

Description 12m 12m 12m 12m

Net Sales 77062.40 96322.40 113665.43 128441.94

Other Income 826.30 1074.10 1152.28 1198.37

Total Income 77888.70 97396.50 114817.71 129640.30

Expenditure -63932.70 -81234.70 -95225.40 -107120.57

Operating Profit 13956.00 16161.80 19592.30 22519.73

Interest -222.30 -409.70 -395.15 -414.91

Gross profit 13733.70 15752.10 19197.15 22104.82

Depreciation -1131.30 -1211.30 -1427.26 -1627.08

Profit Before Tax 12602.40 14540.80 17769.89 20477.74

Tax -3788.90 -4335.00 -5224.66 -5979.50

Profit After Tax 8813.50 10205.80 12545.23 14498.24

Minority Interest -381.10 -318.50 -532.82 -559.46

Net Profit 8432.40 9887.30 12012.42 13938.78

Equity capital 959.20 959.20 959.20 959.20

Reserves 20915.00 26525.80 39071.03 53569.28

Face value 10.00 10.00 10.00 10.00

EPS 87.91 103.08 125.23 145.32

Quarterly Profit & Loss Statement for the period of 30th June, 2012 to 31st Mar, 2013E

Value(Rs.in.mn) 30-June-12 30-Sep-12 31-Dec-12 31-Mar-13E

Description 3m 3m 3m 3m

Net sales 25479.40 26364.40 30529.20 31292.43

Other income 239.40 217.40 309.10 386.38

Total Income 25718.80 26581.80 30838.30 31678.81

Expenditure -21013.90 -22547.90 -25424.90 -26238.70

Operating profit 4704.90 4033.90 5413.40 5440.10

Interest -108.70 -121.60 -78.50 -86.35

Gross profit 4596.20 3912.30 5334.90 5353.75

Depreciation -334.10 -357.30 -366.10 -369.76

Profit Before Tax 4262.10 3555.00 4968.80 4983.99

Tax -1272.70 -1041.00 -1465.60 -1445.36

Profit After Tax 2989.40 2514.00 3503.20 3538.63

Minority Interest -105.60 -122.40 -150.90 -153.92

Net Profit 2883.80 2391.60 3352.30 3384.72

Equity capital 959.20 959.20 959.20 959.20

Face value 10.00 10.00 10.00 10.00

EPS 30.06 24.93 34.95 35.29

Ratio Analysis

Particulars FY11 FY12 FY13E FY14E

EPS (Rs.) 87.91 103.08 125.23 145.32

EBITDA Margin (%) 18.11% 16.78% 17.24% 17.53%

PBT Margin (%) 16.35% 15.10% 15.63% 15.94%

PAT Margin (%) 11.44% 10.60% 11.04% 11.29%

P/E Ratio (x) 49.78 42.45 34.94 30.11

ROE (%) 40.29% 37.13% 31.34% 26.59%

ROCE (%) 62.31% 56.33% 48.26% 41.47%

Debt Equity Ratio 0.11 0.12 0.09 0.07

EV/EBITDA (x) 30.15 25.79 21.09 18.17

Book Value (Rs.) 228.05 286.54 417.33 568.48

P/BV 19.19 15.27 10.49 7.70

Charts

Outlook and Conclusion

� At the current market price of Rs.4376.00, the stock P/E ratio is at 34.94 x FY13E and 30.11 x FY14E

respectively.

� Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.125.23 and

Rs.145.32 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 19% and 18% over 2011 to 2014E

respectively.

� On the basis of EV/EBITDA, the stock trades at 21.09 x for FY13E and 18.17 x for FY14E.

� Price to Book Value of the stock is expected to be at 10.49 x and 7.70 x respectively for FY13E and FY14E.

� We expect that the company surplus scenario is likely to continue for the next three years, will keep its

growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.4901.00 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.

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.

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.

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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