Description
Asian Paints Limited is an Indian chemicals company headquartered in Mumbai, India. It manufactures paints for decorative and industrial use. Asian Paints is India's largest paint company and Asia's third largest paint company, with a turnover of Rs 96.32 billion.
Asian Paints Limited
ACMIIL 1
Asian Paints Limited
Analyst
Chintan S. Mehta
[email protected]
Tel: (022) 2858 3407
Key Data (INR)
CMP 1200.0
Target Price 1419.0
Key Data
Bloomberg Code APNT IN
Reuters Code ASPN.BO
BSE Code 500820
NSE Code ASIANPAINT
Face Value (INR) 10.0
Market Cap. (INR mn.) 113,372.6
52 Week High (INR) 1,319.95
52 Week Low (INR) 751.0
Avg. Daily Volume (6m) 41,654
Shareholding %
Promoters 49.3
Mutual Funds / UTI 2.0
Financial Institutions / Banks 0.1
Foreign Institutional Investors 15.0
Bodies Corporate 7.1
Individuals/Others 26.5
Total 100.0
FY07 FY08E FY09E FY10E
Revenues
(Rs. mn)
36,699.73 42,419.1 47,316.8 58,980.7
Sales
Growth (%)
21.5 15.6 11.5 24.70
Op. Profit
(Rs. mn)
4,780.8 6,320.4 7,523.4 9,525.4
OPM % 13.0 14.9 15.9 16.2
PAT (Rs.
mn)
2,804.4 3,927.7 4,629.4 5,942.7
EPS (Rs.) 29.3 40.7 48.0 61.7
15 April, 2008
B U Y
Introduction
Asian Paints Limited (APL) incorporated in 1942 ranks among the top ten decorative
paint companies in the world. It has presence in decorative and industrial coating
segment of the paint business. Besides, the Company operates around the world
through its subsidiaries Berger International Limited, Apco Coatings and SCIB
Chemicals. APL has its presence in almost all the segment through its brands Royale
in the premium segment, Apcolite in the mid-segment, Gattu, Tractor, Utsav and 3-
Mango etc. in the lower segment.
Investment Rationale
The Indian Paint Industry growing at 1.5 times the GDP growth. Assuming the
country GDP grows @7.5% p.a, the Indian paint industry is expected to grow at
a CAGR of 11.85% from Rs. 112 bn. in FY07 to Rs. 156.7 bn in FY10E.
In order to cater the incremental demand of the domestic paint industry, total
capacity addition coming upstream in over the period of two year i.e. from FY08E
to FY10E is around 255450 tonne. Out of this incremental supply around 82%
will be contributed from APL resulting in increase in market share from 37% in
FY07 to 42% in FY10E.
APL’s dominance in paint industry and presence across all segments will enable
it to maintain the margins going forward.
Valuations
We expect the company to register a 3-year EPS CAGR of 28.2% from 29.3 in FY07
to 61.7 FY10E. At CMP of Rs. 1200.0 the stock is trading at 25.0x FY09E & 19.5x
FY10E earnings per share. We initiate coverage on Asian Paints Ltd with a BUY
recommendation and price-objective of Rs.1419 (implying a forward P/E multiple
of 23x) on account of robust domestic demand for decorative paints.
Asian Paints Limited
ACMIIL 2
Paints Industry
Paint is de?ned 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 ?nishes that automobile manufacturers apply
on the assembly line.
Market Structure
The size of the Indian paint industry is valued at ~Rs.112 bn . Indian Paints Industry
can be classi?ed into two sub-segments:
Volume Share Value Share
Decorative Paints 90% 75%
Industrial Paints 10% 25%
Source : Crisinfac
Size of Paint Industry is pegged
at Rs. 112 bn.
(ACMIIL Research & Asian Paint Ltd. Annual Report FY07)
Source: ACMIIL Research
Asian Paints Limited
ACMIIL 3
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 classi?ed 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.
Demand Supply Dynamics
The Indian Paint Industry grew by 18% from Rs. 95 bn. in FY06 to Rs. 112 bn in
FY07 (Source: Company). The industry has a positive correlation with GDP as both
have same drivers for growth. Demand for paints is both, derived as well as direct.
The demand for decorative paints is a direct demand whereas the demand for industrial
paints is a derived demand.
Demand drivers for Paints Industries
Increase in Per capita consumption of paints: The per capita consumption of
paints in developed countries is around 15-25 kgs and world average is around
15 kgs. Comparing this with domestic consumption, India’s contribution to world
paint markets is 0.6% with per capita consumption of around 800-900 gms. Based
on the expenditure in the construction activity and increase in the repaint activity
coupled with industrial growth, the industry is expected to increase at a 11.85%
CAGR over next three years
Increase in Real Estate Investments: The demand for decorative paints is
directly related to the increase in the investment in the real estate thus increasing
the cement area. Out of the total demand for decorative paints, around 30-40%
of the demand comes from the fresh construction (Source: CrisInfac). The size
of real estate industry is estimated to grow to Rs. 18,517 Bn, over next ?ve years
period (Source: CrisInfac). Investment in real estate will be primarily led by
housing, which is expected to account for nearly 90% of total investment in the
sector (Source: Cris-Infac). India’s robust economic growth and resultant increase
in income are speeding up the pace of urbanization.
In India, about three fourth (3/4) of real estate development is for residential use
and balance one fourth (1/4) is predominantly for commercial use.
Total Construction Investment (Rs. Bn)
2001-02 to 2005-06 2006-07 to 2010-11P Implicit TAGR (%)
Real estate 10,218 18,517 12.6
Housing 9,810 17,338 12.1
Commercial real Estate 408 1,179 23.6
Source: Crisinfac
Top six organised player
accounts for 84% by volume
and 63% by value of total
organised market
(Source: ACMIIL Research, Industry)
Paint industry grew by 18% as
compared to last year
New real estate construction
accounts for 30-40% for
demand for decorative paints
Asian Paints Limited
ACMIIL 4
Housing investments (permanent, non-slum houses) are expected to grow at a
TAGR of 12% over the next 5 years period.
On other hand, repainting activity which accounts for 70% of the decorative
paint demand is also increasing, mainly due to increase in per capita income. The
demand from the repainting activity has increased by 6-7 percent in last two year.
Based on the expected investment in the housing, demand for paint is expected to
increase at a CAGR of 12 percent over the next 5 years (source: CRISINFAC).
Increase in Industrial Paints: The industrial paint segment is divided into
automotive industrial paints and non-automotive industrial paints. Increase in
income levels of the consumers contributes towards the growth in the auto-segment
and growth in the industrial segments like power, road and infrastructure leads
to growth in the non-automotive segment. Along with these, growing needs for
consumer durables and export opportunity for auto ancillaries will also contribute
towards the growth of industrial paints.
Increase in Per Capita Income: The above mentioned increase in demand
for paints is backed well by increase in per capita income. Due to increase in
disposable income, Indian consumer is expected to shift from lime wash to paints
and those already consuming paints would move up the value chain. On other
hand, the increasing capacity would also drive automotive and consumer durable,
thereby increasing the consumption of industrial paints.
Prices in line with substitute product: Large scale of operations and technical
know-how have helped prices of paints to come down. They are now in line with
those of substitute products like lime wash, distemper etc., manufactured by local
players. This gives consumers the incentive to shift from lime to paints.
Increase in per capita income
will lead to increase in repaint
activity
(Source: MGI Report)
Asian Paints Limited
ACMIIL 5
Supply Side
The major players that control the organized sector are shown in the above diagram.
The dynamics that control the supply side scenario are:
Distribution
In case of industrial paints, distribution network doesn’t play an important role,
whereas the situation is totally different in case of the decorative paints. India being
a wide and scattered market having a large distribution network becomes prime
requirement for any company in decorative paints business.
Outsourcing:
The organized players in the decorative paint segment have to compete directly with
those in the unorganized sector manufacturing low cost paints like distemper and
enamels. In-order to face this competition organize players outsource small part of
their production (25-30%).
Import Scenario:
Indian climatic conditions are not conducive for foreign formulations and modi?cation
cost in product formulation is quite high. As a result, imports are no threat to the Indian
players. In case of industrial paints, most of the major players in the industry already
have a tie-up with global players, for latest technology and markets accessible to them.
It negates the further supply from the international markets even after reduction of
import duty from 40% to 15.3% in last 8 years.
Source: ACMIIL Research, Capitaline
Decorative paints requires
wider distribution network as
compared to industrial paints
Due to conducive climatic
condition imports are no threat
to Indian players
Asian Paints Limited
ACMIIL 6
Manufacturing Process
Cost Structure
The paint industry is raw material intensive industry. It takes around 300 different
raw materials to make paint, most of which are petroleum based. These raw materials
can be divided into three broad categories as shown in the chart below:
Titanium Dioxide (TiO
2
) is the largest consumed raw material for manufacture of
paints. It constitutes around 30% of the total manufacturing cost. TiO
2
is available
in two grade i.e. rutile (imported and mainly used by the Indian paint industry) and
anatase (manufactured domestically).
Besides TiO
2
, there are other petroleum based raw materials which constitute around
40-50% of total raw material consumed. Hence any movement in crude oil prices
will impact the pro?tability of the company.
TiO
2
constitutes around 30% of
total manufacturing cost
Petroleum products accounts
for 40-50% of total raw material
cost
Source: ACMIIL Research
Source: ACMIIL Research
Asian Paints Limited
ACMIIL 7
COMPANY PROFILE
Asian Paints India Ltd.
Asian Paints, incorporated in 1942, is India’s largest paint company and the third
largest paint company in Asia (Source: Crisil). The company currently operates in
21 countries has 29 paint manufacturing facilities all over the world and is servicing
consumers in over 65 countries. Apart from Indian operations, the group operates
around the world through its subsidiaries Berger International Limited, Apco Coatings,
SCIB Paints and Taubmans.
Asian Paints Ltd.
Asian Paints Ltd. (APL) is involved in the manufacturing of decorative paints and
chemical business i.e. Phthalic Anhydride and Pentaerythritol. The decorative &
chemical business contributes together contributes 77% of the total consolidated
revenue.
Asian PPG Ltd.
Asian PPG Ltd. handles the automotive and industrial paints business. It was
incorporated in year 1997, as a 50:50 Joint Venture between Asian Paints Ltd., and
Pittsburgh Paints and Glass Industries (PPG), USA. The JV was formed primarily to
obtain Cathodic Electro Deposition (CED) technology, later the whole auto furnish
business of PPG’s Indian operation was transferred to the JV. After acquisition of
ICI India’s 2k auto furnishes business, the company has become the largest player
in this segment in the domestic market.
Asian Paints Industrial Coating Ltd. (APICL)
Asian Paints Industrial Coatings Ltd. (APICL), wholly-owned subsidiary of the
company handles powder coating business. APCIL has tied up with Protech Chemicals,
one of the top ten powder coating companies in the world, for obtaining technological
know-how for powder coatings. Currently, the company ranks as third largest player
in this segment. Besides the company also started is operations in Protective Coatings,
Road Markings, Floor Coatings and General Industrial Liquid Paints.
Source: ACMIIL Research
Largest paint company in the
country and third largest in
Asia
Asian Paints Limited
ACMIIL 8
International Operations
Asian Paints operates in 22 countries across the world. The company is one of the
largest paint companies in world and has manufacturing division at each of its location.
Asian Paints operates in ?ve regions across the world viz. South Asia, South East
Asia, South Paci?c, Middle East and Caribbean region through the four corporate
brands viz. Asian Paints, Berger International, SCIB Paints and Apco Coatings.
Segment
APL’s whole business operation can be divided into two segments i.e. Paints and
Chemicals.
Asian Paints Limited
ACMIIL 9
Paint Segment
This is the primary business of the company. Out of the total revenue earned by the
group 97% is generated from this segment.
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 colours to offer to its customers. It has 5 manufacturing plants
operating all over the country, which is strategically located in-order to cater to
the widely spread, market:
Plant Installed Capacity
Bhandup, Mumbai 30,000 kl p.a
Ankleshwar, Gujarat 100,000 kl p.a
Patancheru, Hyderabad 80,000 kl p.a
Kasna, Noida – UP 80,000 kl p.a
Sriperumbudur – Chennai 50,000 kl p.a
Total 340,000 kl p.a
Source: Company
In Decorative paint segment, the Company operates in 4 main segments i.e. interior
wall ?nish, Exterior wall ?nish, Enamels and Wood Finishes. Besides, the company
outsources around 25-30% of its total production.
Industrial Paint Segment:- In this business, the company caters to automotive, powder,
protective coatings, road markings segment, ?oor 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 ?rst in
the automotive paints business in domestic market. The company ranks second in
protective segment and ?rst in the road-marking segment. Recently it has entered in
?oor coating segment. The company operates through following plants:
Industrial Coatings
Automotive Coating 14,000 kl
Non-Industrial Coatings
Powder Coating
-Baddi, Himachal Pradesh
-Sarigam, Gujarat
1800 MT
3600 MT
Source: Company
(Source: Company)
8500 ranges of colour to offer
Asian Paints Limited
ACMIIL 10
Chemicals: Chemical business includes manufacturing of Phthalic Anhydride
(PAN) and Pentaerythritol (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.
Investment Rationale
High Growth in Industry
As seen from the graph, the Indian paint industry is expected to grow at a CAGR
of 11.85% from Rs. 112 bn. in FY07 to Rs. 156.7 bn. in FY10E, Assuming the
country GDP grows @7.5% p.a. and the Indian Paint Industry growing at 1.5
times the GDP growth.
Capex Plans
Company Name Capex Plan Completion Period
1. Asian Paints Increasing the capacity by setting up plant at Rohtak, Haryana 150,000 tonne capacity being added in FY10 and subsequent
quantity will be added later in phase manner.
2. Kansai Nerolac
Paints Ltd.
The board has passed a resolution of setting up new plant worth Rs.690
mn. with capacity of 24,000 mt. Besides this company also announced two
brownfield projects with total capex of Rs.1000 mn. brownfield projects.
Work for the same has not been started, but is expected to be operational
by FY10E of this one project was already completed last year. This year
additional capacity of 10,200 tonnes would be coming.
3. Berger Paints N.A. N.A.
4. Shalimar Plans to increase the capacity by 25% from current 45,000 tonnes has
identified 4 companies as acquisition targets.
N.A.
With its capex plan company’s installed capacity is expected to be 560,000 tonnes
in FY10E. with such plan APL is set to capture the major portion of demand .
50% of chemicals are used for
captive consumption
Indian Paint industry will grow
1.5 time the GDP growth
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 11
Increase in market share
With no signi?cant capacity addition by other players in the industry, Asian Paints
gets ample opportunity to cater to the incremental demand, thereby increasing its
market share as shown below:-
Manufacturing capacity and volume: The industry being price sensitive the
company’s growth is mainly driven by volume sales.
APL has the highest volume sales among the top 7 players in the industry with a
market share of around 37%. Thus, huge volumes and high utilization levels gives
company ample capacity to capture new opportunities in the paint industry and
favorable market share.
APL is currently the market leader with approximately 50% of the total
manufacturing capacity. No other major capacity additions are expected from other
players apart from APL, hence substantial portion of demand has to be catered by
APL. This will give company a competitive advantage in terms of pricing.
APL has low debt-equity ratio of 0.4. Hence the company is in position to raise
additional debt and expand further. Further expansion would increase
Presence in Niche Segment
(Source: ACMIIL Research)
(Source: ACMIIL Research)
Huge volumes and high
utilisation level will help in
gaining favourable market
share
Asian Paints Limited
ACMIIL 12
Asian Paints Ltd Berger Paints Kansai Nerolac ICI India Shalimar Paints
Emulsions
Premium ? ? ? ? ?
Medium ? ? ? ? ?
Economy ? ? ?
Distemper
Premium ? ? ? ?
Economy ? ? ? ?
Enamels
Premium ? ? ? ? ?
1st and 2nd quality ? ? ? only in 2nd quality
Exterior
Premium ? ? ? ? ?
Medium ? ? ? ? ?
Economy ? ?
Cement Based ? ? ? ?
Auto refinish ? ? ? ?
Powder Coatings ? ? ? ?
Wood Finish ? ? ? ?
Asian Paints Limited
ACMIIL 13
As we see that most of the player are present in all the segments of paints, APL has
presence in niche and medium range brands. This results in better realization and
higher margins.
International Presence: The Company has a good international presence with
operation in around 22 countries.
Presence in high and medium
brands
Asian Paints Limited
ACMIIL 14
High Proximity to Dealer
Asian Paints Berger Paints Kansai Nerolacs Shalimar Paints ICI India
Sales (Rs. In Mn) 36,699.7 12,196.5 12,223.8 2560.5 10130
Raw Material Cost (% to Net sales) 59.9% 59.7% 62.0% 66.32% 58.0%
Sales & Administration Cost (% to Net Sales) 15.1% 9.6% 18.9% 21.30% 17.2%
Other Expenses (% to Net Sales) 14.2% 21.0% 8.2% 9.65% 16.1%
Source: Capitaline
Because of higher volume, Asian Paints Ltd. attains signi?cant economies of scale
re?ected through lower sales and administration cost.
Asian Paints Kansai Nerolacs Berger Paints Shalimar Paints ICI India
No of Distribution 19000 11000 12000 6000 N.A.
Sales contribution per
dealer (Rs. in Mn.)
1.93 1.11 1.02 0.43 N.A.
Plant Locations - Bhandup, Maharashtra- Ankleshwar,
Guj ar at - Pat ancher u, Andhr a
Pradesh- Kasna, U.P.- Sriperumbudur
– Chennai- Baddi, Himachal Pradesh-
Sarigam, Gujarat
- Howrah, W.B.
- Pondi cher r y,
Keral a - Goa -
Rishra, - Jammu
- Arinso
- Lote, Maharashtra -
Jainpur, U.P - Vatva,
Gujarat - Chennai,
T. N . - B a wa l ,
Haryana
- Howrah, West
Bengal - Nasi k,
Mahar asht r a -
Sikandrabad, Delhi
- Mohali, Punjab -
Hyderabad, Andhra
Pradesh - Rudrapur,
Uttaranchal
Total Installed Capacity 354,000 MT 161,100 MT 157,946 MT 70,204 MT 163,500 MT
Source: Capitaline, company websites
APL’s plants are geographically widespread over the country. Such widespread
production network enables APL to reach maximum number of dealer’s which in turn
leads to high market penetration. This can be evident from the table above where APL
has the 19000 dealers, which are higher than any other domestic player. This also
enables APL to manage its inventory considerably ef?ciently amongst peers.
Inventory (x) Debtors (x) Creditors (x)
Asian Paints 59 41 62
Berger Paints (no of days) 81 46 63
Kansai Nerolacs 54 56 46
ICI India 48 60 85
Source: Capitaline
The Company also has a short and ef?cient chain of distribution. The overview of
APL’s supply chain is as follows:
New Product launch: New product development is very important in paint
industry in order to cater to the changing taste of the consumer. APL launches new
product every two – three years. Besides, the company also has a concept called
ColourNext, Kids World, and Royale Play which help to attract customers.
Home solution & colour world: Asian paints have a customer centric approach
to business. The Company started with two concepts namely Home Solutions and
Colour World. APL is the world ?rst company that has started providing painting
services. The home solution service works as follows:
Wide Network leads to high
market penetration
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 15
By this service the company also gets in touch with the customer and gets ?rst
hand information regarding the changing taste and consumer preference before
the competitors does. This service is currently operating in 12 cities all over the
countries. A “Colour World” service offered by the company provides around
8500 shades and an entire range of products from interior to exterior paints, giving
customer a one stop solution. Thus, both the above service not only provided
products to the customer but also with value added services and initiatives.
Continuous Research & Development: Extensive research & development has
enabled APL to launch innovative products
The company carries out R&D process through two ways i.e. a) Customer Approach
and b) Company Approach. Besides this the R&D facility also helps the company in
improving the internal ef?ciency of the company.
Risk
Industry Growth: Growth in paint industry is dependent on two activities (a) repaint
activity and (b) construction industry. Repaint activity which constitutes around
60-70% of the total decorative paint and remaining by fresh construction. Both the
activities are dependent upon the GDP growth and per capita income growth. The
demand for industrial paints will also be hampered if GDP growth slowsdown due
to slower industrial activity. Any slow down in growth rate of any of the above
factors will have direct impact on the volume of APL, thus effecting its pro?tability
and margins.
Low Entry barrier: Setting up new facility requires low capex making the players
more vulnerable to increase in competition APL has the major threat from the new
entrant. Due to very capital requirement for setting up a new plant, the company faces
a constant threat from new player entry in the market.
R&D leads to innovative
products
(Source: ACMIIL Research)
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 16
Socio-Cultural Risk in International Market: APL’s 18% of revenue comes
from the international business, spread across 22 countries all over the world. Thus
creating a cultural risk for the company in those regions. Any change in the taste
and consumption pattern in these countries will impact the company’s revenues and
pro?ts.
Increase in Raw Material Prices: As the major raw material for manufacturing
paint is PAN and PENTA, the company is directly exposed to changes in the crude
oil price movement.
SWOT ANALYSIS OF ASIAN PAINTS LTD.
Peer Comparison FY07
Sales Turnover
(Rs. in mn)
PBIDTM (%) PATM (%) ROCE (%) RONW (%)
Asian Paints 36,699.7 14.0 7.6 45.3 37.8
Berger Paints 11652.9 9.8 6.3 34.0 33.1
Kansai Nerolac 12259.8 13.2 7.3 28.5 23.5
Source: Capitaline
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 17
Financials
Revenue
The Company’s revenue is expected to grow at a CAGR of 18.5% from Rs. 39,781
mn. in FY07 to Rs. 66,270.43 mn in FY10E, mainly due to capactiy addition and
better realisations.
Margins
In FY08E, the company was able to pass on the increase in the raw material cost
which helped the company to sustain in its raw material cost as a percentage to
net sale. Further, the increase in volume led to economies of scale resulting in
better operating margins.
APL’s net pro?t margins are in line with EBIDTA margins and are expected to
grow at a 28.2% CAGR from Rs. 2,810.3 mn. in FY07 to Rs. 5,916.4 mn. in
FY10E. Hence, EPS is expected to grow at a CAGR of 28.2% from Rs. 29.30 in
FY07 to Rs. 61.7 in FY10E.
Valuations & Recommendation
We expect the company to register a 3-year EPS CAGR of 28.2% till FY10E. At
CMP of Rs. 1200.0 the stock is trading at 25.0x FY09E & 19.5x FY10E earnings per
share. We initiate coverage on Asian Paints Ltd with a BUY recommendation and
price-objective of Rs.1419 (implying a forward P/E multiple of 23x) on account of
robust domestic demand for decorative paints.
(Source: ACMIIL Research)
(Source: ACMIIL Research)
Increase in capacity leading to
higher top line
Better realisation and
economies of scale leading to
increase in margins
Asian Paints Limited
ACMIIL 18
Profit & Loss Account Rs. In Mn.
Particulars FY05 FY06 FY07 FY08E FY09E FY10E
Net Sales 25,605.2 30,210.3 36,699.7 42,419.1 47,316.7 58,980.7
Total Expenditure 22,253.9 26,293.4 31,918.9 36,098.7 39,793.4 49,455.3
Operating Profits 3,351.3 3,917.0 4,780.8 6,320.4 7,523.4 9,525.4
Other Income 323.7 320.2 372.5 424.2 473.2 589.8
EBDITA 3,675.0 4,237.2 5,153.3 6,744.6 7,996.5 10,115.2
Depreciation 613.6 606.2 611.4 603.3 754.6 913.2
EBIT 3,061.4 3,631.0 4,541.9 6,141.3 7,242.0 9,202.0
Interest 108.2 114.3 189.1 190.2 227.8 198.0
PBT 2,878.3 3,431.5 4,271.2 5,951.1 7,014.1 9,004.0
Taxes 1,060.8 1,322.9 1,466.8 2,023.4 2,384.8 3,061.4
PAT 1,817.5 2,108.6 2,804.4 3,927.7 4,629.4 5,942.7
Growth in sales (%) 15.4% 18.0% 21.5% 15.6% 11.5% 24.7%
EBIDTA Growth (%) 13.6% 15.3% 21.6% 30.9% 18.6% 26.5%
PAT Growth (%) 20.2% 21.9% 32.5% 39.0% 17.9% 28.4%
Operating Profit Margin 13.1% 13.0% 13.0% 14.9% 15.9% 16.2%
Net Profit Margin 7.1% 7.0% 7.6% 9.3% 9.8% 10.1%
(Source: ACMIIL Research)
Balance Sheet Rs. In Mn.
FY05 FY06 FY07 FY08E FY09E FY10E
Sources of Funds
Share Capital 959.2 959.2 959.2 959.2 959.2 959.2
Reserves and Surplus 4,712.5 5,503.3 6,818.7 9,436.7 12,374.2 16,253.2
Total Shareholders Funds 5,671.7 6,462.5 7,777.9 10,395.9 13,333.4 17,212.4
Total Loan Funds 2,395.0 2,612.8 3,061.8 3,170.0 3,400.0 3,300.0
Minority Interest 638.5 600.3 600.7 621.3 644.2 670.5
Net Deferred Tax Liability 353.3 340.7 267.9 250.0 278.0 436.9
Total Capital Employed 9,058.7 10,016.3 11,708.3 14,437.2 17,655.6 21,619.8
Application of Funds
Gross Block 9,363.8 9,765.6 10,831.5 10,969.3 13,719.3 15,219.3
Less: Accumulated Depreciation 5,090.9 5,584.4 6,037.7 6,641.0 7,395.5 8,308.7
Net Block 4,272.8 4,181.1 4,793.8 4,328.3 6,323.8 6,910.6
Capital Work in Progress 96.7 337.4 137.8 2,750.0 1,500.0 1,428.5
Goodwill on Consolidation 500.1 448.7 468.9 468.6 468.6 468.6
Investments 1138.4 1640.6 1927.2 2274.7 3428.6 4497.2
Net Current Assets 3,050.6 3,408.5 4,380.6 4,615.6 5,934.5 8,314.8
Total Assets 9,058.7 10,016.3 11,708.3 14,437.3 17,655.6 21,619.8
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 19
Cash flow Statement Rs. In Mn.
FY05 FY06 FY07 FY08E FY09E FY10E
Pre tax profit 2,878.4 3,431.5 4,271.2 5,951.1 7,014.1 9,004.0
Add
Depreciation 613.6 606.2 611.4 603.3 754.6 913.2
Interest Exp 97.7 96.7 174.8 190.2 227.8 198.0
Profit before working capital changes 3,468.3 4,146.2 5,034.4 6,744.6 7,996.5 10,115.2
Cash generated from Operations 2,024.6 3,259.9 4,281.7 6,191.6 6,127.0 8,010.0
Less Taxes -957.5 -1,473.1 -1,585.0 1,600.0 1,800.0 2,200.0
Net Cash flow from operating activities 1,067.2 1,786.8 2,696.7 4,591.6 4,327.0 5,810.0
Net Cash flow from investment activities -738.5 -1,250.3 -1,212.2 -3,097.5 -2,654.0 -2,497.0
Net Cash flow from financing activities -418.5 -415.7 -1,107.6 -1,391.7 -1,689.7 -2,361.6
Net increase /(decrease) in cash -89.8 125.9 319.9 45.4 -73.6 924.3
Op. balance of cash and cash equivalents 698.0 608.2 734.1 1,054.0 1,099.3 1,025.7
Cl. balance of cash and cash equivalents 608.2 734.1 1,054.0 1,099.3 1,025.7 1,950.0
(Source: ACMIIL Research)
Profitability Ratios
FY05 FY06 FY07 FY08E FY09E FY10E
Operating Profit Margin (%) 13.1% 13.0% 13.0% 14.9% 15.9% 16.2%
EBDITA Margin (%) 14.4% 14.0% 14.0% 15.9% 16.9% 17.2%
PAT Margin (%) 7.1% 7.0% 7.6% 9.3% 9.8% 10.1%
RONW (%) 32.0% 32.6% 36.1% 37.8% 34.7% 34.5%
ROCE (%) 38.0% 40.0% 41.9% 45.3% 43.3% 44.9%
Per Share Ratios
EPS (Rs.) 18.1 22.1 29.3 40.7 48.0 61.7
CEPS (Rs.) 25.3 28.3 35.6 47.2 56.1 71.5
BV Per Share (Rs.) 94.4 104.4 122.1 150.5 184.1 225.4
Valuation Ratios
P/E (x) 63.5 52.1 39.3 28.3 24.0 18.7
P/CEPS (x) 45.5 40.7 32.4 24.4 20.5 16.1
P/BV (x) 12.2 11.0 9.4 7.7 6.3 5.1
Capital Structure Ratios
Debt/Equity 0.4 0.4 0.4 0.3 0.3 0.2
Current Ratio 1.5 1.5 1.5 1.5 1.5 1.6
Turnover Ratios
Inventory Turnover (no of days) 64.8 59.1 59.5 60.0 63.0 63.0
Debtors turnover ratio (no of days) 42.2 42.0 41.8 42.0 45.0 45.0
Fixed Asset Turnover (x) 2.7 3.1 3.4 3.9 3.4 3.9
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 20
Disclaimer:
This report is based on information that we consider reliable, but we do not represent that it is accurate or complete and it should not be relied upon such. ACMIIL or
any of its af?liates or employees 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 the report. ACMIIL and/or its af?liates and/or employees may have interests/positions, ?nancial or otherwise in the securities mentioned in this report.
To enhance transparency we have incorporated a Disclosure of Interest Statement in this document. This should however not be treated as endorsement of the views
expressed in the report
Disclosure of Interest Asian Paints Limited
1. Analyst ownership of the stock NO
2. Broking Relationship with the company covered NO
3. Investment Banking relationship with the company covered NO
4. Discretionary Portfolio Management Services NO
This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for
circulation. This document is not to be reported or copied or made available to others. It should not be considered as an offer to sell or a solicitation to buy any security.
The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We
may from time to time have positions in and buy and sell securities referred to herein.
Notes:
HNI Sales:
Raju Mewawalla, Tel: +91 22 2858 3220
Institutional Sales:
Bharat Patel, Tel: +91 22 2858 3732
doc_117129932.pdf
Asian Paints Limited is an Indian chemicals company headquartered in Mumbai, India. It manufactures paints for decorative and industrial use. Asian Paints is India's largest paint company and Asia's third largest paint company, with a turnover of Rs 96.32 billion.
Asian Paints Limited
ACMIIL 1
Asian Paints Limited
Analyst
Chintan S. Mehta
[email protected]
Tel: (022) 2858 3407
Key Data (INR)
CMP 1200.0
Target Price 1419.0
Key Data
Bloomberg Code APNT IN
Reuters Code ASPN.BO
BSE Code 500820
NSE Code ASIANPAINT
Face Value (INR) 10.0
Market Cap. (INR mn.) 113,372.6
52 Week High (INR) 1,319.95
52 Week Low (INR) 751.0
Avg. Daily Volume (6m) 41,654
Shareholding %
Promoters 49.3
Mutual Funds / UTI 2.0
Financial Institutions / Banks 0.1
Foreign Institutional Investors 15.0
Bodies Corporate 7.1
Individuals/Others 26.5
Total 100.0
FY07 FY08E FY09E FY10E
Revenues
(Rs. mn)
36,699.73 42,419.1 47,316.8 58,980.7
Sales
Growth (%)
21.5 15.6 11.5 24.70
Op. Profit
(Rs. mn)
4,780.8 6,320.4 7,523.4 9,525.4
OPM % 13.0 14.9 15.9 16.2
PAT (Rs.
mn)
2,804.4 3,927.7 4,629.4 5,942.7
EPS (Rs.) 29.3 40.7 48.0 61.7
15 April, 2008
B U Y
Introduction
Asian Paints Limited (APL) incorporated in 1942 ranks among the top ten decorative
paint companies in the world. It has presence in decorative and industrial coating
segment of the paint business. Besides, the Company operates around the world
through its subsidiaries Berger International Limited, Apco Coatings and SCIB
Chemicals. APL has its presence in almost all the segment through its brands Royale
in the premium segment, Apcolite in the mid-segment, Gattu, Tractor, Utsav and 3-
Mango etc. in the lower segment.
Investment Rationale
The Indian Paint Industry growing at 1.5 times the GDP growth. Assuming the
country GDP grows @7.5% p.a, the Indian paint industry is expected to grow at
a CAGR of 11.85% from Rs. 112 bn. in FY07 to Rs. 156.7 bn in FY10E.
In order to cater the incremental demand of the domestic paint industry, total
capacity addition coming upstream in over the period of two year i.e. from FY08E
to FY10E is around 255450 tonne. Out of this incremental supply around 82%
will be contributed from APL resulting in increase in market share from 37% in
FY07 to 42% in FY10E.
APL’s dominance in paint industry and presence across all segments will enable
it to maintain the margins going forward.
Valuations
We expect the company to register a 3-year EPS CAGR of 28.2% from 29.3 in FY07
to 61.7 FY10E. At CMP of Rs. 1200.0 the stock is trading at 25.0x FY09E & 19.5x
FY10E earnings per share. We initiate coverage on Asian Paints Ltd with a BUY
recommendation and price-objective of Rs.1419 (implying a forward P/E multiple
of 23x) on account of robust domestic demand for decorative paints.
Asian Paints Limited
ACMIIL 2
Paints Industry
Paint is de?ned 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 ?nishes that automobile manufacturers apply
on the assembly line.
Market Structure
The size of the Indian paint industry is valued at ~Rs.112 bn . Indian Paints Industry
can be classi?ed into two sub-segments:
Volume Share Value Share
Decorative Paints 90% 75%
Industrial Paints 10% 25%
Source : Crisinfac
Size of Paint Industry is pegged
at Rs. 112 bn.
(ACMIIL Research & Asian Paint Ltd. Annual Report FY07)
Source: ACMIIL Research
Asian Paints Limited
ACMIIL 3
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 classi?ed 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.
Demand Supply Dynamics
The Indian Paint Industry grew by 18% from Rs. 95 bn. in FY06 to Rs. 112 bn in
FY07 (Source: Company). The industry has a positive correlation with GDP as both
have same drivers for growth. Demand for paints is both, derived as well as direct.
The demand for decorative paints is a direct demand whereas the demand for industrial
paints is a derived demand.
Demand drivers for Paints Industries
Increase in Per capita consumption of paints: The per capita consumption of
paints in developed countries is around 15-25 kgs and world average is around
15 kgs. Comparing this with domestic consumption, India’s contribution to world
paint markets is 0.6% with per capita consumption of around 800-900 gms. Based
on the expenditure in the construction activity and increase in the repaint activity
coupled with industrial growth, the industry is expected to increase at a 11.85%
CAGR over next three years
Increase in Real Estate Investments: The demand for decorative paints is
directly related to the increase in the investment in the real estate thus increasing
the cement area. Out of the total demand for decorative paints, around 30-40%
of the demand comes from the fresh construction (Source: CrisInfac). The size
of real estate industry is estimated to grow to Rs. 18,517 Bn, over next ?ve years
period (Source: CrisInfac). Investment in real estate will be primarily led by
housing, which is expected to account for nearly 90% of total investment in the
sector (Source: Cris-Infac). India’s robust economic growth and resultant increase
in income are speeding up the pace of urbanization.
In India, about three fourth (3/4) of real estate development is for residential use
and balance one fourth (1/4) is predominantly for commercial use.
Total Construction Investment (Rs. Bn)
2001-02 to 2005-06 2006-07 to 2010-11P Implicit TAGR (%)
Real estate 10,218 18,517 12.6
Housing 9,810 17,338 12.1
Commercial real Estate 408 1,179 23.6
Source: Crisinfac
Top six organised player
accounts for 84% by volume
and 63% by value of total
organised market
(Source: ACMIIL Research, Industry)
Paint industry grew by 18% as
compared to last year
New real estate construction
accounts for 30-40% for
demand for decorative paints
Asian Paints Limited
ACMIIL 4
Housing investments (permanent, non-slum houses) are expected to grow at a
TAGR of 12% over the next 5 years period.
On other hand, repainting activity which accounts for 70% of the decorative
paint demand is also increasing, mainly due to increase in per capita income. The
demand from the repainting activity has increased by 6-7 percent in last two year.
Based on the expected investment in the housing, demand for paint is expected to
increase at a CAGR of 12 percent over the next 5 years (source: CRISINFAC).
Increase in Industrial Paints: The industrial paint segment is divided into
automotive industrial paints and non-automotive industrial paints. Increase in
income levels of the consumers contributes towards the growth in the auto-segment
and growth in the industrial segments like power, road and infrastructure leads
to growth in the non-automotive segment. Along with these, growing needs for
consumer durables and export opportunity for auto ancillaries will also contribute
towards the growth of industrial paints.
Increase in Per Capita Income: The above mentioned increase in demand
for paints is backed well by increase in per capita income. Due to increase in
disposable income, Indian consumer is expected to shift from lime wash to paints
and those already consuming paints would move up the value chain. On other
hand, the increasing capacity would also drive automotive and consumer durable,
thereby increasing the consumption of industrial paints.
Prices in line with substitute product: Large scale of operations and technical
know-how have helped prices of paints to come down. They are now in line with
those of substitute products like lime wash, distemper etc., manufactured by local
players. This gives consumers the incentive to shift from lime to paints.
Increase in per capita income
will lead to increase in repaint
activity
(Source: MGI Report)
Asian Paints Limited
ACMIIL 5
Supply Side
The major players that control the organized sector are shown in the above diagram.
The dynamics that control the supply side scenario are:
Distribution
In case of industrial paints, distribution network doesn’t play an important role,
whereas the situation is totally different in case of the decorative paints. India being
a wide and scattered market having a large distribution network becomes prime
requirement for any company in decorative paints business.
Outsourcing:
The organized players in the decorative paint segment have to compete directly with
those in the unorganized sector manufacturing low cost paints like distemper and
enamels. In-order to face this competition organize players outsource small part of
their production (25-30%).
Import Scenario:
Indian climatic conditions are not conducive for foreign formulations and modi?cation
cost in product formulation is quite high. As a result, imports are no threat to the Indian
players. In case of industrial paints, most of the major players in the industry already
have a tie-up with global players, for latest technology and markets accessible to them.
It negates the further supply from the international markets even after reduction of
import duty from 40% to 15.3% in last 8 years.
Source: ACMIIL Research, Capitaline
Decorative paints requires
wider distribution network as
compared to industrial paints
Due to conducive climatic
condition imports are no threat
to Indian players
Asian Paints Limited
ACMIIL 6
Manufacturing Process
Cost Structure
The paint industry is raw material intensive industry. It takes around 300 different
raw materials to make paint, most of which are petroleum based. These raw materials
can be divided into three broad categories as shown in the chart below:
Titanium Dioxide (TiO
2
) is the largest consumed raw material for manufacture of
paints. It constitutes around 30% of the total manufacturing cost. TiO
2
is available
in two grade i.e. rutile (imported and mainly used by the Indian paint industry) and
anatase (manufactured domestically).
Besides TiO
2
, there are other petroleum based raw materials which constitute around
40-50% of total raw material consumed. Hence any movement in crude oil prices
will impact the pro?tability of the company.
TiO
2
constitutes around 30% of
total manufacturing cost
Petroleum products accounts
for 40-50% of total raw material
cost
Source: ACMIIL Research
Source: ACMIIL Research
Asian Paints Limited
ACMIIL 7
COMPANY PROFILE
Asian Paints India Ltd.
Asian Paints, incorporated in 1942, is India’s largest paint company and the third
largest paint company in Asia (Source: Crisil). The company currently operates in
21 countries has 29 paint manufacturing facilities all over the world and is servicing
consumers in over 65 countries. Apart from Indian operations, the group operates
around the world through its subsidiaries Berger International Limited, Apco Coatings,
SCIB Paints and Taubmans.
Asian Paints Ltd.
Asian Paints Ltd. (APL) is involved in the manufacturing of decorative paints and
chemical business i.e. Phthalic Anhydride and Pentaerythritol. The decorative &
chemical business contributes together contributes 77% of the total consolidated
revenue.
Asian PPG Ltd.
Asian PPG Ltd. handles the automotive and industrial paints business. It was
incorporated in year 1997, as a 50:50 Joint Venture between Asian Paints Ltd., and
Pittsburgh Paints and Glass Industries (PPG), USA. The JV was formed primarily to
obtain Cathodic Electro Deposition (CED) technology, later the whole auto furnish
business of PPG’s Indian operation was transferred to the JV. After acquisition of
ICI India’s 2k auto furnishes business, the company has become the largest player
in this segment in the domestic market.
Asian Paints Industrial Coating Ltd. (APICL)
Asian Paints Industrial Coatings Ltd. (APICL), wholly-owned subsidiary of the
company handles powder coating business. APCIL has tied up with Protech Chemicals,
one of the top ten powder coating companies in the world, for obtaining technological
know-how for powder coatings. Currently, the company ranks as third largest player
in this segment. Besides the company also started is operations in Protective Coatings,
Road Markings, Floor Coatings and General Industrial Liquid Paints.
Source: ACMIIL Research
Largest paint company in the
country and third largest in
Asia
Asian Paints Limited
ACMIIL 8
International Operations
Asian Paints operates in 22 countries across the world. The company is one of the
largest paint companies in world and has manufacturing division at each of its location.
Asian Paints operates in ?ve regions across the world viz. South Asia, South East
Asia, South Paci?c, Middle East and Caribbean region through the four corporate
brands viz. Asian Paints, Berger International, SCIB Paints and Apco Coatings.
Segment
APL’s whole business operation can be divided into two segments i.e. Paints and
Chemicals.
Asian Paints Limited
ACMIIL 9
Paint Segment
This is the primary business of the company. Out of the total revenue earned by the
group 97% is generated from this segment.
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 colours to offer to its customers. It has 5 manufacturing plants
operating all over the country, which is strategically located in-order to cater to
the widely spread, market:
Plant Installed Capacity
Bhandup, Mumbai 30,000 kl p.a
Ankleshwar, Gujarat 100,000 kl p.a
Patancheru, Hyderabad 80,000 kl p.a
Kasna, Noida – UP 80,000 kl p.a
Sriperumbudur – Chennai 50,000 kl p.a
Total 340,000 kl p.a
Source: Company
In Decorative paint segment, the Company operates in 4 main segments i.e. interior
wall ?nish, Exterior wall ?nish, Enamels and Wood Finishes. Besides, the company
outsources around 25-30% of its total production.
Industrial Paint Segment:- In this business, the company caters to automotive, powder,
protective coatings, road markings segment, ?oor 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 ?rst in
the automotive paints business in domestic market. The company ranks second in
protective segment and ?rst in the road-marking segment. Recently it has entered in
?oor coating segment. The company operates through following plants:
Industrial Coatings
Automotive Coating 14,000 kl
Non-Industrial Coatings
Powder Coating
-Baddi, Himachal Pradesh
-Sarigam, Gujarat
1800 MT
3600 MT
Source: Company
(Source: Company)
8500 ranges of colour to offer
Asian Paints Limited
ACMIIL 10
Chemicals: Chemical business includes manufacturing of Phthalic Anhydride
(PAN) and Pentaerythritol (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.
Investment Rationale
High Growth in Industry
As seen from the graph, the Indian paint industry is expected to grow at a CAGR
of 11.85% from Rs. 112 bn. in FY07 to Rs. 156.7 bn. in FY10E, Assuming the
country GDP grows @7.5% p.a. and the Indian Paint Industry growing at 1.5
times the GDP growth.
Capex Plans
Company Name Capex Plan Completion Period
1. Asian Paints Increasing the capacity by setting up plant at Rohtak, Haryana 150,000 tonne capacity being added in FY10 and subsequent
quantity will be added later in phase manner.
2. Kansai Nerolac
Paints Ltd.
The board has passed a resolution of setting up new plant worth Rs.690
mn. with capacity of 24,000 mt. Besides this company also announced two
brownfield projects with total capex of Rs.1000 mn. brownfield projects.
Work for the same has not been started, but is expected to be operational
by FY10E of this one project was already completed last year. This year
additional capacity of 10,200 tonnes would be coming.
3. Berger Paints N.A. N.A.
4. Shalimar Plans to increase the capacity by 25% from current 45,000 tonnes has
identified 4 companies as acquisition targets.
N.A.
With its capex plan company’s installed capacity is expected to be 560,000 tonnes
in FY10E. with such plan APL is set to capture the major portion of demand .
50% of chemicals are used for
captive consumption
Indian Paint industry will grow
1.5 time the GDP growth
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 11
Increase in market share
With no signi?cant capacity addition by other players in the industry, Asian Paints
gets ample opportunity to cater to the incremental demand, thereby increasing its
market share as shown below:-
Manufacturing capacity and volume: The industry being price sensitive the
company’s growth is mainly driven by volume sales.
APL has the highest volume sales among the top 7 players in the industry with a
market share of around 37%. Thus, huge volumes and high utilization levels gives
company ample capacity to capture new opportunities in the paint industry and
favorable market share.
APL is currently the market leader with approximately 50% of the total
manufacturing capacity. No other major capacity additions are expected from other
players apart from APL, hence substantial portion of demand has to be catered by
APL. This will give company a competitive advantage in terms of pricing.
APL has low debt-equity ratio of 0.4. Hence the company is in position to raise
additional debt and expand further. Further expansion would increase
Presence in Niche Segment
(Source: ACMIIL Research)
(Source: ACMIIL Research)
Huge volumes and high
utilisation level will help in
gaining favourable market
share
Asian Paints Limited
ACMIIL 12
Asian Paints Ltd Berger Paints Kansai Nerolac ICI India Shalimar Paints
Emulsions
Premium ? ? ? ? ?
Medium ? ? ? ? ?
Economy ? ? ?
Distemper
Premium ? ? ? ?
Economy ? ? ? ?
Enamels
Premium ? ? ? ? ?
1st and 2nd quality ? ? ? only in 2nd quality
Exterior
Premium ? ? ? ? ?
Medium ? ? ? ? ?
Economy ? ?
Cement Based ? ? ? ?
Auto refinish ? ? ? ?
Powder Coatings ? ? ? ?
Wood Finish ? ? ? ?
Asian Paints Limited
ACMIIL 13
As we see that most of the player are present in all the segments of paints, APL has
presence in niche and medium range brands. This results in better realization and
higher margins.
International Presence: The Company has a good international presence with
operation in around 22 countries.
Presence in high and medium
brands
Asian Paints Limited
ACMIIL 14
High Proximity to Dealer
Asian Paints Berger Paints Kansai Nerolacs Shalimar Paints ICI India
Sales (Rs. In Mn) 36,699.7 12,196.5 12,223.8 2560.5 10130
Raw Material Cost (% to Net sales) 59.9% 59.7% 62.0% 66.32% 58.0%
Sales & Administration Cost (% to Net Sales) 15.1% 9.6% 18.9% 21.30% 17.2%
Other Expenses (% to Net Sales) 14.2% 21.0% 8.2% 9.65% 16.1%
Source: Capitaline
Because of higher volume, Asian Paints Ltd. attains signi?cant economies of scale
re?ected through lower sales and administration cost.
Asian Paints Kansai Nerolacs Berger Paints Shalimar Paints ICI India
No of Distribution 19000 11000 12000 6000 N.A.
Sales contribution per
dealer (Rs. in Mn.)
1.93 1.11 1.02 0.43 N.A.
Plant Locations - Bhandup, Maharashtra- Ankleshwar,
Guj ar at - Pat ancher u, Andhr a
Pradesh- Kasna, U.P.- Sriperumbudur
– Chennai- Baddi, Himachal Pradesh-
Sarigam, Gujarat
- Howrah, W.B.
- Pondi cher r y,
Keral a - Goa -
Rishra, - Jammu
- Arinso
- Lote, Maharashtra -
Jainpur, U.P - Vatva,
Gujarat - Chennai,
T. N . - B a wa l ,
Haryana
- Howrah, West
Bengal - Nasi k,
Mahar asht r a -
Sikandrabad, Delhi
- Mohali, Punjab -
Hyderabad, Andhra
Pradesh - Rudrapur,
Uttaranchal
Total Installed Capacity 354,000 MT 161,100 MT 157,946 MT 70,204 MT 163,500 MT
Source: Capitaline, company websites
APL’s plants are geographically widespread over the country. Such widespread
production network enables APL to reach maximum number of dealer’s which in turn
leads to high market penetration. This can be evident from the table above where APL
has the 19000 dealers, which are higher than any other domestic player. This also
enables APL to manage its inventory considerably ef?ciently amongst peers.
Inventory (x) Debtors (x) Creditors (x)
Asian Paints 59 41 62
Berger Paints (no of days) 81 46 63
Kansai Nerolacs 54 56 46
ICI India 48 60 85
Source: Capitaline
The Company also has a short and ef?cient chain of distribution. The overview of
APL’s supply chain is as follows:
New Product launch: New product development is very important in paint
industry in order to cater to the changing taste of the consumer. APL launches new
product every two – three years. Besides, the company also has a concept called
ColourNext, Kids World, and Royale Play which help to attract customers.
Home solution & colour world: Asian paints have a customer centric approach
to business. The Company started with two concepts namely Home Solutions and
Colour World. APL is the world ?rst company that has started providing painting
services. The home solution service works as follows:
Wide Network leads to high
market penetration
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 15
By this service the company also gets in touch with the customer and gets ?rst
hand information regarding the changing taste and consumer preference before
the competitors does. This service is currently operating in 12 cities all over the
countries. A “Colour World” service offered by the company provides around
8500 shades and an entire range of products from interior to exterior paints, giving
customer a one stop solution. Thus, both the above service not only provided
products to the customer but also with value added services and initiatives.
Continuous Research & Development: Extensive research & development has
enabled APL to launch innovative products
The company carries out R&D process through two ways i.e. a) Customer Approach
and b) Company Approach. Besides this the R&D facility also helps the company in
improving the internal ef?ciency of the company.
Risk
Industry Growth: Growth in paint industry is dependent on two activities (a) repaint
activity and (b) construction industry. Repaint activity which constitutes around
60-70% of the total decorative paint and remaining by fresh construction. Both the
activities are dependent upon the GDP growth and per capita income growth. The
demand for industrial paints will also be hampered if GDP growth slowsdown due
to slower industrial activity. Any slow down in growth rate of any of the above
factors will have direct impact on the volume of APL, thus effecting its pro?tability
and margins.
Low Entry barrier: Setting up new facility requires low capex making the players
more vulnerable to increase in competition APL has the major threat from the new
entrant. Due to very capital requirement for setting up a new plant, the company faces
a constant threat from new player entry in the market.
R&D leads to innovative
products
(Source: ACMIIL Research)
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 16
Socio-Cultural Risk in International Market: APL’s 18% of revenue comes
from the international business, spread across 22 countries all over the world. Thus
creating a cultural risk for the company in those regions. Any change in the taste
and consumption pattern in these countries will impact the company’s revenues and
pro?ts.
Increase in Raw Material Prices: As the major raw material for manufacturing
paint is PAN and PENTA, the company is directly exposed to changes in the crude
oil price movement.
SWOT ANALYSIS OF ASIAN PAINTS LTD.
Peer Comparison FY07
Sales Turnover
(Rs. in mn)
PBIDTM (%) PATM (%) ROCE (%) RONW (%)
Asian Paints 36,699.7 14.0 7.6 45.3 37.8
Berger Paints 11652.9 9.8 6.3 34.0 33.1
Kansai Nerolac 12259.8 13.2 7.3 28.5 23.5
Source: Capitaline
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 17
Financials
Revenue
The Company’s revenue is expected to grow at a CAGR of 18.5% from Rs. 39,781
mn. in FY07 to Rs. 66,270.43 mn in FY10E, mainly due to capactiy addition and
better realisations.
Margins
In FY08E, the company was able to pass on the increase in the raw material cost
which helped the company to sustain in its raw material cost as a percentage to
net sale. Further, the increase in volume led to economies of scale resulting in
better operating margins.
APL’s net pro?t margins are in line with EBIDTA margins and are expected to
grow at a 28.2% CAGR from Rs. 2,810.3 mn. in FY07 to Rs. 5,916.4 mn. in
FY10E. Hence, EPS is expected to grow at a CAGR of 28.2% from Rs. 29.30 in
FY07 to Rs. 61.7 in FY10E.
Valuations & Recommendation
We expect the company to register a 3-year EPS CAGR of 28.2% till FY10E. At
CMP of Rs. 1200.0 the stock is trading at 25.0x FY09E & 19.5x FY10E earnings per
share. We initiate coverage on Asian Paints Ltd with a BUY recommendation and
price-objective of Rs.1419 (implying a forward P/E multiple of 23x) on account of
robust domestic demand for decorative paints.
(Source: ACMIIL Research)
(Source: ACMIIL Research)
Increase in capacity leading to
higher top line
Better realisation and
economies of scale leading to
increase in margins
Asian Paints Limited
ACMIIL 18
Profit & Loss Account Rs. In Mn.
Particulars FY05 FY06 FY07 FY08E FY09E FY10E
Net Sales 25,605.2 30,210.3 36,699.7 42,419.1 47,316.7 58,980.7
Total Expenditure 22,253.9 26,293.4 31,918.9 36,098.7 39,793.4 49,455.3
Operating Profits 3,351.3 3,917.0 4,780.8 6,320.4 7,523.4 9,525.4
Other Income 323.7 320.2 372.5 424.2 473.2 589.8
EBDITA 3,675.0 4,237.2 5,153.3 6,744.6 7,996.5 10,115.2
Depreciation 613.6 606.2 611.4 603.3 754.6 913.2
EBIT 3,061.4 3,631.0 4,541.9 6,141.3 7,242.0 9,202.0
Interest 108.2 114.3 189.1 190.2 227.8 198.0
PBT 2,878.3 3,431.5 4,271.2 5,951.1 7,014.1 9,004.0
Taxes 1,060.8 1,322.9 1,466.8 2,023.4 2,384.8 3,061.4
PAT 1,817.5 2,108.6 2,804.4 3,927.7 4,629.4 5,942.7
Growth in sales (%) 15.4% 18.0% 21.5% 15.6% 11.5% 24.7%
EBIDTA Growth (%) 13.6% 15.3% 21.6% 30.9% 18.6% 26.5%
PAT Growth (%) 20.2% 21.9% 32.5% 39.0% 17.9% 28.4%
Operating Profit Margin 13.1% 13.0% 13.0% 14.9% 15.9% 16.2%
Net Profit Margin 7.1% 7.0% 7.6% 9.3% 9.8% 10.1%
(Source: ACMIIL Research)
Balance Sheet Rs. In Mn.
FY05 FY06 FY07 FY08E FY09E FY10E
Sources of Funds
Share Capital 959.2 959.2 959.2 959.2 959.2 959.2
Reserves and Surplus 4,712.5 5,503.3 6,818.7 9,436.7 12,374.2 16,253.2
Total Shareholders Funds 5,671.7 6,462.5 7,777.9 10,395.9 13,333.4 17,212.4
Total Loan Funds 2,395.0 2,612.8 3,061.8 3,170.0 3,400.0 3,300.0
Minority Interest 638.5 600.3 600.7 621.3 644.2 670.5
Net Deferred Tax Liability 353.3 340.7 267.9 250.0 278.0 436.9
Total Capital Employed 9,058.7 10,016.3 11,708.3 14,437.2 17,655.6 21,619.8
Application of Funds
Gross Block 9,363.8 9,765.6 10,831.5 10,969.3 13,719.3 15,219.3
Less: Accumulated Depreciation 5,090.9 5,584.4 6,037.7 6,641.0 7,395.5 8,308.7
Net Block 4,272.8 4,181.1 4,793.8 4,328.3 6,323.8 6,910.6
Capital Work in Progress 96.7 337.4 137.8 2,750.0 1,500.0 1,428.5
Goodwill on Consolidation 500.1 448.7 468.9 468.6 468.6 468.6
Investments 1138.4 1640.6 1927.2 2274.7 3428.6 4497.2
Net Current Assets 3,050.6 3,408.5 4,380.6 4,615.6 5,934.5 8,314.8
Total Assets 9,058.7 10,016.3 11,708.3 14,437.3 17,655.6 21,619.8
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 19
Cash flow Statement Rs. In Mn.
FY05 FY06 FY07 FY08E FY09E FY10E
Pre tax profit 2,878.4 3,431.5 4,271.2 5,951.1 7,014.1 9,004.0
Add
Depreciation 613.6 606.2 611.4 603.3 754.6 913.2
Interest Exp 97.7 96.7 174.8 190.2 227.8 198.0
Profit before working capital changes 3,468.3 4,146.2 5,034.4 6,744.6 7,996.5 10,115.2
Cash generated from Operations 2,024.6 3,259.9 4,281.7 6,191.6 6,127.0 8,010.0
Less Taxes -957.5 -1,473.1 -1,585.0 1,600.0 1,800.0 2,200.0
Net Cash flow from operating activities 1,067.2 1,786.8 2,696.7 4,591.6 4,327.0 5,810.0
Net Cash flow from investment activities -738.5 -1,250.3 -1,212.2 -3,097.5 -2,654.0 -2,497.0
Net Cash flow from financing activities -418.5 -415.7 -1,107.6 -1,391.7 -1,689.7 -2,361.6
Net increase /(decrease) in cash -89.8 125.9 319.9 45.4 -73.6 924.3
Op. balance of cash and cash equivalents 698.0 608.2 734.1 1,054.0 1,099.3 1,025.7
Cl. balance of cash and cash equivalents 608.2 734.1 1,054.0 1,099.3 1,025.7 1,950.0
(Source: ACMIIL Research)
Profitability Ratios
FY05 FY06 FY07 FY08E FY09E FY10E
Operating Profit Margin (%) 13.1% 13.0% 13.0% 14.9% 15.9% 16.2%
EBDITA Margin (%) 14.4% 14.0% 14.0% 15.9% 16.9% 17.2%
PAT Margin (%) 7.1% 7.0% 7.6% 9.3% 9.8% 10.1%
RONW (%) 32.0% 32.6% 36.1% 37.8% 34.7% 34.5%
ROCE (%) 38.0% 40.0% 41.9% 45.3% 43.3% 44.9%
Per Share Ratios
EPS (Rs.) 18.1 22.1 29.3 40.7 48.0 61.7
CEPS (Rs.) 25.3 28.3 35.6 47.2 56.1 71.5
BV Per Share (Rs.) 94.4 104.4 122.1 150.5 184.1 225.4
Valuation Ratios
P/E (x) 63.5 52.1 39.3 28.3 24.0 18.7
P/CEPS (x) 45.5 40.7 32.4 24.4 20.5 16.1
P/BV (x) 12.2 11.0 9.4 7.7 6.3 5.1
Capital Structure Ratios
Debt/Equity 0.4 0.4 0.4 0.3 0.3 0.2
Current Ratio 1.5 1.5 1.5 1.5 1.5 1.6
Turnover Ratios
Inventory Turnover (no of days) 64.8 59.1 59.5 60.0 63.0 63.0
Debtors turnover ratio (no of days) 42.2 42.0 41.8 42.0 45.0 45.0
Fixed Asset Turnover (x) 2.7 3.1 3.4 3.9 3.4 3.9
(Source: ACMIIL Research)
Asian Paints Limited
ACMIIL 20
Disclaimer:
This report is based on information that we consider reliable, but we do not represent that it is accurate or complete and it should not be relied upon such. ACMIIL or
any of its af?liates or employees 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 the report. ACMIIL and/or its af?liates and/or employees may have interests/positions, ?nancial or otherwise in the securities mentioned in this report.
To enhance transparency we have incorporated a Disclosure of Interest Statement in this document. This should however not be treated as endorsement of the views
expressed in the report
Disclosure of Interest Asian Paints Limited
1. Analyst ownership of the stock NO
2. Broking Relationship with the company covered NO
3. Investment Banking relationship with the company covered NO
4. Discretionary Portfolio Management Services NO
This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for
circulation. This document is not to be reported or copied or made available to others. It should not be considered as an offer to sell or a solicitation to buy any security.
The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We
may from time to time have positions in and buy and sell securities referred to herein.
Notes:
HNI Sales:
Raju Mewawalla, Tel: +91 22 2858 3220
Institutional Sales:
Bharat Patel, Tel: +91 22 2858 3732
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