asian paints edel 18012016

8/17/2019 Asian Paints EDEL 18012016

1/19

Edelweiss Research is also available on www.edelresearch.com,

Bloomberg EDEL , Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

Asian Paints’ (APL) Q3FY16 numbers were strong with a line by line beat

versus our estimates. Key positives include: (i) robust decorative volume

growth at ~14% YoY (highest in past 7 quarters; 8% YoY in Q2FY16) aided

by festive cheer, low base; (ii) gross margin catapulted (highest in past 11

years) 328bps YoY and 88bps QoQ aided by lagged impact of commodity

price correction; and (iii) robust growth in industrial and international

businesses. The only negative was impairment loss of INR525mn taken in

Sleek business (we continue to remain concerned on lack of pick up in

Sleek ). Raw material prices having cooled further, we do not rule out a

price cut in the next 3 months; we anticipate this to be a proactive step

from the leader to ward off competition from smaller players. APL is

among our top picks and our faith remains. Maintain ‘BUY’.

Line-by-line beat; Sleek to take time; Ess Ess does well

Standalone sales grew 13% YoY; 296bps YoY EBITDA margin expansion. Industrial

business saw good sales growth with margin expansion. Ess Ess posted INR284mn

sales (up 18% YoY); EBIT loss of INR74mn (INR224mn sales, INR102mn EBIT loss in

Q2FY16). Sleek was impacted by subdued demand (real estate market and South

India—major market). Given adverse business conditions and slower growth than

anticipated, APL provided for impairment loss, which may be revised later.

Q 3FY16 conference call: Key takeaways

Smaller towns continue to grow significantly better than bigger counterparts. APLanticipates demand in South, which was adversely impacted by floods, to return

though timing is uncertain. Though crude prices have corrected significantly, TiO2

price may not correct correspondingly due to: (i) declining INR versus USD; and (ii)

production line shut down of ~150,000mT (in China). Design of Indonesia plant to be

completed soon and construction to commence in Q1FY17.

Outlook and valuations: Lustrous growth; maintain ‘BUY’

APL remains key beneficiary of recovery in urban demand and GDP revival. In our view,

volume growth and margin expansion need to sustain on a half yearly basis to avoid

quarterly volatility. The stock is trading at 37.9x FY17E and 31.8x FY18E EPS. We

maintain ‘BUY/Sector Out erformer’ with a tar et rice of INR990.

RESULT UPDATE

ASIAN PAINTSAll round beat; Sleek leaves a bitter taste

EDELWEISS 4D RATINGS

Absolute Rating BUY

Rating Relative to Sector Outperformer

Risk Rating Relative to Sector Medium

Sector Relative to Market Underweight

MARKET DATA (R: ASPN.BO, B: APNT IN)

CMP : INR 850

Target Price : INR 990

52-week range (INR) : 927 / 693

Share in issue (mn) : 959.2

M cap (INR bn/USD mn) : 816 / 12,463

Avg. Daily Vol.BSE/NSE(‘000) : 1,406.1

SHARE HOLDING PATTERN (%)

Current Q1FY16 Q4FY15

Promoters * 52.8 52.8 52.8

MF's, FI's & BK’s 9.5 9.8 8.8

FII's 17.4 17.0 18.1

Others 20.3 20.4 20.3

* Promoters pledged shares

(% of share in issue)

: 7.1

PRICE PERFORMANCE (%)

Stock NiftyEW Consumer

Goods Index

1 month 0.2 (4.4) (3.4)

3 months (0.1) (9.9) (6.4)

12 months 4.5 (12.8) (7.5)

Abneesh Roy

+91 22 6620 3141

[email protected]

Pooja Lath

+91 22 6620 3075

[email protected]

Tanmay Sharma

+91 22 4040 7586

[email protected]

India Equity Research| Consumer Goods

January 18, 2016

Financials (INR mn)

Y ear to Marc h Q3FY16 Q3FY15 % change Q2FY16 % change FY15 FY16E FY17E

Net rev. 41,600 36,526 13.9 37,794 10.1 141,828 154,184 173,177

EBITDA 8,006 5,835 37.2 6,208 29.0 22,354 28,216 33,735

Adjus te d Profit 5,15 7 3,682 40.1 3,990 29.3 14,227 18,105 21,544

Dilu. EPS (INR) 5.4 3.8 40.1 4.2 29.3 14.8 18.9 22.5

Dilu.P/E (x) 57.3 45.0 37.9

EV/EBITDA (x) 36.2 28.5 23.7

ROAE (%) 31.3 34.1 34.1


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Consumer Goods

2 Edelweiss Securities Limited

Table 1: Trends at a glance

Source: Company, Edelweiss research

*Ess Ess revenue in Q1FY15 are only for one month

Table 2: Segmental performance – standalone


Q3FY16 concall | Key takeaways

Demand: Clocked double digit volume growth aided by festive cheer. Demand in Tamil

Nadu, coastal Andhra Pradesh and some other regions in South were adversely impacted.

Festival season demand of Pongal was missed, though some demand may return, but the

timing is uncertain. Smaller towns continue to grow significantly better than bigger

counterparts. Domestic environment improved modestly, but industrial environment

continues to remain challenging.

Growth: There was no pricing change in Q3FY16. 9mFY16 volume growth has been higher

than value growth on account of some price reduction taken in initial part of the year.

Competition: Working on pushing sales in emulsions and growth is higher in this segment.

Market continues to be competitive, both in the organized and unorganized space acrosssegments which remains at similar levels as in past (no increase in intensity).

Faster painting: Worked well in a few markets. 10-15% customers are ready to pay a

premium for faster painting service. APL has not launched any sub-brand to support this

service, unlike competitors.

Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16

Domestic decorative volume growth (% YoY) 12.0 8.0 14.0 11.0 10.0 2.0 4.0 10.0 7.0 14.0

Consolidated sales growth (% YoY) 18.3 13.1 21.1 18.3 16.6 5.8 6.9 7.8 4.0 13.9

Consolidated gross margin (%) 43.3 41.0 41.9 42.6 43.7 43.8 45.1 46.3 46.2 47.1

Consolidated EBITDA growth (% YoY) 33.8 5.2 23.4 19.8 5.0 8.6 15.3 22.8 15.2 37.2

Consolidated EBITDA margin (%) 16.4 15.6 14.7 16.6 14.8 16.0 15.8 18.9 16.4 19.2

Standalone sales growth (% YoY) 18.2 12.2 22.2 18.2 18.3 6.4 6.0 7.2 2.3 13.2Standalone gross margin (%) 44.4 41.4 42.3 43.2 44.8 44.8 46.0 47.5 47.4 48.3

Standalone EBITDA growth (% YoY) 35.3 5.8 19.8 16.8 5.4 13.1 18.1 25.1 11.4 31.9

Standalone EBITDA margin (%) 18.0 16.8 15.6 17.9 16.1 17.9 17.3 20.6 17.6 20.9

Ess Ess revenue (INR mn) NA NA NA 31 259 241 290 237 224 284

Ess Ess EBIT (INR mn) NA NA NA (13) (1) (52) (32) (53) (102) (74)

Segment revenue (INR mn) Q3FY16 Q3FY15 YoY growth

Paints 34,196 30,150 13.4

Home Improvement (only Ess Ess) 284 241 18.0

Total 34,480 30,390 13.5

Segment PBIT (INR mn)

Paints 7,597 5,584 36.1

Home Improvement (only Ess Ess) (74) (52) NM

Total 7,523 5,532 36.0

PBIT margins (%)

Paints 22.2 18.5 370

Home Improvement (26.2) (21.7) NM

Total 21.8 18.2 362


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Asian Paints


Adhesive: Small part of the business. Currently present only in tile and wallpaper adhesives;

looking to expand into a few more categories in Q4FY16.

Industrial business: Industrial coatings JV (AP-PPG) registered good growth in industrial

liquid paints and powder coatings segment. In the automotive coatings business JV’s (PPG-

AP) growth in auto OEM improved due to growth in four-wheeler segment. However, two-

wheeler and tractor segments’ growth was tardy. Refinish business segment registereddecent growth. Joint ventures clocked margin expansion in Q3FY16. Some price cut taken in

this business.

International business: Double digit growth led by contribution from Middle East,

Bangladesh and Ethiopia. Nepal and Egypt sustained growth needed to ensure good

international growth. Demand is challenging in Egypt and Ethiopia (due to lower exports

from these countries). No specific disruption from China imports currently.

Home improvement: Sleek business impacted by subdued demand (real estate market and

South which is a major market for Sleek) prevailing over the past few years. APL has

continued to operate profitable Sleek stores which it had required. APL is working on

improving the distribution channel—servicing existing dealers, roping in new kitchen dealersand selling products through APL’s paint distributors. However, given the adverse business

conditions since acquisition and slower growth than anticipated, APL provided for INR525mn

as impairment loss for the time being which may be revised if demand improves.

Ess Ess saw good growth, though it was slightly impacted by adverse rainfall in South.

Currently, business growth is on track and APL will review progress only later.

Raw material: Costs continue to remain benign, though may be impacted by declining INR

going forward. It is unlikely to sustain the current high gross margin; APL intends to remain

competitive in the market. Big global suppliers have shut ~150,000mT line (in China) which

impacts cost for TiO2 (not solely linked to crude oil prices).

Staff costs: Stagnant interest rates have led to lower growth in staff costs due to lower

retiral benefits.

Capex: INR7bn for FY16 in standalone. Expansion of Rohtak plant from 200,000klpa to

400,000klpa is on schedule to complete by FY16 end. Depreciation will be impacted once

expansion comes on stream. Design of Indonesia plant to be completed soon and

construction to start in Q1FY17.

Q2FY16 concall | Key takeaways

Volume growth: Clocked high single-digit volume growth.

Segment-wise growth: Lower-end distempers are doing slightly better due to change in

focus, which impacted realisation to some extent.Q2 is typically the biggest quarter for

distempers but due to poorer mix in distempers, Q2FY16 has been impacted. In putty, Asian

Paints is a small player and hence there exists huge growth potential. Putties have similar

gross margin as paints. There is no significant down-trading seen in paints. Putties grew at

higher rate in Q2FY16 as per plans, some other segments may have performed slightly

below expectations.


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Consumer Goods


Industrial segment: PPG-AP witnessed better performance YoY. AP-PPG, the joint venture in

the industrial coatings segment, 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 growth.

Demand: Slower GDP growth, poor monsoon (impacting sentiment) led to poor domestic

demand. Asian Paints continues to remain cautious on the demand front, though the

upcoming festive season may see some uptick in demand. September was better than

August. Future growth is hinged on GDP growth and sentiment.

Sales growth: Realisation was hit by the price cuts taken in March 2015. Sales is reported

net of discounts given to dealers. Q2FY16 may have seen some impact due to early Diwali in

FY15 and maybe Q3FY16 will benefit slightly from softer base, though it is difficult to

specifically comment.

Re-painting cycle: Chuna has the lowest re-painting cycle. In metros like Mumbai rented

houses see lower re-painting cycle given the house is re-painted every time lease is

renewed, though the paint may not be of premium quality. The re-painting cycle depends

on the quality of paint used, etc.

Rural-urban: Rural markets are likely to face pressure owing to poor monsoon.

Home solutions: The segment will continue to charge a premium for X-press painting as

consumers are ready to pay more. Asian Paints is not doing any national advertising as the

service is not available on pan-India basis on account of which the company is only involved

in local advertising. It will continue to focus on home solutions and not on a particular

service (express painting).

Home improvement: Both Sleek and Ess Ess were impacted due to demand slowdown.

These businesses have been incorporated now with the Asian Paints brand. Ess Ess has gone

in expansion mode, re-branding is over and product range corrected. There is decentcompetition and demand is slow given poor demand scenario. Sleek continues to see some

small organic investments with some investment done on innovation side. In Ess Ess, Asian

Paints is working on a long-term strategy and may have to make some investments towards

manufacturing facilities by year end. Also, in Ess Ess some investment will required for

innovation and dyes. The company is focusing on growing and gaining scale in both

businesses. Next year is likely to be better. Investments are being made in

people/manpower for extension of the brands where its presence is negligible and where

there is no presence altogether. Rebranding of product portfolio is also being considered by

the company.

Pricing action: No pricing action has been initiated this far in FY16.

International business: Reported decent performance, led by good performance in the

Middle East and Ethiopia businesses; Nepal business was hit by political unrest. In Nepal,

post the earthquake there has been some revival in demand, but the government is

expected to look into the efforts needed and management expects good growth in future.

Asian Paints has paid money for the land in Indonesia and is looking for clearances for the

facility. The company is currently working on designing the plant and getting its strategy

right. Plant build up in Indonesia is slower than expected, as the company is in the process


5/19

Asian Paints


of land acquisitions and have taken requisite approvals too from authorities. However,

lower growth in Indonesia doesn’t impact the company’s expansion plan there.

Capex: INR7bn incurred towards capacity expansion at Rohtak plant from 200,000KL to

400,000KL is on track.

Raw material prices: Expected to remain soft in ensuing quarters. There is flattish cost inprocuring raw material, though there is some pressure on Rupee front.

Other expenses: In short term, quite a few costs like transportation, power and fuel, storage

costs are fixed in nature (~60%).

Other key developments

As per Coatings World –2015 Top companies report Asian Paints is the eleventh largest in

the World and second largest in Asia.

Chart 1: Global ranking of coatings players

Source: Coatings World - 2015 Top companies report

Asian Paints (International) Ltd transferred the entire holding of its subsidiaries Asian Paints

(Middle East) and Asian Paints (Tonga) to Berger International Limited, Singapore in order to

consolidate investments of the company in overseas subsidiaries.

Asian Paints has launched a new campaign that highlights use of good quality paint will not

only uplift image of the house, but also elevate their standard in society.

Asian Paints has unveiled its Ezycolour home solutions to create awareness about its new

Green Painting Services (GPS), which uses eco-friendly water-based paints for all surfaces.

The message being imparted is live in harmony with nature and seeks to encourage people

to think differently.

GST is expected to have positive impact on APL. Currently, the company’s products are

levied 12.5% excise and ~12% VAT, which post GST will reduce to 17-18% as expected for

paints industries. It will also be able to offset service tax paid on input services once GST

rolls out. GST implementation will usher in level playing field on taxation front for organised

14.311.6

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players like Asian Paints, who will wrest market share from unorganised companies

(currently account for ~35% of total paints market).

Outlook and valuations: Lustrous growth; maintain ‘BUY’

Paint industry exhibits strong pricing power reflected by frequent price hikes in inflationary

raw material scenario but lagged price cuts in a deflationary environment. With urban

recovery on the cards, discretionary spending and GDP growth are bound to increase. Paintindustry volume growth exhibits a strong correlation with GDP growth (1.5-2.0x), which will

be further bolstered by market share gains, innovations and strong re-painting demand

(90% of total demand). Industrial segment growth has languished over the past few

quarters, which we believe is likely to pick up, especially in the automotive space (forms

large part of non-decorative segment). We expect distribution synergies between home

décor segments and existing paint distribution network to aid the company’s operating

leverage. We roll over to FY18 and assign target multiple of 37x FY18E earnings to arrive at

target price of INR990. We maintain ‘BUY/ Sector Outperformer’ recommendation/rating.

Chart 2: Asian Paints - P/E band


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Asian Paints


Chart 3: Consolidated sales growth

Chart 4: Domestic decorative volume growth

Chart 5: Titanium dioxide price


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Chart 6: Consolidated EBITDA margin


Table 3: Standalone snapshot (INR mn)


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( % )

Year to March Q3FY16 Q3FY15 % Change Q2FY16 % Change

Net sales 34,240 30,254 13.2 30,647 11.7

COGS 17,693 16,697 6.0 16,116 9.8

Staff costs 1,604 1,539 4.2 1,600 0.3

Other expenditure 7,796 6,601 18.1 7,542 3.4

Total expenditure 27,094 24,837 9.1 25,258 7.3

EBITDA 7,146 5,417 31.9 5,389 32.6

Depreciation 601 565 6.3 584 2.9

EBIT 6,545 4,852 34.9 4,806 36.2

Interest 58 78 (26.1) 45 28.1

Other income 472 354 33.2 583 (19.0)

PBT 6,959 5,128 35.7 5,343 30.2 Exceptional item 653 0 NA 0 NA

Tax expenses 2,124 1,598 32.9 1,698 25.0

Net profit 4,182 3,531 18.4 3,645 14.7

As % of net revenues

COGS 51.7 55.2 (351) 52.6 (91)

Staff expenses 4.7 5.1 (40) 5.2 (54)

Others 22.8 21.8 95 24.6 (184)

EBITDA 20.9 17.9 296 17.6 328

PAT 12.2 11.7 54 11.9 32

Tax rate 30.5 31.2 (63) 31.8 (127)


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Asian Paints


Table 5: Pricing summary


Date Price hike

Mar-15 (1.9)

Jun-14 1.2

May-14 1.0

Feb-14 2.1

Sep-13 1.8

Aug-13 1.0

May-13 1.2

Jan-13 (0.2)

May-12 3.2

Mar-12 2.1

Mar-12 1.4

Dec-11 2.2

Jul-11 1.3

Jun-11 2.5

May-11 4.4

Q4FY11 1.0

Dec-10 3.0

Aug-10 1.2

Jul-10 2.6

May-10 4.2


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Consumer Goods


Financial snapshot (INR mn)

Year to March Q3FY16 Q3FY15 % change Q2FY16 % change YTD16 FY16E FY17E

Net revenues 41,600 36,526 13.9 37,794 10.1 115,629 154,184 173,177

Raw material costs 22,004 20,517 7.2 20,322 8.3 61,786 82,250 90,489

Employee expenses 2,470 2,319 6.5 2,466 0.1 7,412 9,906 11,016

Other expenses 9,121 7,855 16.1 8,797 3.7 25,381 33,812 37,937

Total expenditure 33,595 30,691 9.5 31,586 6.4 94,579 125,968 139,442EBITDA 8,006 5,835 37.2 6,208 29.0 21,049 28,216 33,735

Depreciation 725 673 7.7 709 2.3 2,127 2,969 3,512

EBIT 7,281 5,162 41.1 5,499 32.4 18,922 25,247 30,224

Other income 358 321 11.7 575 (37.8) 1,668 2,151 2,295

Interest 76 98 (22.2) 92 (17.5) 257 347 330

Add: Prior period items - - - - - -

Add: Exceptional items (525) - - (525) (525) -

Profit before tax 7,038 5,384 30.7 5,982 17.7 19,808 26,526 32,189

Provision for taxes 2,288 1,667 37.2 1,836 24.6 6,238 8,386 9,979

Minority interest 117 35 231.4 156 (25.0) 395 560 666

Associate profit share - - - - - -

Profit- Discontinued Ops - - - - - -

Reported net profit 4,633 3,682 25.8 3,990 16.1 13,175 17,580 21,544

Adjusted Profit 5,157 3,682 40.1 3,990 29.3 13,699 18,105 21,544

Adjusted Diluted EPS 5.4 3.8 4.2 14.3 18.9 22.5

As % of net revenues

COGS 52.9 56.2 53.8 53.4 53.3 52.3

Employee cost 5.9 6.3 6.5 6.4 6.4 6.4

Other expenses 21.9 21.5 23.3 22.0 21.9 21.9

EBITDA 19.2 16.0 16.4 18.2 18.3 19.5

EBIT 17.5 14.1 14.6 16.4 16.4 17.5

PBT 16.9 14.7 15.8 17.1 17.2 18.6

Adjusted net profit 12.7 10.2 11.0 12.2 12.1 12.8

Tax rate 32.5 31.0 30.7 31.5 31.6 31.0


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Asian Paints


Company Description

Asian Paints is the largest paints company in India and figures among the top 10 players in

the world. The company has 25 manufacturing plants in 17 countries, serving consumers in

65 countries globally. The decorative segment accounts for almost 70% of the overall paints

market. Paints sales in domestic and international markets contributed 81% and 13%,

respectively, to the company’s consolidated revenue; chemical sales accounted for the

balance. Among Asian Paints’ international businesses, while the Middle East contributesthe lion’s share at 51% to revenue, the Caribbean contributes 14%. Asia and South Pacific

contribute 27% and 8%, respectively.

Investment Theme

The paints industry is expected to post robust volume growth led by strong repainting

demand and from construction. Growth in the repainting segment, accounting for about

90% of decorative demand, is on account of good demand in rural and small towns. Further,

expected growth in construction activity over the next five years creates opportunity for

fresh painting. Though Asian Paints is expected to grow ahead of the market on account of

its pricing strategy at the lower end, higher growth in premium products, brand equity anddistribution strength, moderation in real estate and auto segments can act as barrier.

Key Risks

A slowdown in the economy is the biggest risk for the paints industry, as about 75% of

demand for decorative paints arises from repainting, which, in turn, depends heavily on the

country’s economic condition.

A rise in crude oil price and rupee depreciation could hurt the company’s margin as crude

derivatives account for majority of Asian Paints’ input costs.


12/19


Consumer Goods

Financial StatementsIncome statement (INR mn)

Year to March FY15 FY16E FY17E FY18E

Net revenue 141,828 154,184 173,177 199,496

Materials costs 79,715 82,250 90,489 103,137

Employee costs 9,071 9,906 11,016 12,623

Other Expenses 23,250 25,705 28,723 33,131

Ad. & sales costs 7,439 8,107 9,215 10,624

EBITDA 22,354 28,216 33,735 39,981

Depreciation 2,659 2,969 3,512 4,072

EBIT 19,695 25,247 30,224 35,909

Add: Other income 1,697 2,151 2,295 2,737

Less: Interest Expense 348 347 330 313

Profit Before Tax 21,044 27,050 32,189 38,333

Less: Provision for Tax 6,495 8,386 9,979 11,883

Less: Minority Interest 322 560 666 793

Reported Profit 13,952 17,580 21,544 25,656

Exceptional Items (276) (525) - -Adjusted Profit 14,227 18,105 21,544 25,656

Shares o /s (mn) 959 959 959 959

Adjusted Basic EPS 14.8 18.9 22.5 26.7

Diluted shares o/s (mn) 959 959 959 959

Adjusted Diluted EPS 14.8 18.9 22.5 26.7

Adjusted Cash EPS 17.6 22.0 26.1 31.0

Dividend per share (DPS) 6.1 7.7 9.4 11.2

Dividend Payout Ratio(%) 50.2 50.1 50.1 50.1

Common size metrics


Materials costs 56.2 53.3 52.3 51.7

Staff costs 6.4 6.4 6.4 6.3

Ad. & sales costs 5.2 5.3 5.3 5.3

Other expenses 16.4 16.7 16.6 16.6

EBITDA margins 15.8 18.3 19.5 20.0

EBIT margins 13.9 16.4 17.5 18.0

Net Profit margins 10.3 12.1 12.8 13.3

Growth ratios (%)


Revenues 11.5 8.7 12.3 15.2

EBITDA 11.9 26.2 19.6 18.5

PBT 14.1 28.5 19.0 19.1

Adjusted Profit 15.8 27.3 19.0 19.1EPS 15.8 27.3 19.0 19.1

Key Assumptions


Macro

GDP(Y-o-Y %) 7.2 7.4 7.9 8.3

Inflation (Avg) 5.9 4.8 5.0 5.2

Repo rate (exit rate) 7.5 6.8 6.0 6.0

USD/INR (Avg) 61.1 65.0 67.5 67.0

Company

Sales assumptions

Sales growth-paints std 11.1 7.0 13.0 16.0

Sales growth-chemicals 29.5 10.0 10.0 15.0

Volume growth-standalone 7.1 9.0 12.0 14.0

Price change-standalone 4.0 (2.0) 1.0 2.0

Subsidiary sales growth 10.4 24.1 10.3 12.1

Cost assumptions

Excise (% grs sale stn) 10.7 10.7 10.7 10.7

Excise (subs % of gross) 2.9 2.8 2.8 2.8 TiO2 (as % of COGS) 29.3 23.8 23.1 24.5

Crude RM (as % of COGS) 18.4 18.0 18.4 18.7

Pack Mat (as % of COGS) 16.1 16.8 15.9 14.6

COGS as % of sales (Con) 56.2 53.3 52.3 51.7

COGS as % of sales (std) 55.3 52.2 50.8 50.2

Staff cost (% of sales) 6.4 6.4 6.4 6.3

Std Staff cost (% sales) 5.1 5.4 5.5 5.5

Con A&P (% of sales) 5.2 5.3 5.3 5.3

Dom A&P (% of sales) 5.1 5.4 5.5 5.5

Financial assumptions

Tax rate (Consol) 30.9 31.0 31.0 31.0

Capex (INR mn) 3,287 7,500 8,000 8,000

Debtor days 29 31 31 31

Inventory days 99 100 100 100

Payable days 75 71 71 71

Cash conversion cycle 53 60 60 60

Dep. (% gross block) 7.1 7.0 7.0 7.0


13/19


Asian Paints

Peer comparison valuation

Market cap Diluted P/E (X) EV / EBITDA (X) ROAE (%)

Name (USD mn) FY16E FY17E FY16E FY17E FY16E FY17E

Asian Paints 12,463 45.0 37.9 28.5 23.7 34.1 34.1

Colgate 3,686 36.5 32.9 24.8 21.0 78.5 69.8

Hindustan Unilever 25,717 41.6 36.9 28.3 24.9 98.9 100.5

ITC 37,279 25.1 22.3 15.7 13.9 30.1 30.4

Pidilite Industries 4,212 38.6 32.3 24.1 20.3 28.7 28.5

United Spirits 5,755 70.8 40.1 34.2 23.4 44.4 42.6

AVERAGE - 41.8 33.2 25.9 21.2 49.3 48.1

Source: Edelweiss research

Cash flow metrics


Operating cash flow 13,004 21,247 23,784 27,594

Investing cash flow (1,645) (6,340) (8,050) (8,000)

Financing cash flow (4,961) (9,876) (11,320) (13,362)

Net cash Flow 6,398 5,031 4,414 6,232

Capex (3,287) (7,500) (8,000) (8,000)

Dividend paid (6,999) (8,805) (10,790) (12,849)

Profitability and efficiency ratios


ROAE (%) 31.3 34.1 34.1 34.1

ROACE (%) 43.0 46.6 47.1 47.5

Inventory Days 99 100 100 100

Debtors Days 29 31 31 31

Payable Days 75 71 71 71

Cash Conversion Cycle 53 60 60 60

Current Ratio 1.8 2.0 2.1 2.3

Gross Debt/EBITDA 0.2 0.1 0.1 0.1

Gross Debt/Equity 0.1 0.1 0.1 -

Adjusted Debt/Equity 0.1 0.1 0.1 -

Net Debt/Equity (0.2) (0.3) (0.3) (0.3)

Interest Coverage Ratio 56.7 72.8 91.6 114.7

Operating ratios


Total Asset Turnover 2.7 2.5 2.4 2.4

Fixed Asset Turnover 5.4 5.3 5.2 5.3

Equity Turnover 3.1 2.9 2.7 2.6

Valuation parameters


Adj. Diluted EPS (INR) 14.8 18.9 22.5 26.7

Y-o-Y growth (%) 15.8 27.3 19.0 19.1

Adjusted Cash EPS (INR) 17.6 22.0 26.1 31.0

Diluted P/E (x) 57.3 45.0 37.9 31.8

P/B (x) 17.2 14.5 12.2 10.2

EV / Sales (x) 5.5 5.1 4.5 3.9

EV / EBITDA (x) 36.2 28.5 23.7 19.9

Dividend Yield (%) 0.7 0.9 1.1 1.3

Balance sheet (INR mn)

As on 31st March FY15 FY16E FY17E FY18E

Share capital 959 959 959 959

Reserves & Surplus 46,464 55,240 65,994 78,801

Shareholders' funds 47,424 56,199 66,953 79,760

Minority Interest 2,637 3,197 3,863 4,656

Total Borrowings 4,182 3,982 3,782 3,582

Long Term Liabilities 1,308 1,308 1,308 1,308

Def. Tax Liability (net) 1,799 1,799 1,799 1,799

Sources of funds 57,349 66,485 77,706 91,106

Gross Block 38,664 46,164 54,164 62,164

Net Block 22,902 27,433 31,921 35,850

Capital work in progress 1,960 800 850 850

Intangible Assets 3,699 3,699 3,699 3,699

Total Fixed Assets 28,560 31,931 36,470 40,398

Non current investments 3,859 3,859 3,859 3,859

Cash and Equivalents 14,063 19,093 23,508 29,740

Inventories 22,585 22,534 24,791 28,257

Sundry Debtors 11,799 13,095 14,708 16,944

Loans & Advances 5,404 5,404 5,404 5,404

Other Current Assets 2,853 2,853 2,853 2,853

Current Assets (ex cash) 42,641 43,887 47,757 53,457

Trade payable 15,488 15,999 17,602 20,062

Other Current Liab 16,286 16,286 16,286 16,286

Total Current Liab 31,773 32,285 33,888 36,348

Net Curr Assets-ex cash 10,868 11,601 13,869 17,109

Uses of funds 57,349 66,485 77,706 91,106

BVPS (INR) 49.4 58.6 69.8 83.2

Free cash flow (INR mn)


Reported Profit 13,952 17,580 21,544 25,656

Add: Depreciation 2,659 2,969 3,512 4,072

Interest (Net of Tax) 240 239 228 216

Others 705 1,192 769 891

Less: Changes in WC 4,552 734 2,268 3,240

Operating cash flow 13,004 21,247 23,784 27,594

Less: Capex 3,287 7,500 8,000 8,000

Free Cash Flow 9,717 13,747 15,784 19,594


14/19


Consumer Goods

Top 10 holdings

Perc. Holding Perc. Holding

Life Insurance Corp Of India 5.4 Ojasvi Trading Pvt Ltd 1.0

Aberdeen Investment Services Sa 0.9 Blackrock Fund Advisors 0.8

Jp Morgan Chase & Co 0.6 Vanguard Group Inc 0.5

Oppenheimer Funds Inc 0.4 William Blair Inv Mgmt Llc 0.4

Franklin Templeton Investments 0.4 Bnp Paribas Asset Mgmt Inc 0.3

*as per last availab le data

Insider Trades

Reporting Data Acquired / Seller B/S Qty Traded

20 Aug 2015 Anay Rupen Choksi Sell 52750.00

20 Aug 2015 Nysha Rupen Choksi Sell 52750.00

12 Aug 2015 Rupen Ashwin Choksi Sell 105500.00

11 Aug 2015 Sudhanva Investments & Trading Company Pvt. Ltd Sell 25000.00

11 Aug 2015 Rupen Investments Pvt. Limited Buy 25000.00

*in last one year

Bulk Deals Data Acquired / Seller B/S Qty Traded Price

No Data Available

*in last one year

Additional Data

Directors Data Ashwin Choksi Non-executive Chairman Ashwin Dani Non-executive Vice Chairman

Ms. Amrita Vakil Non-executive Director K.B.S. Anand MD & CEO

Mahendra Choksi Non-executive Director Amar Vakil Non-executive Director

Malav Dani Non-executive Director Ms. Vibha Paul Rishi Non-Executive Independent DirectorDipankar Basu Non-Executive Independent Director Deepak Satwalekar Non-Executive Independent Director

R. A. Shah Non-Executive Independent Director S. Sivaram Non-Executive Independent Director

Mahendra Shah Non-Executive Independent Director S. Ramadorai Non-Executive Independent Director

M. K. Sharma Non-Executive Independent Director

Auditors - Shah & Co- Chareted Accountants, B S R & Associates - Charted Accountants

*as per last annual report


15/19


Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

Asian Paints BUY SO M Bajaj Corp HOLD SP H

Colgate HOLD SP M Dabur BUY SO M

Emami BUY SP H GlaxoSmithKline Consumer

Healthcare

HOLD SP M

Godrej Consumer BUY SO H Hindustan Unilever HOLD SP L

ITC HOLD SU M Marico BUY SO M

Nestle Ltd REDUCE SU L Pidilite Industries BUY SO M

United Spirits BUY SO H

RATING & INTERPRETATION

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe

within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return


16/19


Consumer Goods

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.

Board: (91-22) 4009 4400, Email: [email protected]

Nirav Sheth

Head Research

[email protected]

Coverage group(s) of stocks by primary analyst(s): Consumer Goods

Asian Paints, Bajaj Corp, Colgate, Dabur, Godrej Consumer , Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd, Pidilite Industries, GlaxoSmithKline

Consumer Healthcare, United Spirits

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 155 45 8 208

* stocks under review

Market Cap (INR) 151 54 3

Date Company Title Price (INR) Recos

Recent Research

15-Jan-16 Hindustan

Unilever

Resilient volume growth,

margins to swell further;

Result Update

804 Hold

08-Jan-16 Bajaj Corp Cost dip margin booster; rural

crawl cripples volumes;

Result Update

404 Hold

07-Jan-16 Prabhat Diary Discovering greener pastures;

Company Update

140 Not

Rated

> 50bn Between 10bn and 50 bn < 10bn

Buy Hold Reduce Total

Rating Interpretation

Buy appreciate more than 15% over a 12-month period

Hold appreciate up to 15% over a 12-month period

Reduce de reciate more than 5% over a 12-month eriod

Rating Expected to

One year price chart

600

680

760

840

920

1,000

J a n - 1 5

F e b - 1 5

M a r - 1 5

A p r - 1 5

M a y - 1 5

J u n - 1 5

J u l - 1 5

A u g - 1 5

S e p - 1 5

O c t - 1 5

N o v - 1 5

D e c - 1 5

J a n - 1 6

( I N R )

Asian Paints


17/19


Asian Paints

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18/19


Consumer Goods

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19/19


Asian Paints

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