Result Update | 14May 2012

Asian Paints Ltd

A DALMIA RESEARCH CENTRE REPORT

All-round good performance Asian Paints ltd (APL) Q4FY12 result has surpassed our estimate primarily due to robust volume growth of ~15-16% in the domestic market. While its revenue has increased by 29.48%, its PAT has increase by 39.48% despite higher RM cost and rupee depreciation. Although continuous increase in price for last 2 years may affect APLs volume growth (~10%), moderation in raw material price inflation may increase its margin (up by ~90bps) in FY13. However, we have changed our rating in APL from Accumulate to Neutral due to the sharp run up in the stock price in last few months (aided by inclusion in Nifty), although with a higher target price of Rs 3848/- an upside of 5% from CMP. Domestic Volume growth surprises Asian Paints Ltd. (APL) on consolidated basis reported a 30.22% YoY growth to Rs 25,387 Mn against Rs 19,606 Mn in Total income for Q4FY12, due to continuing good demand ( volume growth of ~15-16%) in decorative coatings business in domestic circuit. On the international business, the company has witnessed good growth in the South Asian and Oman countries. The overseas business has reported 31% growth in the topline at Rs 4701.8 Mn. Political events and macroeconomic uncertainty in some countries continued to affect the international performance. APLs standalone Income grew by 28.88% YoY to Rs 20,75.80 Mn against Rs 16,10.63 Mn in Q4FY11.Industrial business, including Auto, continued to face challenging conditions. We have factored in ~10% volume growth and ~18% Sales growth for FY13E in our estimate. Price rise continue APL has undergone a series of price hike in last year, ~4.3% in May, 2.4% in June, 1.3% in July, 2.2% in December and 1.4% in March, leading to a cumulative price increase of 12.28% , mainly to cope higher RM cost and maintain margin. APL has further increased price by 2.0% in 29th March and 3.2% in 1st May, which we believe is sufficient to maintain the margin.

Rating: Neutral
Target: Rs 3848/Upside: 5% CMP: Rs 3623.85/APNT IN, ASPN .BO Face Value (Rs) Eq. Share Capital (Rs Mn) Share Outstanding (Mn) Market Cap (Mn) Book Value / share Daily Avj. Volume 52 W High 52 W Low Shareholding pattern (%) Promoter Institutions Public & Others Relative Performance Analysis
140 Asian Paints 130 Sensex

10 959.2 95.92 3,47,091 286.54 11570 3744.35 2551.05 52.79 26.71 20.50

Raw Material price increases 120 Inflationary trend in input prices continued. Material consumption (inc Stock adj.) of the 110 company has increased more than proportionately by of 31.99%YoY to Rs 15,213 Mn in 100 Q4FY12 against Rs 11,526 Mn in Q4FY11.The benefit of relative stable crude has been 90 negated by the rupee depreciation by large extend. Key inputs that go into the making of 80 paints include TIO2, vegetable oils and monomers (used to make emulsions) have become costlier by 10-12% in the last one year. Availability of Ti02 has eased but high prices remains a concern. For Decorative products, Material price index for Q4 was at 122.99 with 2010-11 as base 100.However, we expect RM cost inflation to moderate substantially in PE Band FY13, which will lead to 200 bps improvement in gross profit For APL in FY13.
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Valuation At the CMP of Rs 3623.85/-, the stock is trading at 28.5x its consolidated FY13E EPS of Rs 128.3 and 22.9x its consolidated FY14E EPS of Rs 159.7. We believe demand for decorative as well as industrial paints will continue to grow, but at slower pace (~18%). APLs bottom line may improve substantially (~26%) in FY13 , mainly due to expansion of margin. However, the sharp run up in the stock in last few months (aided by inclusion in Nifty) leaves little room for near term appreciation. We have valued APL, rolling over to consolidated FY13E EPS of Rs 128.3/- and assigning target P/E of 30x to arrive at a price target of Rs 3848/-, which is 5% higher than the CMP. We have changed the rating on APL from Accumulate to Neutral.
Financial Snapshot Year-end: March Net Sales EBDITA PAT EPS Cash EPS P/E EV/EBITDA FY10
64,475 12,090 8,283 86.35 95.27 23.65 16.31

Sha re Price In Rs

4,000 3,600 3,200 2,800 2,400 2,000

FY11
77,062 13,130 8,432 87.91 102.64 28.29 18.25

FY12P
95,983 14,748 9,887 103.08 116.50 35.45 23.57

(Rs in Mn) FY13E

113,260 18,726 12,303 128.26 149.33 28.49 18.66

FY14E

133,647 22,764 15,321 159.73 181.86 22.88 15.38

Subrata Sarkar +91 33 66120722 subrata@dalmiasec.com

Please refer to the important disclosures and analyst certification at the end of the document

Asian Paints Ltd

14 May 2012

Margins expanded on YoY basis EBIDTA margin has expanded by 84 bps on YoY basis despite higher RM cost and depreciation of rupee due to less than proportionate in employee cost and other expendeture. Other expenditure has increased only by 24.09% YoY to Rs 5,066 Mn. Increase in employee cost by 17.79% , has managed the company to expand margin. Robust PAT Growth Net profit for the company in Q4FY12 has increased by robust 39.18% on consolidated basis to Rs 2,595 Mn against Rs 1,860 Mn, despite doubling( 118.42% increase) of interest outgo due to lower increase in depreciation by 7.61%.However we expect depreciation to grow at a faster pace(~28%) in FY13E, due to commissing on Rohtak plant.Net profit on standalone basis has increased by 42.7% to Rs 2446Mn in Q4FY12from Rs 1714 Mn in Q4FY11. Joint Venture with PPG PPG Industries Inc. USA has decided to restructure its operations in India, prior to its proposed merger/demerger with the Companies of Asian Paints Group and its Joint Venture Company, Asian PPG Industries Limited. On this note Asian Paints and PPG has decided to withdraw the Composite Scheme for Merger and Demerger from the court which was filed in September 2011.Subsequently, a revised Composite Scheme for Merger and Demerger encompassing all businesses of companies, as envisaged, has been filed with the Honble High Court of Judicature at Bombay in Feb 2012, whose approval is awaited. Capex plan The construction work at the Khandala plant near Pune in Maharashtra is on schedule. The total investment is expected to be around Rs. 10 Bn. The first phase of 3,00,000 KL per annum is expected to be on stream in Q4-FY13. The plant can be further scaled upto 4,00,000 KL per annum. APL has already commissioned 2nd phase of 50,000 KL capacity at Rohtak plant; enhanced from 150,000 KL to 200,000 KL Background Asian Paints Ltd. is Indias largest, Asias third largest and 10th largest decorative paint company in the world. Asian Paints manufactures a wide range of paints for decorative and industrial (including automotive) use. Asian Paints operates in five regions across the world viz. South Asia, South East Asia, South Pacific, Middle East and Caribbean Region through the four corporate brands viz. Asian Paints, Berger International, SCIB Paints and Apco Coatings. Also presents in 17 countries with 23 manufacturing locations, over 2500 SKU's, Integrated SAP, ERP & i2 and SCM solution. Apart from these, the company also manufactures Unaudited Financial Result (Consolidated)
Particulars Sales(Net)/Income from operation Other Income Total Income (increase)/decrease in stock in trade and WIP Consumption of raw material Purchase of traded goods Material cost Employee cost Other Expenditure Total Expenditure PBDITA Q4FY12 25,387 470 25,857 217.9 14,189 805.9 15,213 1,354 5,066 21,633 4,224 Q4FY11 19,606 250 19,856 -511 11,429 609 11,526 1,150 4,082 16,758 3,098 % chg. 29.48% 88.08% 30.22% -142.62% 24.16% 32.33% 31.99% 17.79% 24.09% 29.09% 36.34% 7.61% 39.33% 118.42% 37.12% 33.50% 38.68% 8.04% 39.48% FY12 95,983 1,413 97,397 -1729.5 57,205 2294.2 57,770 5,260 18,205 81,235 16,162 FY11 76,910 993 77,903 -1,514 44,252 2007.7 44,746 4,540 14,657 63,942 13,961

(Rs in Mn)
% chg. 24.80% 42.36% 25.02% 14.21% 29.27% 14.27% 29.11% 15.85% 24.21% 27.04% 15.77% 7.07% 16.53% 76.52% 15.43% 14.56% 15.80% -16.43% 17.25%

PBDITA Margin(%)
Depreciation PBITA Interest PBT Tax PAT Minority Interest Net Profit

16.64%
313.8 3,910 166 3,744 1,097 2,647 52.4 2,595

15.80%
291.6 2,806 76 2,730 821.5 1,909 48.5 1,860

16.84%
1211.3 14,951 409.7 14,541 4,335 10,206 318.5 9,887

18.15%
1131.3 12,830 232.1 12,597 3783.9 8,814 381.1 8,432

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Asian Paints Ltd

14 May 2012 Financials (Consolidated)
Table 2: Profit and Loss YearYear-end: March Net Sales Growth(%) Total Expenditure EBDITA Growth(%) Depreciation Other Income EBIT Interest PBT(Inc. OI) Total Tax PAT PAT Growth ( %) FY10
64,475 18.00% 52,385 12,090

(Rs Mn) FY11

77,062 19.52% 63,933 13,130

Table 4: Cash Flow Year-end: March PAT FY10

8,283 794 62 (1,397) 3,527 11,269 1,397 (3,541) (5,457) (7,601) (3,023) (794) 0 0 (3,817) (896) (1,045)

(Rs Mn) FY11

8,432 1,131 282 (826) (1,659) 7,360 826 (1,235) (2,978) (3,387) (3,571) 55 0 0 (3,516) 458

FY12P
95,983 24.55% 81,235 14,748

FY13E
113,260 18.00% 94,535 18,726

FY14E
133,647 18.00% 110,883 22,764

FY12P
9,887 1,211 77 (1,413) (2,085) 7,677 1,413 (6,812) 5,672 273 (4,489) 1,012 0 0 (3,478) 4,472

FY13E
12,303 1,810 211 (1,668) (1,202) 11,454 1,668 (6,281) (3,139) (7,752) (5,586) (359) 0 0 (5,945) (2,242)

FY14E
15,321 2,005 118 (1,968) (1,013) 14,463 1,968 (5,281) (4,694) (8,007) (6,956) (500) 0 0 (7,456) (1,000)

Depreciation Deferred Tax Other Income (Inc)/Decin WC Cash from Operation

80.43%
794 1,397 11,296 270 12,423 3,682 8,283

8.60%
1,131 826 11,998 222 12,602 3,789 8,432

12.33%
1,211 1,413 13,537 410 14,541 4,335 9,887

26.97%
1,810 1,668 16,916 360 18,223 5,548 12,303

21.57%
2,005 1,968 20,760 288 22,440 6,690 15,321

Other Income Net (Pur)/Sale of assets/ Capex Net (Pur)/Sale of Investments Cash from Investing Dividends & tax thereon Net borrowing Equity Issue Share premium Cash from Financing Adjustments/Extra Income Cash flow Table 5: Key ratios YearYear-end: March Per share values EPS (Rs) Cash EPS (Rs) DPS (Rs) Book Value (Rs) Sales per share (Rs) Valuations P/E (x) Cash P/E (x) P/B (x) P/S (x) Profitability/ returns/ liquidity EBIDTA Margin(%) NPM (%) ROCE (%) ROE (%) Debt/Equity Interest coverage (Times) Current ratio Other Ratios EV EBITDA EV/EBITDA EV/Turnover FY10

107.85%

1.80%

17.25%

24.44%

24.53%

Table 3: Balance Sheet Year end: March Equity Reserves & Surplus Total Shareholders fund Total Debt Total Liabilities Gross Block Accumulated Depreciation Net Block Investments Total Current Assets Less: Current Liabilities & Provisions Net Current Assets Total Asset Cash & Bank FY10
959 16,141 17,100 2,292 20,899 15,004 6,276 8,728 6,241 18,437

( Rs Mn) FY11
959 20,915 21,874 2,347 26,618 19,878 7,151 12,727 9,220 23,190

FY12P
959 26,526 27,485 3,359 33,139 26,623 8,362 18,261 3,547 36,239

FY13E
959 33,243 34,202 3,000 39,708 32,904 10,172 22,732 6,686 39,187

FY14E
959 41,608 42,567 2,500 47,691 38,184 12,176 26,008 11,380 44,319

FY11
86.35 95.27 0.31 87.91 102.64 0.36 228.05 803.40 28.29 24.23 10.91 3.10

FY12P
103.08 116.50 0.39 286.54 1000.66 35.45 31.37 12.75 3.65

FY13E
128.26 149.33 0.39 356.57 1180.78 28.49 24.47 10.25 3.09

FY14E
159.73 181.86 0.39 443.78 1393.32 22.88 20.09 8.23 2.62

178.27 672.17 23.65 21.44 11.46 3.04

18.75% 13.56% 56.56% 48.44% 0.13 44.79 1.09

17.04% 11.44% 49.32% 38.55% 0.11 59.06 1.17

15.37% 10.63% 43.27% 35.97% 0.12 36.00 1.40

16.53% 11.19% 46.25% 35.97% 0.09 52.02 1.31

17.03% 11.78% 47.13% 35.99% 0.06 79.18 1.27

16,947 1,490 20,899 1,058

19,769 3,421 26,172 1,330

25,823 10,416 33,140 6,243

29,813 9,375 39,708 4,000

34,932 9,388 47,691 3,000

197160 12090 16.3 2.9

239560 13130 18.2 2.9

347621 14748 23.6 3.3

349506 18726 18.7 2.8

350006 22764 15.4 2.4

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Dalmia Research Center

Asian Paints Ltd

14 May 2012

Institutional Sales Desk

R F Jetha Malay Kampani President, Institutional Operation Vice President - Institution rfj@dalmiasec.com malay.kampani@dalmiasec.com +912230272815-17 +919831246854

NonInstitutional Sales Desk

Rajesh Chura President, Operation rajesh.chura@dalmiasec.com +033 66120500

Disclosure Appendix
Rating Criteria BUY: Returns>15%; ACCUMULATE: 5%<Returns<15%; NEUTRAL: -5%<Returns<5%; REDUCE: -15%<Returns<-5%; and SELL: Returns<-15% Analyst(s) holding in the Stock : Nil Analyst Certification The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and no part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

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