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FMCG | India
Asian Paints
APNT IN; ASPN.BO
Sagarika Mukherjee
+91 22 4227 3386
sagarika.mukherjee@sbicapsec.com
SBICAP
Research on Bloomberg SBICAP <GO>, www.securities.com
Table of Contents
sagarika.mukherjee@sbicapsec.com
Initiating Coverage
HOLD
Rs
Rs
%
Market data
Mkt capitalisation
Average daily vol
52-week H/L
Shares O/S
Free float
Promotor holding
Foreign holding
Face value
580
592
2
Rs bn
'000
Rs
mn
mn
%
%
Rs
556.2
638.9
604 / 373.4
959.2
452.8
52.8
18.0
1.0
Earnings growth expected to decelerate to 20% p.a.: We believe that top line
growth will be at 15% (10% volume growth) in F15-16e period, a shade lower than
19% CAGR (13% volume growth) registered in F04-14 period, in line with fall in
GDP growth rate estimates. We have pencilled in a realisation increase of 5% in F1516e period in-line with average WPI inflation in paints/distempers and benign TiO2
prices. We believe ad-pro expenses are expected to rise by 100bps due to new
product launches in the premium end and BTL activities for increasing reach in the
rural markets. EBITDA margin will increase marginally by 60bps in this period led by
120bps expansion in gross margin. Earnings expected to grow at 20% p.a in F15e16e.
1m
1.2
7.4
6.2
3m
14.2
8.4
(5.8)
6m
20.7
17.0
(3.7)
1yr
28.0
19.9
(8.1)
Performance
700
(Rs)
600
500
400
300
Jul-13 Oct-13 Jan-14
Asian Paints (LHS)
(%)
40
30
20
10
0
Apr-14
(10)
Jul-14
Financial Summary
Y/E March (Rs mn)
Sales (mn)
F12
F13
F14e
F15e
F16e
96,322
109,386
127,148
144,449
168,758
16.8
Growth(%)
24.7
13.6
16.2
13.6
15.7
15.9
15.7
16.1
16.3
9,652
10,919
12,288
14,749
17,706
EPS (Rs)
10.3
11.6
12.7
15.4
18.5
Growth(%)
17.3
12.7
9.4
21.0
20.0
P/E (x)
56.3
49.9
45.6
37.7
31.4
0.7
0.8
0.9
1.1
1.3
ROCE(%)
46.8
43.8
41.0
40.2
40.7
ROE(%)
39.1
35.6
33.1
33.3
33.5
sagarika.mukherjee@sbicapsec.com
2.5
13.5
2.0
(%)
18.0
9.0
1.5
4.5
1.0
(x)
0.5
0.0
F04
F05
GDP (LHS)
F06
F07
F08
F09
F10
F11
F12
F13
F14
Source: IMF, APNT, Berger Paints, Kansai Nerolac, Akzo Nobel, Shalimar, SSLe
Asian paints (2.2x) and Berger paints (2.3x) are the only two companies that have
correlation factor higher than that of the overall industry indicating that their volume
growth is a tad bit higher than others. APNT and Berger also have a higher
contribution coming from decorative paints rather than industrial and auto paints,
which is the case with Akzo Nobel and Kansai Nerolac. As a result, the volume growth
for Kansai Nerolac and Akzo Nobel are more susceptible to the economic cycles and
off late the moderation in 2-wheelers and passenger car vehicles have adversely hit
them.
36
16,000,000
32
2,100,000
24
12,000,000
24
1,400,000
12
700,000
(No. of units)
2,800,000
0
F09
F10
Passenger (LHS)
F11
F12
F13
4,000,000
0
F08
F14
Growth (RHS)
16
(12)
F08
8,000,000
(%)
(%)
(No. of units)
F09
F10
F11
F12
F13
F14
Growth (RHS)
sagarika.mukherjee@sbicapsec.com
Market Share(%)
80%
70%
60%
50%
40%
30%
20%
10%
APNT
Kansai
Berger
Akzo
F13
F12
F11
F10
F09
F08
F07
F06
F05
F04
F03
F02
F01
F00
F99
F98
F97
F96
F95
F94
F93
0%
Shalimar
Source: APNT, Berger Paints, Kansai Nerolac, Akzo Nobel, Shalimar, SSLe
Basic
Weight
Capital
456.82
88.25
Intermediate
Consumer
goods
156.86
Durables
298.08
84.6
Nondurables
General
213.47
1000
2005-06
6.1
18.1
6.6
10.7
16.2
8.6
8.6
2006-07
8.9
23.3
11.5
16.1
25.3
12.3
12.9
2007-08
8.9
48.5
7.3
17.6
33.1
10.2
15.5
2008-09
1.7
11.3
0.0
0.9
11.1
(5.0)
2.5
2009-10
4.7
1.0
6.0
7.7
17.0
1.4
5.3
2010-11
6.0
14.8
7.4
8.5
14.2
4.2
8.2
2011-12
5.5
(4.0)
(0.6)
4.4
2.6
5.9
2.9
2012-13
2.5
(6.0)
1.6
2.4
2.0
2.8
1.1
2013-14
2.1
YTD FY15
6.8
Source: CSO, SSLe
(3.6)
9.3
3.1
3.0
(2.8)
(0.7)
(12.2)
(2.5)
4.8
0.5
(0.1)
4.1
(%)
13
8.6
8.2
8
5.3
4.1
2.9
2.5
1.1
(0.1)
(2)
F06
F07
F08
F09
F10
F11
F12
F13
F14
YTD
F15
Change in consumer
premiumization
behaviour
to
propel
growth
and
Economic growth and higher disposable income has led to a shift in demand
India has grown at an average annual rate of 7.3% in the past decade with an
accelerated growth for a period of four years in F04-08 where the growth average
around 8.8%. The rapid economic growth had increased and enhanced employment
and business opportunities and in turn increased disposable incomes. The benefits of
growth trickled down, increasing the number of people from the economically weaker
class to join the middle class. This phenomenon has led to shift in demand from
unbranded to branded consumer goods like from lime to distempers in rural areas and
to high-end emulsions in urban areas. This trend is supported by the fact that
emulsions (interiors & exteriors) have registered the fastest growth (23.9% & 27%
respectively) within the various categories of paints in F08-14 period while the industry
registered a CAGR of 18% (10%/8% was volume/price growth respectively).
Distempers, cement paints and enamels were laggards during the same period.
Exterior emulsion paints have grown explosively at the cost of cement paints
and lime colours
27
28
23.9
14
17.8
11.4
10.80
8.6
8.6
Wood
Finishes
Cement
paint
Distemper
Exterior
Emulsion
Interior
Emulsion
Enamel
Putty
5.1
Primers,
Thinners
(%)
21
Urbanization set to increase by 2% p.a. till 2030 which will provide support for
growth in decoratives: Urbanization in India has increased from 27.9% in 2001 to
31% in 2011. As per industry estimates, the population in urban areas will increase to
560 mn (40.1% of population) in 2030 from 360mn (29.4% of population) in 2008,
registering a growth of 2% p.a. which is an additional support for volume growth in
decorative paints.
Repainting cycle has shortened from 10 yrs to 7 yrs as colour trends change
every year: As per APNT management, repainting comprises 70% of the volumes in
decorative category and the cycle has gradually shortened from 8-10 years to 6-7
years. More and more customers, especially in the urban areas have taken to the idea
of good-looking houses and now like to apply colour effects according to the latest
trends in walls paints. APNT has launched ColourNext in 2003 which is a research
based annual trend forecasting initiative, which predicts the colours that are likely to
have the most influence on Indian interiors every year. ColourNext is the outcome of
extensive research spread over six months involving over 100 designers and multidisciplinary experts from across India studying societal, lifestyle and design trends.
sagarika.mukherjee@sbicapsec.com
Investment Rationale
Top line CAGR for APNT in F15e-16e expected to be 15% led by 10% CAGR in
volumes for decorative segment
APNT has registered sales CAGR of 19% in F04-14 period led by volume growth in
decorative segment of 13% in the same period. We believe the volume growth will be
around 10% in next two years as per the GDP growth of 5.1%/6.3% in F15e/F16e and
applying a factor of 1.7x (in-line with factors taken from years when GDP growth was
subdued). Price led growth will be 5% in line with the pricing action of 6% taken by
APNT in F04-14 period. WPI inflation for paints since 2004 also suggests that price
increases have been around 5-6% on average every year. Industrial and auto paints
are expected to be flat during this period and pricing action is very marginal in this
segment.
GDP growth expected to fall to 6.3% levels from 7.3% seen in the last decade
12
GDP growth(%)
F91
F92
F93
F94
F95
F96
F97
F98
F99
F00
F01
F02
F03
F04
F05
F06
F07
F08
F09
F10
F11
F12
F13
F14
F15e
F16e
5.0
17.5
3.5
10.0
2.0
2.5
0.5
(5.0)
(x)
25.0
F92
F93
F94
F95
F96
F97
F98
F99
F00
F01
F02
F03
F04
F05
F06
F07
F08
F09
F10
F11
F12
F13
F14
F15e
F16e
(%)
(1.0)
sagarika.mukherjee@sbicapsec.com
(%)
F16e
F15e
F14
0
F13
0
F12
F11
40,000
F10
15
F09
80,000
F08
23
F07
120,000
F06
30
F05
160,000
F04
(Rs mn)
Growth (RHS)
900,000
18
600,000
10
300,000
(5)
F91
F92
F93
F94
F95
F96
F97
F98
F99
F00
F01
F02
F03
F04
F05
F06
F07
F08
F09
F10
F11
F12
F13
F14
F15e
F16e
(%)
(KL)
1,200,000
Growth (RHS)
16.5
(%)
13.8
10.1
9.8
9.0
7.1
6.2
8.4
6
1.3
1.5
1.6
(2.1)
4.2
3.2 3.3
2.1
(4.4)
(1.1)
4.8
(0.7) (0.1)
(1.0)
F92
F93
F94
F95
F96
F97
F98
F99
F00
F01
F02
F03
F04
F05
F06
F07
F08
F09
F10
F11
F12
F13
F14
F15e
F16e
(2.5)
(6.0)
1.4
sagarika.mukherjee@sbicapsec.com
Increase in realization for APNT in line with WPI inflation in paints (~4-5%)
20%
Dec-12
May-13
Oct-13
Apr-14
Dec-12
Oct-13
Apr-14
Jun-12
Jun-12
May-13
Jul-11
Jan-12
Jul-11
Jan-12
Feb-11
Sep-10
Oct-09
Mar-10
Apr-09
Nov-08
May-08
Jul-07
Dec-07
Jan-07
Feb-06
Aug-06
0%
Apr-05
10%
Sep-05
30%
-10%
Source: CSO, SSLe
20%
Feb-11
Sep-10
Mar-10
Oct-09
Apr-09
Nov-08
May-08
Jul-07
Dec-07
Jan-07
Apr-05
Sep-05
0%
Feb-06
10%
Aug-06
30%
-10%
Source: CSO, SSLe
The overseas business registered a CAGR of 15% in F04-14 period and is expected
to grow at 13% in F15-16e period. We have pencilled in slight moderation taking into
account the muted GDP growth estimates for respective regions.
Middle East and Asia have been the fastest growing geographies
20
18.9
18.3
16.2
15.0
15
(%)
12.5
12.5
10.3
9.0
10
5.1 5.3
5
0
Total
Caribbean
Middle East
F07-14
F15-16e
sagarika.mukherjee@sbicapsec.com
Extremely active R&D team fueling growth strategy with new products and
capabilities: APNT has a strong focus on new capabilities/ development for new
products, feature enhancement of existing products and productivity improvement and
cost reduction. In F14, APNT launched 16 new products in the decorative segment. In
the exterior wall coating segment, your Company has launched the top end new
product Ultima Protek based on in house developed acrylicnanosilica hybrid
emulsion which comes with ten years warranty. Apcolite Advanced - an interior mid
segment emulsion paint with excellent stain cleanability and burnish resistance. In the
recent past APNT has also commercialized several brands in the wall putties and
water proofing segment.
Apcolite advanced was launched to bridge the gap between Apcolite Premium
Emulsion and Royale. The key highlight in the interior emulsion category has been
the nationwide launch of Royale Aspira.
16 new product launches in F14 to reduce dependence on enamels and
distempers
Colour world stores with tinting machines introduced to customize colours and
increase customer involvement
APNTcolourworldstore
F10
F11
27,000
23,800
20,000
15,000
12,000
8,500
7,000
15,000
7,000
5,500
14,000
10,000
21,000
4,300
(No. of stores)
28,000
F04
F05
F06
F07
F08
F09
F12
F13
F14
(Nos)
18,000
27000
12,000
6,000
12000
7500
5500
0
APNT
Berger Paints
Kansai Nerolac
Akzo Nobel
sagarika.mukherjee@sbicapsec.com
sagarika.mukherjee@sbicapsec.com
Monomers
15%
Methanol
0%
Ortho Xylene
0%
Pigments,Exten
ders, Minerals
36%
Oils
6%
Resins
4%
Solvents
16%
Additives
18%
WPI inflation in titanium Dioxide a key indicator of cost inflation for APNT
40%
Apr-14
Oct-13
Dec-12
May-13
Jun-12
Jul-11
Jan-12
Feb-11
Sep-10
Oct-09
Mar-10
Apr-09
Nov-08
May-08
Jul-07
Feb-06
Aug-06
Apr-05
Sep-05
0%
Dec-07
20%
Jan-07
60%
-20%
Source: CSO, SSLe
sagarika.mukherjee@sbicapsec.com
38.1
38.6
30.8
Inflation (%)
30
25.8
26.2
20
14.0
10
12.8
10.0
9.1
9.9
4.1
0
F04
F05
F06
F07
F08
F09
F10
F11
F12
F13
F14
sagarika.mukherjee@sbicapsec.com
12.3
(%)
12
8
6.5
5.1
4
3.9
3.6
2.2
0
F08
F09
F10
F11
F12
F13
F14
F15
Realization growth has been in-line with price hikes showing no major down
trading: Actual price hike taken by APNT (56.5% over last 6 years) is only slightly
higher than the increase in realization (42.9% over last 6 years) of APNT suggesting
that there was no down trading despite the steep hikes taken in certain years.
Additionally it suggests that there was a higher growth registered in the low end of the
product portfolio due to consumers in rural markets switching to branded distempers
from lime wash. Brands like Tractor Emulsion (Rs150/lt), Utsav Acrylic Distemper
(Rs87/kg) and Utsav Enamel (Rs200/lt) have made significant inroads and helped
convert consumers from using unbranded paints/distempers to adopt acrylic
distempers (2x the price of distempers).
Average realization for APNT has grown by 56.5% over last 6 years
12
10.1
9.8
8.4
9
6.2
(%)
6
5
5
3.3
2
F08
(2)
F09
F10
(1.0)
F11
F12
F13
F14
F15e
sagarika.mukherjee@sbicapsec.com
11.2
7.7
7.9
7.6
F06
F05
12
F04
(Ad-spends % of sales)
16
13.0
12.1 11.8 12.0 12.5 12.3
13.5
14.2 14.6
F16e
F15e
F14
F13
F12
F11
F10
F09
F08
F07
18.5
17.2
EBITDA Margin(%)
14.9
15
12.3
10
F16e
F15e
F14
F13
F12
F11
F10
F09
F08
F07
F06
F05
F04
sagarika.mukherjee@sbicapsec.com
We expect earnings growth for F15-16e period to be around 20% p.a. for APNT led by
higher other income and stable tax rates ~30%. APNT is expected to record lower
capex during the next couple of years as it has recently completed its expansion
program in Khandala and Rohtak. This will lead to higher cash accruals and other
income from investments. Effective tax rate is expected to be at 30% for next couple of
years as per managements guidance. We estimate an EPS of Rs15.4/18.5 in
F15e/F16e as per our assumptions.
Earnings growth expected to be 20% in F15-F16e led by higher other income due
to low capex
120
110.0
80
17.3
12.7
9.4
21.0
20.0
F15e
21.5
F14
20.7
F13
32.5
40
F12
(%)
45.6
0.9
(2.8)
F11
F10
F09
F08
F07
F06
F05
F04
(40)
Source: Company, SSLe
sagarika.mukherjee@sbicapsec.com
Financial Snapshot
Sales growth accelerated in 2009-14 period compared to 2004-08 period
APNT registered a CAGR growth of 18-19% in the ten year period of 2004-14 of which
the 2004-08 period was marked by a higher volume growth of 16% compared to 12%
in 2009-14 period. This was a reflection of buoyant economic growth witnessed in
2004-08 period (GDP growth 8.8%) compared to 2009-14 period (GDP growth 6%).
(%)
F16e
F15e
F14
0
F13
0
F12
F11
40,000
F10
15
F09
80,000
F08
23
F07
120,000
F06
30
F05
160,000
F04
(Rs mn)
Growth (RHS)
13.2
13.8
16.4 16.8
13.4
12.5
(Rs bn)
12.0
10
8.7
7.6
7.7
6.0
5
0
F04 F05 F06 F07 F08 F09 F10 F11 F12 F13 F14 F15e F16e
Source: Company, SSLe
sagarika.mukherjee@sbicapsec.com
9.8
8.4
9
(%)
6.2
5
6
5
4.8
4.2
3.2
3.3
2.1
2
(2)
F04 F05 F06 F07 F08 F09 F10 F11 F12 F13 F14 F15e F16e
(1.0)
APNT also launched a variety of paints in the premium end (Royale Play Special
Effects, Royal Play Metallics, Royale Shyne and Royale Aspira) to upgrade
consumers from mid to premium level paints. The premium emulsions category saw a
revival in F14 with the re-launch of brand Apcolite with the proposition of dependable
performance. A new product, called Apcolite Advanced, was launched to bridge the
gap between Apcolite Premium Emulsion and Royale. Along with this, a significantly
improved packaging and endorsement by a celebrity cricketer created a lot of
excitement and sales in the mid segment of interior emulsions. The key highlight in
interior emulsion category has been nation-wide launch and subsequent success of
ultra luxury Royale Aspira last year. APNT also launched variety of premium brands
in exterior paints segment under the brand Apex Ultima and Ultima Protek (comes
with Teflon co-branding for its top coating).
APNT has the highest operating margin in the industry due to continued focus
on emulsions and product mix improvement
Decoratives as a % of sales risen from 77% in F04 to 82% in F14
84
82
83
82
82
F13
F14
81
79
(%)
78
78
77
77
77
F06
F07
77
76
75
72
F04
F05
F08
F09
F10
F11
F12
Water based paints fetch higher realizations and margins (~500-600bps) and hence
add to the margin kicker for Asian Paints. Decoratives form 82% of the total sales for
APNT which takes the profitability levels higher as decorative paints fetch a margin of
16% as compared to 7% in industrial or automotive paints due to low pricing power,
dependence on OEMs and greater competitive intensity. Industrial paints fetch lower
margins as they are oil based paints.
sagarika.mukherjee@sbicapsec.com
15.5
(%)
14
9
0
APNT
Decoratives
Automotive &
Industrials
Overseas
APNT identified the potential to upgrade customers at all levels (low end distempers,
mid and premium) way back in F05 when the company started heavily advertising its
offering in distempers on one end to convert consumers from using non-branded
paints to distempers.
sagarika.mukherjee@sbicapsec.com
Free cash flow generation expected to increase in future as most of the capex is
behind them
Asian paints has spent around Rs27.6bn as capex in 2004-14 period of which majority
of the spend ~Rs25bn was done in 2008-14 period as the company increased its
domestic paints capacity from 3.6lac KL in F08 to 9.4lac KL in F14. In F13, APNT
commissioned a state of the art manufacturing unit in Khandala with an initial capacity
of 3lac KL and added another 50,000 KL in Rohtak plant. APNT has already initiated
the phase 2 (phase 1 was completed in F11) expansion in capacity of Rohtak plant to
raise the capacity by another 2lac KL (current capacity 2 lac KL). The new capacity in
Rohtak is expected to be commissioned post F16. APNT has also announced another
set-up of manufacturing plant in Mysore which will be an integrated paint, resins and
emulsions factory, which again is expected to be commissioned post F16.
Installed capacity expanded by 2.5x in F08-14 epriodHeavy investment in capacity expansion already done
Installed capacity expanded by 2.5x in F08-14 periodwith in last couple of years
900,000
4,800
F16e
F15e
F14
F13
F12
F11
F10
F09
F08
F07
F16e
F15e
F14
F13
F12
F11
F10
F09
F08
F07
0
F06
0
F05
1,600
F04
300,000
F06
3,200
F05
600,000
F04
(Rs bn)
6,400
(KL)
1,200,000
(Rs bn)
12,000
8,000
4,000
F16e
F15e
F14
F13
F12
F11
F10
F09
F08
F07
F06
F05
F04
sagarika.mukherjee@sbicapsec.com
Location
Purpose
Sriperumbedur , Chennai
FY06
FY07
FY07
100,000 KL
Ankleshwar
Sriperumbedur , Chennai
Sriperumbedur , Chennai
FY05
FY05
FY07
FY07
Capacity
30000 (Initial capacity) Scalable to 1,00,000 KL
30000 (Initial capacity of
14,000KL)
FY08
FY08
Secured Land
FY08
Sarigram
Rohtak
Sriperumbedur , Chennai
FY08
3200KL
Sriperumbedur , Chennai
FY09
Expanded capacity to
100,000KL
Sriperumbedur , Chennai
FY09
150000KL
Rohtak , Haryana
FY09
150000KL
Expanded capacity to
140,000KL
Rohtak , Haryana
Sriperumbedur , Chennai
FY10
FY10
300000KL
Khandala
FY11
150000KL
Rohtak , Haryana
FY12
50000KL
Rohtak , Haryana
Emulsions (Expansion)
FY13
300000KL
Khandala
Source: Company,SSLe
Future Plans: Addition of around 9lacs KL, almost doubling the current capacity in next 7-8 years
Capacity
Expansion
Capacity
Location
Purpose
By F16e
200000KL
Rohtak , Haryana
Emulsions (Phase 2)
Post F16e
700000KL
Mysore, Karnataka
sagarika.mukherjee@sbicapsec.com
Valuation
Initiate coverage with HOLD rating and TP Rs592:
Earnings growth in F15-16e is expected to be 20% p.a. led by 15% top line growth and
benign raw material inflation. APNT has traded at 34x/32x historically for 3yr/2yr
average. We estimate APNT will deliver 20% earnings growth a tad lower than 24%
average delivered in F04-14 period. We are not compressing the multiple despite
deceleration in earnings growth due to superiority in terms of product offerings,
efficient supply chain and vast distribution network that is 2x the next largest
competitor. Hence we value the company at 32x F16e EPS of Rs18.5 with a target
price of Rs592 and HOLD rating on the stock.
1-yr Fwd Rolling P/E Chart
600
40
450
30
(x)
300
150
20
10
Apr-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Dec-13
Jun-14
Price
15x
20x
25x
30x
32x
0
Apr-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Dec-13
Jun-14
(Rs)
34x
price (Rs)
Average
1-Std
(-) 1 Std
Key Assumptions
F14e
F15e
F16e
12.5
7.6
7.7
Inc in realisation(%)
6.1
5.0
5.0
16.2
13.6
16.8
Gross margin(%)
42.3
43.3
43.5
6.0
6.1
6.0
13.5
14.2
14.6
15.2
16.2
18.2
15.7
16.1
16.3
Source: SSLe
Key risks:
sagarika.mukherjee@sbicapsec.com
1)
2)
3)
Steep increase in titanium Dioxide prices could lead to price increases and
hence weaken volumes
4)
Company Description
Asian Paints (APNT) is Indias largest (54% market share) and Asias third largest
paint company, with a turnover of Rs. 127.15 bn and net profit of Rs12.3bn. APNT
operates in 17 countries and has 23 manufacturing facilities in the world servicing
consumers in over 65 countries with 7000 employees worldwide. Domestic decorative
segment forms the largest (82% of sales) and most profitable segment (92% of profits)
for APNT. The group operates in five regions across the world (14% of sales) with
market leadership in most of the geographies. APNT has the widest distribution
network in the industry with retail reach of 35,000 outlets of which 27000 are colour
world outlets.
Decorative Paints: Largest business segment with 82% market share; key driver
of growth
In Decorative paints, APNT is present in all the four segments v.i.z Interior Wall
Finishes, Exterior Wall Finishes, Enamels and Wood Finishes. It also introduced many
innovative concepts in the Indian paint industry like Colour Worlds (Dealer Tinting
Systems), Home Solutions (painting solutions Service), Kids World (painting solutions
for kids room), Colour Next (Prediction of Colour Trends through in-depth research)
and Royale Play Special Effect Paints, just to name a few.
Decoratives form the largest and the most profitable segment for APNT
Decorative
82%
International
14%
Industrial
and
Automotive
4%
Decoratives
, 92%
International
, 8%
Industrial &
Automotive
, 0%
APNT has always been a leader in the paint industry with 54% market share in the
domestic decorative paints market. Decorative paints account for 75% of the overall
paint market (~Rs300bn) in India which is touted to be at Rs230bn which has grown at
16% CAGR in 2005-14 period. APNT has been at the fore front of innovation,
technology and marketing initiatives in order to drive further penetration and
premiumization within the existing customer base. APNT has been pushing new
concepts in India like Colour Worlds, Home Solutions, Colour Next, and Kids World to
increase the customers engagement in the choice of colours and the whole painting
process which in turn leads to higher realizations (due to adoption of products at the
premium end) and increases the frequency of painting as well.
Industrial and automotive coatings contribute 4% to the company revenues
Asian Paints also operates through PPG Asian Paints Pvt Ltd (50:50 JV between
Asian Paints and PPG Inc, USA, one of the largest automotive coatings manufacturer
in the world) to service the increasing requirements of the Indian automotive coatings
market. APNT is the second largest automotive coating supplier in India, catering to
both automotive OEM and refinish segments.
Asian Paints has formed another 50:50 JV with PPG named Asian Paints PPG Pvt
Ltd to service the protective, industrial powder, industrial containers and light
industrial coatings markets.
sagarika.mukherjee@sbicapsec.com
APNTs revenue share in both the JVs together is Rs5.61bn (4% to consolidated
revenues) and operates at wafer thin margin of 3% due to low pricing power and
relatively smaller size compared to the market leader (Kansai Nerolac) in this space.
International presence in 17 countries and market leader in eleven; capacity
expansion underway in Asia and Middle East to support growth
The group operates in five regions across the world viz. South Asia, South East Asia,
South Pacific, Middle East and Caribbean region through the five corporate brands viz.
Asian Paints, Berger International, SCIB Paints, Apco Coatings and Taubmans. The
overseas business registered a CAGR of 15% in F04-14 period and is expected to
grow at 13% in F15-16e period. We have pencilled in slight moderation taking into
account the muted GDP growth estimates for respective regions.
The Middle East region is the largest operating region for the group outside India. The
region contributes 51% of the revenue from overseas operations. The new plant being
set up by the subsidiary in Oman at Sohar is expected to be completed by the end of
financial year 2014-15. The company is also underway to expand the capacity of its
Bangladesh plant from 12,000 KL to 24,000 KL per annum and will be commissioned
in F15.
In April, 2014, APNTs wholly owned subsidiary in Mauritius, Asian Paints
(International) Limited (APIL), signed an agreement with shareholders of Kadisco
Chemical Industry PLC., Ethiopia to acquire either directly or through its subsidiaries
51% of its share capital. Kadisco is a major paints player in the Ethiopian market and
is involved in the manufacturing and selling of paints, other coatings and adhesives in
Ethiopia.
Geography wise sales break-up
Asia
29%
Asia
29%
Caribbean
13%
Middle East
50%
South
Pacific
16%
Middle East
54%
Caribbean
1%
Over the years, profitability has improved in Asia region for APNT while all the other
regions have underperformed. We believe that the future growth and profitability
drivers of the overseas business will lie in Middle East and Asia region due to strong
growth and due to market leadership position in these geographies.
sagarika.mukherjee@sbicapsec.com
F07
F08
F09
F10
(15m)
F11
F12
F13
F14
Total
6,323
7,030
9,110
12,124
9,880
11,555
14,568
16,832
Caribbean
1,523
1,500
1,633
1,958
1,568
1,718
1,996
2,154
Middle East
2,606
3,190
4,651
6,521
5,159
5,784
7,365
8,430
1,464
1,720
2,206
2,795
2,403
3,147
4,061
4,915
South Pacific
730
620
620
850
750
906
1,146
1,333
213
560
698
1,818
1,079
1,059
1,306
1,480
28
70
57
109
119
76
75
17
253
420
559
1,215
681
615
778
802
(118)
20
23
371
150
246
290
427
Caribbean
Middle East
Asia
South Pacific
50
50
58
123
129
122
163
234
3.4
8.0
7.7
15.0
10.9
9.2
9.0
8.8
Caribbean
1.8
4.7
3.5
5.6
7.6
4.4
3.8
0.8
Middle East
9.7
13.2
12.0
18.6
13.2
10.6
10.6
9.5
(8.1)
1.2
1.0
13.3
6.2
7.8
7.1
8.7
6.8
8.1
9.4
14.5
17.2
13.5
14.2
17.6
Asia
South Pacific
Source: Company, SSLe
sagarika.mukherjee@sbicapsec.com
Overseas footprint
Colorworlds
Plant Capacity
(KL)
Comments
Commencement
400
8000
1985
Bangladesh
200
Expansion from
12,000 KL to
24,000 KL per
annum is nearing
completion and
commissioning is
expected by the
first quarter of
2014-15.
2002
Sri Lanka
200
5500
1999
Bahrain
1989
Oman
1999
UAE
Barbados,
Jamaica,
Trinidad
Country
Nepal
1953
sagarika.mukherjee@sbicapsec.com
sagarika.mukherjee@sbicapsec.com
sagarika.mukherjee@sbicapsec.com
Financials
Income Statement
Balance Sheet
F12
F13
F14e
F15e
96,322
109,386
127,148
144,449
24.7
13.6
16.2
13.6
Operating expenses
81,211
92,036
107,169
121,234
EBITDA
15,112
17,349
19,979
23,214
growth (%)
25,973
31,240
35,569
39,919
46,507
2,182
1,298
1,944
1,944
1,944
19,176
25,002
26,332
26,457
26,371
3,547
2,807
7,212
9,712
12,212
Total assets
57,122
67,866
80,373
92,614
108,568
Current liabilities
23,012
27,283
32,065
35,898
41,800
3,411
2,510
2,538
2,738
2,938
1,847
2,623
2,917
2,917
2,917
28,270
32,416
37,520
41,554
47,655
141,322 Investments
27,436
15.2
16.2
2,457
2,876
EBIT
13,901
15,803
17,522
20,339
Other income
1,074
1,145
1,342
1,822
2,197
367
422
439
18.2
472
(100.0)
PBT
14,541
16,582
18,342
21,722
Tax
4,274
4,394
5,364
6,517
29.4
26.5
29.2
30.0
30.0
PAT
10,206
11,595
12,627
15,206
18,253
Minority interest
318.5
456.4
439.5
456.2
547.6
9,887
11,139
12,188
14,749
Non-recurring items
(235.0)
(219.9)
100.0
9,652
10,919
12,288
14,749
17.3
12.7
9.4
21.0
20.0
F12
F13
F14e
F15e
Extraordinary/Exceptional item
growth (%)
26,076 Borrowings
Total liabilities
Share capital
Shareholders' funds
F16e
21,535
14.8
434
F15e
14,583
1,546
Interest paid
F14e
9,317
13.5
Depreciation &amortisation
F13
7,520
1,211
growth (%)
F12
6,243
959
959
959
959
959
26,526
32,884
39,434
47,185
56,491
27,485
33,843
40,393
48,144
57,450
1,367
1,608
2,460
2,916
3,464
57,122
67,866
80,373
92,614
108,568
Pre-tax profit
F12
14,541
F13
16,552
F14e
F15e
18,342
21,722
2,876
F16e
26,076
EBITDAM
15.7
15.9
15.7
16.1
16.3
Depreciation
1,211
1,546
2,556
EBITM
14.4
14.4
13.8
14.1
14.4
(4,101)
(1,587)
(1,682)
(868)
NPM
10.0
10.0
9.7
10.2
10.5
(4,296)
(4,385)
(4,802)
(6,517)
(7,823)
RoE
39.1
35.6
33.1
33.3
33.5
(359)
(259)
(416)
(1,383)
(1,725)
RoCE
46.8
43.8
41.0
40.2
40.7
Operating CF
6,996
11,868
13,999
15,830
18,575
RoIC
71.2
60.7
59.8
67.3
78.9
Capital expenditure
(5,464)
(6,438)
(2,492)
(3,000)
(3,000)
Chg in investments
1,075
(4,113)
(2,500)
(2,500)
959
959
959
959
959
EPS
10.3
11.6
12.7
15.4
18.5
Investing CF
FDEPS
10.3
11.6
12.7
15.4
18.5
FCF
CEPS
11.6
13.2
15.3
18.4
21.7
BV
28.7
35.3
42.1
50.2
59.9
4.0
4.6
5.2
6.3
7.5
DPS
Debt raised/(repaid)
Other financing activities
P/E
56.3
49.9
45.6
37.7
P/BV
20.2
16.4
13.8
11.6
9.7
EV/EBITDA
36.6
31.8
27.5
23.7
20.0
5.7
5.0
4.3
3.8
3.3
EV/Sales
31.4
1,277
1,470
(3,856)
(4,535)
919
(6,029)
577
(4,223)
(4,030)
1,533
5,430
11,507
12,830
15,575
Equity raised/(repaid)
Dividend (incl. tax)
532
984
3,086
(1,038)
Financing CF
Net chg in cash & bank bal.
Closing cash & bank bal
969
(3,831)
(1,016)
(369)
(4,621)
(5,467)
200
(6,022)
200
(7,229)
(404)
(371)
(333)
(439)
(472)
(3,266)
(6,007)
(6,169)
(6,261)
(7,501)
1,326
1,802
5,346
7,044
7,520
9,317
14,583
21,535
(126)
6,243
27.2
29.7
28.9
28.9
28.9
10.0
10.0
9.7
10.2
10.5
3.2
3.0
3.0
2.9
2.8
1.2
1.2
1.2
1.1
1.1
39.1
35.6
33.1
33.3
33.5
NPM (%)
RoE (%)
Source: Company, SSLe
sagarika.mukherjee@sbicapsec.com
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