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DOLAT CAPITAL
October 22, 2014
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Asian Paints
CMP: ` `` `` 650 TP: ` `` `` 680 Accumulate
High Points
Volume growth of 13.5% in
decorative business.
Industrial business
witnesses improvement in
growth rate.
Raw Material cost benign but
no price reduction planned.
Introducing FY17 estimates.
Recommend Accumulate
with a TP of `680.
Financials
Year Net Sales % growth EBITDA OPM% PAT % growth EPS(` `` ``) % growth PER(x) ROANW(%) ROAIC(%)
FY14 127,148 15.9 19,979 15.7 12,288 10.3 12.8 10.3 50.7 33.1 47.8
FY15E 146,336 15.1 24,270 16.6 15,334 24.8 16.0 24.8 40.7 34.4 52.4
FY16E 170,833 16.7 28,818 16.9 18,787 22.5 19.6 22.5 33.2 34.7 53.4
FY17E 202,546 18.6 35,248 17.4 23,554 25.4 24.6 25.4 26.5 35.3 54.8
Figures in ` mn
Q2FY15 Result (` mn)
Parti cul ars Q2FY15 Q1FY14 Y-O-Y (%) Q1FY15 Q-O-Q (%) H1FY15 H1FY14 Y-O-Y(%)
Net Sales 36,330 31,147 16.6 33,622 8.1 69,952 59,558 17.5
Expenditure 30,967 26,039 18.9 28,057 10.4 59,025 49,803 18.5
Raw Materials 20,469 17,665 15.9 19,309 6.0 39,778 33,802 17.7
Staff Cost 2,335 1,859 25.7 2,253 3.7 4,588 3,868 18.6
Other Expenditure 8,163 6,516 25.3 6,495 25.7 14,658 12,134 20.8
Operating Profit 5,362 5,108 5.0 5,565 -3.6 10,927 9,755 12.0
Other Income 480 454 5.8 473 1.4 953 731 30.4
Interest 70 120 -41.4 78 -9.9 148 205 -27.9
Depreciation 669 603 11.0 646 3.6 1,314 1,202 9.4
Excep Items - Gain / (Loss) 0 0 252 0
PBT 5,103 4,839 5.4 5,315 -4.0 10,166 9,079 12.0
Tax 1,541 1,449 6.3 1,590 -3.1 3,130 2,839 10.3
Net Profit 3,563 3,390 5.1 3,725 -4.4 7,036 6,240 12.8
Minority Interest 90 122 87 176 219
Reported PAT 3,473 3,268 3,639 6,860 6,020
Adj Profit 3,473 3,268 6.3 3,639 -4.6 7,112 6,020 18.1
Gross Margin (%) 43.7 43.3 37.2 42.6 108.8 43.1 43.2 -11.0
Staff cost (%) 6.4 6.0 46.1 6.7 -27.2 6.6 6.5 6.5
Other exp (%) 22.5 20.9 155.1 19.3 315.2 21.0 20.4 58.2
OPM (%) 14.8 16.4 -164.0 16.6 -179.2 15.6 16.4 -75.7
Tax rate (%) 30.2 29.9 24.2 29.9 28.0 30.8 31.3 -48.2
NPM (%) 9.8 10.9 -107.9 11.1 -127.4 10.1 10.5 -41.8
Scrip Details
Equity ` 959mn
Face Value ` 1/-
Market Cap ` 623bn
USD 10.1bn
52 week High / Low ` 680 / 461
Avg. Volume (no) 1,396,649
BSE Sensex 26,768
NSE Nifty 7,980
Bloomberg Code APNT IN
Reuters Code ASPN.BO
Sr. Analyst: Amit Purohit
Tel : +9122 4096 9724
E-mail: amitp@dolatcapital.com
Asian Paint reported a consolidated revenue growth of 16.6% to ` 36.3bn.
EBITDA at ` 5.36bn was up 5.9% YoY as margins declined by 164bps to
14.8%. Gross margin expanded by 37bps YoY to 43.7%. Higher employee
cost up 46bps and other expenditure up 155bps YoY lead to a reduction in
margins. Employee cost increased due to addition and fluctuation in gratuity
valuation while other expenditure were higher due to higher advertising spend.
PBT, was up 5.4% YoY and Adj PAT stood at ` 3.47bn up 6.3% YoY.
Standalone business (decorative paints) reported revenue of ` 29.9bn up 18.3%.
We estimate a volume growth of 13.5% and sustenance of strong volume growth
despite higher base of last year (15% volume in Q2FY14) is encouraging.
EBITDA grew by 5.4% as margin declined by 197bps to 16.1%. Gross margins
expanded by 40bps YoY to 44.8%.
Subsidiary business (Industrial and International) reported a 9.4% revenue growth
to ` 9.4bn and EBTDA grew by 1.4% to ` 551mn. The company witnessed
good growth in two wheeler. Gross margin remained flat and higher employee
cost impacted the operating performance.
Valuation and View
Management indicated that festive season would improve the outlook for volume
growth in Paints in the coming quarters. We introduce FY17 and estimate a
16.8% CAGR in revenue and 24% CAGR in earnings during FY14-17E. We
expect strong PAT growth in the coming quarters, mainly due to lower base of
last year and benign raw material cost. We believe, the P/E multiples remain
high due to strong volume growth and improvement in margins. The stock trades
at trading at very rich valuations at 33x FY16E of `19.6 and 26x FY17E EPS of
`24.6. We recommend a Accumulate with a target price of `680.
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DOLAT CAPITAL
India Research
Asian Paints October 22, 2014
Key takeaways of Conference call:
Volume growth for the quarter is estimated at 13.5% (15% vol growth in Q2FY14).
Management indicated volume growth remained strong both in rural and urban
markets. The trend is likely to continue in the festive season.
Raw material prices remain benign. Currently 17-18% of the sales are from
solvent paints which would benefit from lower crude price.
With respect the price reduction, the management indicated that it will review
only when there is a substantial fall in the prices. There are no immediate plans
to reduce the prices.
International business growth was driven by Bangladesh, Nepal and Oman. In
the Industrial business specially the Refinish and tow wheeler segment has
witnessed growth. Higher margin segment, passenger car did well especially
for J apanese players which has benefited Kansai Nerolac
The company has total capex plan to `5bn in the domestic business which
would include a maintenance capex of `1.5-2bn. Capacity addition would be
done in its Rohtak plant (2lac tons) and Ankleshwar (30,000 tons). The company
looking at expansion in the South market which would largely focus on the
decorative segment.
Quarterly trend in volume growth:
Quarterly trend in operating performance:
y p g p
Source: Company, Dolat Research
Source: Company, Dolat Research
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DOLAT CAPITAL
India Research
Asian Paints October 22, 2014
IMPORTANT RATIOS
Parti cul ars Mar 14 Mar15E Mar16E Mar17E
(A) Measures of Performance (%)
Gross Margin 42.3 43.4 43.7 44.3
EBIDTA Margin (excl. O.I.) 15.7 16.6 16.9 17.4
EBIDTA Margin (incl. O.I.) 16.6 17.7 18.0 18.7
Interest / Sales 0.3 0.2 0.1 0.1
Gross Profit Margin 16.3 17.5 17.8 18.5
Tax/PBT 31.2 31.8 31.2 31.2
Net Profit Margin 9.6 10.3 10.9 11.5
(B) As Percentage of Net Sales
Raw Material 57.7 56.6 56.3 55.7
Employee Expenses 6.0 6.2 6.2 6.2
Other Expenses 20.6 20.6 20.6 20.7
(C) Measures of Financial Status
Interest Coverage (x) 50.5 87.3 124.5 153.6
Average Cost Of Debt (%) 19.3 15.2 12.0 12.0
Debtors Period (days) 32 33 33 33
Closing stock (days) 59 60 60 60
Inventory Turnover Ratio (x) 6.2 6.1 6.1 6.1
Fixed Assets Turnover (x) 3.5 3.9 4.3 4.9
Working Capital Turnover (x) 13.2 10.7 10.3 9.0
Non Cash Working Capital (` Mn) 5,556 6,109 7,863 11,171
(D) Measures of Investment
EPS (`) (Reported) 13.2 16.5 20.2 25.3
EPS (`) 12.8 16.0 19.6 24.6
CEPS (`) 15.4 18.8 22.4 27.5
DPS (`) 5.6 7.3 8.4 9.6
Dividend Payout (%) 43.8 45.4 43.0 39.1
Profit Ploughback (%) 56.2 54.6 57.0 60.9
Book Value (`) 42.1 50.9 62.0 77.0
RoANW (%) 33.1 34.4 34.7 35.3
RoACE (%) 30.4 31.6 31.9 32.7
RoAIC (%) (Excl Cash & Invest.) 47.8 52.4 53.4 54.8
(E) Valuation Ratios
CMP (`) 650 650 650 650
P/E (x) 50.7 40.7 33.2 26.5
Market Cap. (` Mn.) 623,480 623,480 623,480 623,480
MCap/ Sales (x) 4.9 4.3 3.6 3.1
EV (` Mn.) 609,531 602,910 589,117 576,386
EV/Sales (x) 4.8 4.1 3.4 2.8
EV/EBDITA (x) 30.5 24.8 20.4 16.4
P/BV (x) 15.4 12.8 10.5 8.4
Dividend Yield (%) 0.9 1.1 1.3 1.5
E-estimates
CASH FLOW
Parti cul ars Mar 14 Mar15E Mar16E Mar17E
Profi t before tax 18,442 23,244 28,164 35,340
Depreciation & w.o. 2,457 2,661 2,713 2,805
Net Interest Exp 422 300 250 250
Direct taxes paid -5,715 -7,391 -8,787 -11,026
Chg. in Working Capital -1,380 -553 -1,754 -3,309
Extra Ordinary
(A) CF from Opt. Activities 14,226 18,260 20,586 24,060
Capex {Inc./ (Dec.) in FA n WIP} -2,090 -4,800 1,200 -2,300
Free Cash Fl ow 12,136 13,460 21,786 21,760
Inc./ (Dec.) in Investments -3,926 -3,337 -12,739 -10,163
(B) CF from Inv. Activities -6,016 -8,137 -11,539 -12,463
Issue of Equity/ Preference -212 419 337 423
Inc./(Dec.) in Debt -633 200 0 0
Interest exp net -422 -300 -250 -250
Dividend Paid (Incl. Tax) -5,387 -6,958 -8,080 -9,203
(C) Cash Flow from Financing-6,654 -6,639 -7,993 -9,030
Net Change in Cash 1,557 3,485 1,054 2,568
Openi ng Cash bal ances 2,538 4,111 7,595 8,650
Cl osi ng Cash bal ances 4,111 7,595 8,650 11,218
E-estimates
INCOME STATEMENT ` `` `` mn
Parti cul ars Mar 14 Mar15E Mar16E Mar17E
Net Sales 127,148 146,336 170,833 202,546
Other income 1,342 1,934 2,309 3,147
Total Income 128,490 148,270 173,141 205,693
Total Expenditure 107,169 122,065 142,014 167,298
Operational / Direct expenses 73,407 82,759 96,167 112,892
Employee Expenses 7,597 9,094 10,596 12,517
Other Expenses 26,165 30,212 35,251 41,889
EBIDTA (Excl. OI) 19,979 24,270 28,818 35,248
EBIDTA (Incl. OI) 21,321 26,204 31,127 38,395
Interest 422 300 250 250
Gross Profi t 20,899 25,904 30,877 38,145
Depreciation 2,457 2,661 2,713 2,805
Profit Before Tax & EO Items 18,442 23,244 28,164 35,340
Extra Ordinary Exps/(Income) -100 0 0 0
Profit Before Tax 18,343 23,244 28,164 35,340
Tax 5,715 7,391 8,787 11,026
Net Profit 12,628 15,852 19,377 24,314
Minority Interest 440 518 590 760
Net Profit 12,288 15,334 18,787 23,554
BALANCE SHEET
Parti cul ars Mar 14 Mar15E Mar16E Mar17E
Sources of Funds
Equity Capital 959 959 959 959
Other Reserves 39,443 47,820 58,526 72,876
Net Worth 40,402 48,779 59,485 73,835
Minority Interest 2,064 2,582 3,172 3,932
Secured Loans 377 377 377 377
Unsecured Loans 1,500 1,700 1,700 1,700
Loan Funds 1,877 2,077 2,077 2,077
Deferred Tax Liability 1,674 2,092 2,430 2,854
Total Capital Employed 46,016 55,530 67,164 82,698
Applications of Funds
Gross Block 35,851 37,851 39,651 41,651
Less: Accumulated Depreciation 12,358 15,019 17,732 20,537
Net Block 23,493 22,832 21,920 21,115
Capital Work in Progress 700 3,500 500 800
Invest ment s 11,714 15,051 27,790 37,953
Current Assets, Loans & Advances
Inventories 20,635 24,055 28,082 33,295
Sundry Debtors 11,177 13,030 15,211 18,035
Cash and Bank Balance 4,111 7,595 8,650 11,218
Loans and Advances 4,772 5,109 6,359 8,410
sub total 40,695 49,789 58,302 70,958
Less : Current Li abi l i ti es & Provi si ons
Current Liabilities 26,241 30,093 34,840 40,594
Provisions 4,787 5,992 6,950 7,975
sub total 31,028 36,085 41,789 48,569
Net Current Assets 9,667 13,704 16,512 22,389
Misc Expenses 442 442 442 442
Tot al Assets 46,016 55,530 67,164 82,699
E-estimates
Shareholding Pattern as on Sep'14 (%)
DOLAT CAPITAL
This report contains a compilation of publicly available information, internally developed data and other sources believed to be reliable. While
all reasonable care has been taken to ensure that the facts stated are accurate and the opinion given are fair and reasonable, we do not take
any responsibility for inaccuracy or omission of any information and will not be liable for any loss or damage of any kind suffered by use of
or reliance placed upon this information. For Pvt. Circulation & Research Purpose only.
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