AsianPaints

October22,2014
AmnishAggarwal
amnishaggarwal@plindia.com
+912266322233
GauravJogani
gauravjogani@plindia.com
+912266322238
Rating
Price
TargetPrice
ImpliedUpside
Sensex
Nifty

Accumulate
Rs644
Rs639
.8%
26,787
7,996

APNTs Q2FY15 results are below estimates due to higher adspend and other
expenses despite sustained doubledigit volume growth across segments and
benigninputcosts.APNTwillreportexpansioninbothgrossandEBITDAmargins
due to 1) lower prices of monomers, resins and turpentine oil led by decline in
crudepricesand2)visiblesignsofgradualrecoveryinvolumegrowthacrossboth
decorative and industrial segments. APNT is contemplating another unit in South
India, which shows management optimism on growth potential in the coming
years. We are cutting FY15 and FY16 EPS estimates by 34% due to higher
employee costs and other expenses. We remain positive on huge growth
opportunity in decorative paints in India and ability of APNT to capitalise on the
same due to strengths in distribution, branding and manufacturing. We estimate
22% PAT CAGR over FY1417 and value the stock at 30xSept16 EPS. We are
increasingthetargetpricetoRs639andratingfromReducetoAccumulate.

Q2FY15 consolidated sales increased 16.6% as domestic decorative volumes

increasedby~11%aidedbybroadbasedgrowthacrossregions.Industrialpaints
and automotive business grew on a low base. Bangladesh, Oman and Nepal
have reported growth acceleration, while Egypt continues to remain benign.
Grossmarginupby40bpsto43.7%;EBITDAmarginsweredownby150bpsdue
to 40bps increase in staff cost and 160bps increase in overheads. EBITDA
increasedby5%toRs5.4bn;PBTincreasedby5.4%asinterestcostdeclinedby
41%toRs70m.Adj.PATincreased6.2%toRs3.5bn.

Standalonesalesgrew18.3%toRs29.9bn.Grossmarginsincreasedby40bpsto
44.8%asinputcostsandcurrencyremainedbenign.EBITDAmargindeclinedby
190bps led by 50bps increase in employee costs and 180bps higher other
expenses. Other expenses increased sharply due to higher adspend led by an
early Diwali and increase in freight rates due to steadily rising diesel prices.
EBITDAincreasedby5.4%toRs4.8bn.Adj.PATincreasedby4.9%toRs3.25bn.

(PricesasonOctober22,2014)
Tradingdata
MarketCap.(Rsbn)
Shareso/s(m)
3MAvg.Dailyvalue(Rsm)
Majorshareholders
Promoters
Foreign
DomesticInst.
Public&Other
StockPerformance
(%)
1M
6M
Absolute
(1.3)
20.1
Relative
0.2
2.4
HowwedifferfromConsensus
EPS(Rs)
PL
Cons.
2015
16.0
15.7
2016
19.1
19.1

617.7
959.2
1494.6
52.79%
18.14%
9.17%
19.90%
12M
23.1
(5.3)
%Diff.
1.7
0.1

PricePerformance(RIC:ASPN.BO,BB:APNTIN)

Keyfinancials(Y/eMarch)
Revenues(Rsm)

Growth(%)
EBITDA(Rsm)
PAT(Rsm)

EPS(Rs)
Growth(%)
NetDPS(Rs)

2013
109,386
13.6
17,320
11,139
11.6
12.7
4.6

2014
127,148
16.2
19,979
12,288
12.8
10.3
5.3

2015E
147,440
16.0
24,120
15,343
16.0
24.9
6.5

2016E
173,335
17.6
28,339
18,330
19.1
19.5
7.5

2013
15.8
36.3
33.8
5.6
35.3
55.5
18.3
0.7

2014
15.7
33.1
31.2
4.8
30.3
50.3
15.3
0.8

2015E
16.4
34.7
32.7
4.2
25.6
40.3
12.9
1.0

2016E
16.3
34.7
32.9
3.6
21.8
33.7
10.7
1.2

Oct14

Aug14

Jun14

Apr14

Feb14

Dec13

Oct13

(Rs)
800
700
600
500
400
300
200
100
0

Source:Bloomberg

Profitability&Valuation
EBITDAmargin(%)
RoE(%)
RoCE(%)
EV/sales(x)
EV/EBITDA(x)
PE(x)
P/BV(x)
Netdividendyield(%)
Source:CompanyData;PLResearch

PrabhudasLilladherPvt.Ltd.and/oritsassociates(the'Firm')doesand/orseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresultinvestorsshouldbeawarethat
theFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthereport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

Pleaserefertoimportantdisclosuresanddisclaimersattheendofthereport

Q2FY15ResultUpdate

Strongtailwindsofdemandrecoveryandbenigninputcosts

Exhibit1:

AsianPaints

Q2FY15ResultsConsolidated(Rsm):Volumesupindoubledigits,highemployeecostandoverheadsimpactmargins

Y/eMarch

Q2FY15

Q2FY14

YoYgr.(%)

Q1FY15

H1FY15

H1FY14

YoYgr.(%)

NetSales

36,330

31,147

16.6

33,622

69,952

59,558

17.5

15,861

13,482

17.6

14,313

30,174

25,756

17.2

43.7

43.3

42.6

43.1

43.2

10,499

8,374

25.4

8,748

19,246

16,001

20.3

GrossProfit

%ofNS

OtherExpenses

28.9

26.9

26.0

27.5

26.9

EBITDA

5,362

5,108

5.0

5,565

10,927

9,755

12.0

14.8

16.4

16.6

15.6

16.4

Depreciation

669

603

11.0

646

1,314

1,202

9.4

Interest

70

120

(41.4)

78

148

205

(27.9)

OtherIncome

480

454

5.8

473

953

731

30.4

PBT

5,103

4,839

5.4

5,315

10,418

9,079

14.7

Tax

1,541

1,449

6.3

1,665

3,206

2,839

12.9

30.2

29.9

31.3

30.8

31.3

3,473

3,268

6.2

3,563

7,036

6,020

16.9

%ofNS
Margins(%)

Taxrate(%)

AdjustedPAT
Source:CompanyData,PLResearch

Q2FY15 consolidated sales increased 16.6% to Rs36.3bn as domestic decorative

paintsbusinesscontinuetogrowindoubledigit(est.volumegrowth11~%)aidedby
broadbased growth across segments and regions. Decorative paints sustained
doubledigitvolumegrowth.Industrialpaintsandautorefinishpaintsgrewonalow
base. Bangladesh, Nepal and Oman reported acceleration in growth rates, while
demand in Egypt remained muted. Consolidated gross margin grew by 40bps to
43.7%;EBITDAmarginsweredownby160bpsdueto40bpsincreaseinstaffcostand
160bpsincreaseinoverheads.EBITDAincreasedby5%toRs5.36bn;PBTincreased
by5.4%asinterestcostdecreasedby41%YoYtoRs70mAdj.PATincreased6.2%to
Rs3.5bn.
Exhibit2: GrossMarginsup40bps;EBITDAmarginsdown160bpsonhighoverheads
GrossMargin(%)
50

40

EBITDAMargin(%)

43.0 43.2 43.3 41.0 41.9 42.6 43.7

39.4 40.1 41.6 40.3 40.5

40
30
20

17.2
14.5 16.7 14.5 16.4 16.4 15.6 14.7 16.6 14.8
14.3 15.5 14.8

10

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

Source:CompanyData,PLResearch

October22,2014

AsianPaints

Standalone:Q2FY15salesup18.3%,Adj.PATincreases5%
Salesgrew18.3%toRs29.9bn.Grossmarginsincreasedby40bpsto44.8%asinput
costs and currency remained benign. EBITDA margin declined by 190bps led by
50bps increase in employee costs and 180bps higher other expenses. Staff costs
include Rs170m provision for gratuity and higher actuarial contribution due to
declineininterestrates.Otherexpensesincreasedsharplyduetohigheradspendled
by an early Diwali and increase in freight rates due to steadily rising diesel prices.
EBITDAincreasedby5.4%toRs4.8bn.Adj.PATincreasedby4.9%toRs3.25bn.
Exhibit3:

Q2FY15ResultsStandalone(Rsm);volumesup11%,Marginsimpactedbyhighoverheadsandemployeecost

Y/eMarch

Q2FY15

Q2FY14

YoYgr.(%)

Q1FY15

HFY15

H1FY14

YoYgr.(%)

NetSales

29,957

25,320

18.3

27,407

57,364

48,517

18.2

13,418

11,244

19.3

11,845

25,263

21,492

17.5

44.8

44.4

43.2

44.0

44.3

OtherExpenses

8,607

6,680

28.9

6,949

15,557

12,736

22.1

28.7

26.4

25.4

27.1

26.3

EBITDA

4,811

4,564

5.4

4,896

9,706

8,756

10.9

GrossProfit

%ofNS
%ofNS

16.1

18.0

17.9

16.9

18.0

Depreciation

Margins(%)

564

515

9.4

547

1,111

1,045

6.3

Interest

64

62

4.7

43

107

109

1.9

OtherIncome

505

478

5.6

489

994

1,000

0.5

PBT

4,688

4,466

5.0

4,795

9,483

8,601

10.2

Tax

1,431

1,360

5.2

1,531

2,961

2,656

11.5

Taxrate(%)

AdjustedPAT

30.5

30.4

31.9

31.2

30.9

3,257

3,106

4.9

3,265

6,521

5,945

9.7

Source:CompanyData,PLResearch
Exhibit4: EarlyDiwaliandimprovingconsumersentimentsupportsvolumes
VolumeGrowth(%)

17

13

11

Jun14

Sep14

Mar14

Jun13

Dec13

11

Mar13 3

15

Sep13

13

12
Dec11

18

15
Sep11

Jun122

15
Jun11

11
9

Mar12

16
Dec10

Jun10

Sep10 0

Mar10

12

27

20

17

25

15

Dec12

10 11 15

Sep12 5

Mar11

Dec09

40
35
30
25
20
15
10
5
0
5

RealizationGrowth(%)

Source:CompanyData,PLResearch

October22,2014

Exhibit5: Decorativepaintspricesup2.2%inH1FY15

Exhibit6: Tio2pricesdownby5.9%YoYand1.6%QoQ

5.00

TiO2 YoYPriceChange%

80.0

4.00

59.2

60.0
2.10
1.8
1.01.20
1.151.0

0.0

0.20

20.0

Source:CompanyData,PLResearch

11.5

24.8

Jun14

Sep14

Mar14

Sep13

Sep12

Jun12

Dec11

Mar12

Jun11

Sep11

Mar11

40.0
Dec10

May14

Sep13

May13

May12

Feb12

Nov11

Jun11

Mar11

Aug10

May10

1.00

Dec13

0.00

12.1

20.0

Jun13

1.00

40.0

Mar13

2.00

Dec12

3.00

AsianPaints

Source:CompanyData,PLResearch

KeyConferencecallhighlights

Demand conditions improving: Decorative paints have shown all round

improvement in demand as consumer sentiment picked up. Industrial paints
have seen increase in demand on a low base. Twowheelers have led the
demandinOEMsegmentofautomotivepaints.

Input costs reasonably benign: Raw Material cost remained reasonably stable
as INR/USD remained rangebound. Recent decline in crude prices bodes well
for the company as 1618% sales are that of solventbased paints which use
crude based inputs. Amongst other inputs, resins and monomers are linked to
crude but not directly. APNT has no plans as of now to cut prices; any future
actionwillbeafunctionofmovementincurrencyandcrudeprices.

FY15capexatRs5bn:APNThasindicatedstandalonecapexofRs5bninFY15as
itplanstoincreasecapacityatRohtakandAnkleshwarunits.Itisalsolookingat
settingupofnewGreenfieldunitinSouthIndia.Theactualcapexwillstart89
months after acquisition of land and various approvals. We believe that land
costmaybeincurredinQ4FY15orQ1FY16,whereasothercapexwillstartfrom
H2FY16.

Sleek acquisition is on track and the company is adding new distribution and
broad basing the dealer network. It is planning to integrate this network with
theexistingnetworkofthecompany.

APNThasreceivedapprovaltosetupaunitinIndonesia.Indonesiahaslowper
capita consumption and offers potential for longterm gains. However, the
gestationperiodinthebusinessisexpectedtobequitelong.

October22,2014


IncomeStatement(Rsm)
Y/eMarch
2013
NetRevenue
RawMaterialExpenses
GrossProfit
EmployeeCost
OtherExpenses
EBITDA
Depr.&Amortization
NetInterest
OtherIncome
ProfitbeforeTax
TotalTax
ProfitafterTax
ExOditems/Min.Int.
Adj.PAT
Avg.SharesO/S(m)
EPS(Rs.)

109,386
64,130
45,256
6,236
21,701
17,320
1,546
367
1,145
16,552
4,957
11,595
456
11,139
959.2
11.6

2014

2015E

2016E

127,148
73,407
53,741
7,597
26,165
19,979
2,457
422
1,342
18,442
5,715
12,727
240
12,288
959.2
12.8

147,440

83,963
63,477
8,771
30,586
24,120
2,682
300
2,056
23,194
7,190
16,004
309
15,343
959.2
16.0

173,335
99,097
74,238
10,230
35,669
28,339
2,966
300
2,687
27,759
8,605
19,154
824
18,330
959.2
19.1

AsianPaints

BalanceSheetAbstract(Rsm)
Y/eMarch
2013

2014

2015E

2016E

33,843
2,510
3,152
39,504
24,560
442
1,501
13,001
8,823
32,519
28,341

39,504

40,392
2,492
4,338
47,222
24,918
1,414
1,921
18,969
14,607
37,512
33,150

47,222

48,000
2,500
5,418
55,917
27,020
1,414
20,436
7,048
2,189
43,005
38,147

55,917

57,661
2,500
6,658
66,819
29,054
1,414
28,845
7,506
2,575
49,838
44,907

66,819

QuarterlyFinancials(Rsm)
Y/eMarch
Q3FY14

Shareholder'sFunds

TotalDebt
OtherLiabilities
TotalLiabilities
NetFixedAssets
Goodwill
Investments
NetCurrentAssets
Cash&Equivalents
OtherCurrentAssets
CurrentLiabilities
OtherAssets
TotalAssets

CashFlowAbstract(Rsm)
Y/eMarch
C/FfromOperations
C/FfromInvesting
C/FfromFinancing
Inc./Dec.inCash
OpeningCash
ClosingCash
FCFF
FCFE

2013

2014

2015E

2016E

13,723
(12,363)
(5,960)
(4,600)
6,243
1,643
(135)
(979)

15,338
(8,913)
(6,239)
185
1,643
1,828
11,791
11,773

18,665
(10,519)
(7,726)
419
1,828
2,247
13,028
13,036

22,577
(13,409)
(8,669)
499
2,247
2,746
16,224
16,224

Revenue(%)
EBITDA(%)
PAT(%)
EPS(%)

Profitability
EBITDAMargin(%)
PATMargin(%)
RoCE(%)
RoE(%)

BalanceSheet
NetDebt:Equity
NetWrkngCap.(days)

Valuation
PER(x)
P/B(x)
EV/EBITDA(x)
EV/Sales(x)

EarningsQuality

Q1FY15

Q2FY15

33,071
4,851
14.7
622
117
311
4,423
1,306
3,004
3,004

33,622
5,565
16.6
646
78
473
5,315
1,665
3,387
3,563

36,330
5,362
14.8
669
70
480
5,103
1,541
3,465
3,465

2013

2014

2015E

2016E

DecorativesVolumeGrowth%
7.5
GrossMargins%
41.4
Source:CompanyData,PLResearch.

10.2
42.3

12.0
43.1

12.5
42.8

KeyFinancialMetrics
Y/eMarch
Growth

Q4FY14

34,519
5,373
15.6
633
100
301
4,941
1,540
3,294
3,294

NetRevenue
EBITDA
%ofrevenue
Depr.&Amortization
NetInterest
OtherIncome
ProfitbeforeTax
TotalTax
ProfitafterTax
Adj.PAT

2013

2014

2015E

13.6
14.8
12.7
12.7

16.2
15.4
10.3
10.3

16.0
20.7
24.9
24.9

17.6
17.5
19.5
19.5

16.4
10.4
32.7
34.7

16.3
10.6
32.9
34.7

40.3
12.9
25.6
4.2

33.7
10.7
21.8
3.6

31.0
8.9
6.5
85.0

31.0
9.7
6.4
88.5

15.8
10.2
33.8
36.3

15.7
9.7
31.2
33.1

(0.2)
6

(0.3)
3

55.5
18.3
35.3
5.6

50.3
15.3
30.3
4.8

Eff.TaxRate
29.9
OtherInc/PBT
6.9
Eff.Depr.Rate(%)
4.6
FCFE/PAT
(8.8)
Source:CompanyData,PLResearch.

31.0
7.3
6.7
95.8

2016E

KeyOperatingMetrics
Y/eMarch

October22,2014

AsianPaints

PrabhudasLilladherPvt.Ltd.
3rdFloor,SadhanaHouse,570,P.B.Marg,Worli,Mumbai400018,India
Tel:(9122)66322222Fax:(9122)66322209
RatingDistributionofResearchCoverage

%ofTotalCoverage

60%

51.0%

50%
40%

31.7%

30%
17.3%

20%
10%

0.0%
0%
BUY

Accumulate

Reduce

Sell

PLsRecommendationNomenclature

BUY

Over15%OutperformancetoSensexover12months

Accumulate

: OutperformancetoSensexover12months

Reduce

UnderperformancetoSensexover12months

Sell

: Over15%underperformancetoSensexover12months

TradingBuy

Over10%absoluteupsidein1month

TradingSell

: Over10%absolutedeclinein1month

NotRated(NR)

Nospecificcallonthestock

UnderReview(UR)

: Ratinglikelytochangeshortly

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October22,2014