Company Update Paints and Varnishes Asian Paints Ltd.

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Company Update Paints and Varnishes Asian Paints Ltd.

BUY Market leader on all fronts

CMP (Rs) 1,274 Incorporated in 1942, Asian Paints Ltd (APL) is India's leading paints company,
commanding market share of ~54% in the organized paints industry. Further, it is
Target Price (Rs) 1,515 ranked amongst the top ten decorative coatings companies in the world. Along with
its subsidiaries, the company operates in 16 countries with 25 paint manufacturing
Potential Upside 18.9% facilities. The company manufactures wide range of paints for decorative, automotive
and industrial use.
Sensex 36,198
Investment Rationale
Nifty 10,898  Upholding leadership position: In FY17-18, the market size of Indian paint
industry is estimated to be around Rs 55,800 cr, in which organized sector
dominated the market with 65% share. Of this, 80% share is controlled by top 5
players. Amongst them, APL remains the largest player with market share at
Key Stock data around 54%. APL has strong geographical presence throughout India and
BSE Code 500820 overseas across its business segments. Besides this, APL remains the market
leader in the decorative segment with 76-77% revenue share. Going forward, we
NSE Code ASIANPAINT expect strong growth momentum to continue in decorative through product
innovation in its interior and exterior wall paints and expansion in new
Bloomberg APNT:IN categories. The new categories recently launched include water-proofing,
wallpapers & adhesives.
Shares o/s, Cr (FV 1) 95.9
 Focus on growing other segments: APL’s remaining 24% revenue share is
Market Cap (Rs Cr) 1,22,298 derived from other business segments such as Industrial coating segment (9%),
home improvement (2-3%) and International business (12-13%). The overseas
3M Avg Volume 12,01,742 business is facing some slowdown however, the company aims to grow in high
growth emerging markets like Africa and South East Asia. Within industrial
52 week H/L 1491/1090 coating, APL has formed two 50:50 JV’s with PPG Inc. of USA, which helps in
catering to auto and non-auto coating industry. Growth would be driven by
automotive, powder and protective coating segment on back of rising demand in
these segments. Lastly, APL’s home improvement business is expanding
Shareholding Pattern gradually. With entry in kitchen ware (Sleek international) and sanitary-ware
space (ESS ESS bathroom products), the company has a good opportunity to
(%) Dec-17 Mar-18 Jun-18 grow this business in future, driven by expansion in network and product
innovations.
Promoter 52.8 52.8 52.8
 New plants to drive growth: APL is setting up two new plants at Vizag and
FII 16.4 15.1 14.7 Mysuru with a total capacity of 11 lakh KL/p.a. Of this, 6 lakh KL/p.a. is estimated
to be operational in Q3/Q4 of FY19. The company has envisaged a CAPEX of
DII 10.0 11.8 11.8 Rs 1,000-1,200 cr for FY19 for capacity expansion, which would enable it to cater
to the rising demand over the next 4-5 years.
Others 20.8 20.3 20.7
Outlook & Valuation:
The Indian paints industry is estimated to grow at a healthy pace of 13% CAGR over
1 Year relative price performance the next two years to Rs 70,875 cr, led by Government’s initiative towards promoting
the growth of housing sector, rising disposable income and reduction in average
130
repainting cycle. Further, the recent rationalization in the GST rates in paints could
benefit the organized players in the long run. Moreover improved product mix and
operating leverage should provide cushion to margins which would mitigate concern
120 of rising crude oil price. We estimate revenue and PAT to grow by 9.4% & 15.3%
CAGR respectively over FY18-20E, driven by steady capacity addition, wide
110 distribution reach and continued efforts towards innovative launches. APL is well
placed to capitalize on the available opportunities. We recommend a Buy on the
100 stock with target price of Rs. 1,515.
Financial Summary
90
Particulars, Rs cr FY17 FY18 FY19E FY20E
Dec-17

Jan-18

Mar-18

Jun-18
Oct-17

Apr-18
Apr-18
May-18
Nov-17
Nov-17

Jan-18

Jun-18

Aug-18
Aug-18
Sep-17

Feb-18

Jul-18

Sep-18

Net revenue 15,062.0 16,824.6 18,467.9 20,130.1

Asian Paints Nifty 50
EBITDA 2,986.4 3,197.6 3,675.1 4,227.3
EBITDAM (%) 19.8 19.0 19.9 21.0
APAT 1,940.8 1,981.7 2,306.4 2,636.6
APATM (%) 12.9 11.8 12.5 13.1

Research Analyst EPS (Rs) 20.8 21.1 24.5 28.0

PE (x) 63.0 61.7 53.0 46.3
Nirvi Ashar, MBA
nirvi.ashar@religare.com RoE (%) 25.5 23.6 23.6 23.1
Source : Company; RBL Research

October 01, 2018

 Company Update Paints and Varnishes Asian Paints Ltd.

P&L Account - consolidated Balance sheet - consolidated

Particulars (cr) FY17 FY18 FY19E FY20E Particulars (cr) FY17 FY18 FY19E FY20E
Net sales 15,062.0 16,824.6 18,467.9 20,130.1 Share Capital 95.9 95.9 95.9 95.9
Expenditure Reserves & Surplus 7,508.0 8,314.3 9,686.5 11,331.3
Raw material consumed 8,016.1 8,585.4 9,342.0 10,075.8 Total Shareholder's Fund 7,603.9 8,410.2 9,782.4 11,427.2
Purchase of stock in trade 841.4 963.6 1,048.5 1,130.9 Non-Controlling Interest 375.5 327.7 327.7 327.7

(Increase) / Decrease In Stocks (528.6) 142.1 154.7 166.8 Long term borrowings 41.1 28.3 25.0 25.0

Employee cost 1,033.6 1,115.5 1,181.9 1,248.1 Short term borrowing 504.4 492.4 475.0 450.0

Other expenses 2,713.1 2,820.3 3,065.7 3,281.2 Total Debt 545.5 520.8 500.0 475.0

Total expenditure 12,075.6 13,626.9 14,792.8 15,902.7 Deferred tax liabilities 400.6 424.7 450.0 475.0

EBITDA 2,986.4 3,197.6 3,675.1 4,227.3 Provision & Liabilities 156.9 148.7 162.4 176.2

EBITDAM (%) 19.8 19.0 19.9 21.0 Current Liabilities

Other income 262.4 220.6 242.2 264.0 Trade payables 1,922.8 2,160.0 2,340.2 2,492.8

Depreciation 334.8 360.5 442.3 525.1 Short term provisions 49.1 56.6 62.1 67.7

PBIT 2,914.1 3,057.8 3,474.9 3,966.1 Other current liabilities 1,266.9 1,646.6 1,846.8 2,013.0

Interest expenses 30.0 35.1 32.5 30.9 Total liabilities 12,321.2 13,695.2 15,471.6 17,454.6

PBT 2,884.1 3,022.7 3,442.4 3,935.3 Application of Assets

Tax 943.3 1,041.0 1,136.0 1,298.6 Net Block 3,110.3 3,405.0 4,162.6 4,837.5

Reported PAT 1,940.8 1,981.7 2,306.4 2,636.6 Current work in process 257.5 1,405.1 1,550.4 2,066.2

PATM (%) 12.9 11.8 12.5 13.1 Goodwill on consolidation 193.5 327.3 327.3 327.3

Share of Associate 49.6 45.8 45.8 45.8 Non current investment 1,300.7 1,084.0 1,084.0 1,084.0

PAT 1,990.4 2,027.5 2,352.2 2,682.4 Long term loans and advances 72.6 81.5 89.4 97.5

EPS 20.8 21.1 24.5 28.0 Other non-current assets 421.0 471.8 517.9 564.5
Source : Company; RBL Research Current Assets
Current investments 1,351.3 1,056.7 1,056.7 1,056.7
Inventories 2,626.9 2,658.3 2,889.1 3,116.0
Trade receivables 1,446.6 1,737.1 1,922.7 2,206.0
Cash & Bank 801.2 404.7 675.4 755.0
Short term loans and advances 17.9 12.8 14.1 15.3
Other current assets 721.7 1,051.0 1,181.9 1,328.6
Total assets 12,321.2 13,695.2 15,471.6 17,454.6
Source : Company; RBL Research

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 Company Update Paints and Varnishes Asian Paints Ltd.

Cash Flow statement - consolidated Key Financial ratios - consolidated

Particulars (cr) FY17 FY18 FY19E FY20E Particulars (cr) FY17 FY18 FY19E FY20E
Profit before tax 2,964.2 3,139.1 3,442.4 3,935.3 Per share Data
Add: Depreciation 338.8 360.5 442.3 525.1 EPS 20.2 20.7 24.0 27.5
Add: Interest cost 30.6 35.1 32.5 30.9 Book value per share Rs 79.3 87.7 102.0 119.1

Others (33.1) (39.5) (42.5) (45.9) Dividend per share 10.3 7.9 8.5 9.0

Operating profit before WC 3,055.5 3,273.8 3,684.8 4,325.4 Dividend Yield (%) 0.8 0.6 0.6 0.7
Changes in working capital (602.8) (79.7) (203.1) (374.5) Payout (%) 59.7 45.2 41.7 38.7

Direct taxes (925.4) (1,080.7) (1,161.3) (1,323.6) Profitability Ratios

Cash flow from operating 1,527.3 2,113.4 2,320.4 2,627.2 EBITDAM(%) 19.8 19.0 19.9 21.0

Net cash used in Investing PBTM (%) 19.1 18.0 18.6 19.5
NPM (%) 12.9 11.8 12.5 13.1
Purchase of fixed assets (684.1) (1,426.0) (1,200.0) (1,200.0)
RoCE (%) 32.5 31.8 31.4 31.1
Others 28.0 (173.3) (257.5) (254.1)
RoE (%) 25.5 23.6 23.6 23.1
Cash flow from investing (656.1) (1,599.3) (1,457.5) (1,454.1)
Efficiency Data
Cash flow from financing
Debt-Equity Ratio 0.1 0.1 0.1 0.0
Proceeds from equity shares - - - -
Interest Cover Ratio 88.4 80.9 99.5 119.9
Net proceeds from borrowings 226.7 (126.2) (20.8) (25.0)
Fixed Asset Ratio 9.7 5.2 4.9 4.5
Dividend (Incl dividend tax) (947.3) (1,217.8) (980.0) (1,037.7)
Debtors (Days) 35.1 37.7 38.0 40.0
Interest cost (35.7) (35.2) (32.5) (30.9)
Inventory (Days) 115.1 100.1 100.0 100.0
Cash flow from financing (756.3) (1,379.1) (1,033.3) (1,093.5)
Payable (Days) 84.3 81.4 81.0 80.0
Net cash Inflow/Outflow 114.9 (865.0) (170.3) 79.6
WC (Days) 65.9 56.5 57.0 60.0
Opening Cash 1,577.7 1,667.6 845.8 675.4
Valuation
Forex exchange gain/loss (25.0) 43.1 - -
P/E 63.0 61.7 53.0 46.3
Closing Cash 1,667.6 845.8 675.4 755.0
Source : Company; RBL Research P/BV 16.1 14.5 12.5 10.7
EV/EBIDTA 40.8 38.3 33.2 28.8
EV/Sales 8.1 7.3 6.6 6.1
Source : Company; RBL Research

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Company Update Paints and Varnishes Asian Paints Ltd.

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