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7/27/2019 3102_ N_051 Mohini Gupta_ Asian Paints
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Har ghar kuch kehta hain....
Asian
Paints Ltd.
Fundamental
Analysis
Mohini Gupta
N-051
MBA (PT) 3rd
Year 1st
Semester
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THE INDIAN PAINT INDUSTRY
The Indian Paint industry, estimated to be Rs.21, 000 Cr. industry, has been growing at
a rate of above 15% for the past few years. The organized players of the industry cater
to about 65% of the overall demand, whereas the unorganized players take care of the
remaining 35%, in value terms. The unorganized players mainly dominate the distemper
segment.
The industry consists of two segments, namely
Decorative segment -Major segments in decorative include exterior wall paints,
interior wall paints, wood finishes and enamel and ancillary products such as
primers, putties etc. Decorative paints account for over 77.3% of the overall paint
market in India. Asian Paints is the market leader in this segment. Demand for
decorative paints arises from household painting, architectural and other display
purposes. Demand in the festive season (September-December) is significant, as
compared to other periods. This segment is price sensitive and is a higher margin
business as compared to industrial segment.
Industrial segment - Three main segments of the industrial sector include
automotive coatings, powder coatings and protective coatings. Kansai Nerolac is
the market leader in this segment. User industries for industrial paints include
automobiles engineering and consumer durables. The industrial paints segment is
far more technology intensive than the decorative segment. consists of powder
coatings,
In the domestic market,
Decorative segment accounts
for 70% of the total demand for
paints whereas the industrialsegment accounts for the
remaining 30%. Globally, the
demand for paints is almost
equally distributed, where both
the segments account for close
to 50% of demand. The paints
sector is raw material intensive,
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with over 300 raw materials (50% petro-based derivatives) involved in the
manufacturing process. Since most of the raw materials are petroleum based, the
industry benefits from softening crude prices.
CURRENT SCENARIO
The paint industry is expected to grow at 12-13% annually over the next five years.
FY12 was a challenging year for the industry as a whole due to subdued demand across
key sectors and rising inflation. The unorganised sector controls around 35% of the paint
market, with the organised sector accounting for the balance. In the unorganised
segment, there are about 2,000 units having small and medium sized paint
manufacturing plants. Top organised players include Asian Paints, Kansai Nerolac, Berger
Paints and ICI.
Financial Year 2012 was a mixed bag for the paint companies. While all the 3 players viz.
Asian Paints, Kansai Nerolac and Berger Paints reported strong growth in sales,
operating margins came under severe pressure due to raw material price inflation. Top-
line growth was boosted by strong demand from the rural markets. Nonetheless, the
demand environment in the industrial segment continues to remain challenging due to
hawkish interest rate environment.
Performance on the margins front was a big disappointment. Rising prices of crude oil
and titanium dioxide increased the overall expenditure thereby impacting profitability
growth. However, companies are undertaking a gradual and calibrated price increase to
shield margins. Nonetheless, as a complete pass on of raw material price increase is not
possible in the industrial segment, the blended margins continue to suffer.
All the key players are in an expansion phase. Asian Paints’ plant in Khandala,
Maharashtra is under construction and is expected to be commissioned by 4QFY13.
Kansai Nerolac’s capacity expansion plans at Jainpur and Bawal culminated during the
year. Berger Paints has also undertaken capacity expansion for its plants located in
Andhra Pradesh (AP). The first phase of the project in AP is expected to be completed in
the middle of 2013. Further, expansion of water based plant at Rishra and Goa is also on
track.
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FUTURE SCENARIO
The market for paints in India is expected to grow at 1.5 times to 2 times GDP in the
next five years. With GDP growth expected to be between 5-6% levels, the top three
players are likely to clock above industry growth rates in the future, considering they
have a strong brand and good reach.
Decorative paints segment is expected to witness higher growth going forward. The fiscal
incentives given by the government to the housing sector have benefited the housing
sector immensely. This will benefit key players in the long term.
Although the demand for industrial paints is lukewarm it is expected to increase going
forward. This is on account of increasing investments in infrastructure. Domestic and
global auto majors have long term plans for the Indian market, which augur well for
automotive paint manufacturers like Kansai Nerolac and Asian-PPG. Increased industrial
paint demand, especially powder coatings and high performance coatings will also propel
topline growth of paint majors in the medium term.
PORTER’S FIVE FORCES
Threat of New Entrants: Relatively low
The paint industry in India is dominated by
few players with well developed brand loyalty,
distribution network, technology and efficient
working capital playing an important part in
discouraging any new entry into the industry.
Bargaining powers of buyers: Medium
The two main buyers for this Industry are the
households who are more price sensitive
because of the number of options available to them and the other buyer being the
Industrial segment where the revenue margin is relatively low.
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Bargaining power of suppliers: Moderately High
The Indian Paint industry is raw material intensive industry with more than 300 products
going into the manufacturing of the final products. The raw material can be divided into
different categories like pigments, additives, solvents, binders etc. Titanium Dioxide is
one of the key pigment used in the production of paint and is facing a global supply
shortage. Thus supplier of this material has solid bargaining power.
Threat of Substitutes: Low to Medium
The availability of substitute of very minimal. In the rural areas lime wash is
conventionally used substitute for paints. One alternative option for decorative walls
available today is Wallpaper.
Rivalry among competitors: Low to Medium
Four top players of the Industry have about 80% of the market share of the organised
market. The current market growth rate also provides for an ample opportunity for all
the players in the market to grow but with saturation of the market, competition may
also increase. Unorganised market also provides some boost to the overall competition.
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ASIAN PAINTS
Company Profile
The company was incorporated in 1942, as a partnership firm by four friends.
Chimanlal Choksi, Champaklal Choksey, Suryakant Dani and Arvind Vakil were
the four friends who started the company and had the willingness and courage to take
on the world’s biggest paint companies operating in India at that time. Suryakant Dani
had a garage having a monthly rent of Rs.75.00 where he did paint work for various
vehicles and it is this garage where Asian Paints started its operations. The name that
was initially given to the company was ‘The Asian Oil & Paint Company’.
Over the course of 25 years Asian
Paints became a corporate force and
India's leading paints company.
Driven by its strong consumer-focus
and innovative spirit, the company
has been the market leader in
paints since 1968, making it over
four decades of leadership. Today it
is double the size of any other paintcompany in India. Asian Paints
manufactures a wide range of paints
for Decorative and Industrial use.
It is now India’s largest paint company and third largest paint company in Asia with a
gross revenue of over USD 2 Billion in FY 2012. It is currently operating in over 17
countries with 23 paint manufacturing facilities. It has manufacturing facilities in each of
these countries and is the largest paint company in ten overseas markets.
Asian Paints operates in five regions across the
world viz. South Asia, Southeast Asia, South
Pacific, Middle East and Caribbean region
through the five corporate brands viz. Asian
Paints, Berger International, SCIB Paints, Apco
Coatings and Taubmans. In ten markets, it
operates through its subsidiary, Berger
International Limited; in Egypt through SCIB
14%
8%
51%
27%
Sales
Caribbean
South Pacific
Middle East
Asia
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Paints; in five markets in the South Pacific it operates through Apco Coatings and
in Fiji and Samoa it also operates through Taubmans.
Awards & Recognition
Asian Paints was included in Forbes Magazine's - Asia's Fab 50 List of companies
in 2011, 2012 and 2013.
Asian Paints was ranked 13th amongst the top paint companies in the world by
Coatings World - Top Companies Report 2013 (July 2013 Issue).
In March 2012, Asian Paints was presented the Asian Centre for Corporate
Governance & Sustainability Award for the Best Governed Company in2011.
Mr. P M Murty, the then MD & CEO, Asian Paints received the 'CEO of the Year'
award from Business Standard, one of India's leading business dailies (March
2011).
Asian Paints receives the Best Audit Committee Award from the Asian Centre
for Corporate Governance & Sustainability (Feb 2011)
Awarded the "Sword of Honour" by the British Safety Council for all the paint
plants in India. This award is considered as the pinnacle of achievement in safety
across the world.
Forbes Global Magazine, USA ranked Asian Paints amongst the 200 'Best Small
Companies of the world' in 2002 and 2003 and amongst the top 200 'Under a
Billion Firms' of Asia in 2005.
The Asset - one of Asia's leading financial magazines ranked Asian Paints
amongst the leading Indian companies in Corporate Governance in 2002
and 2005.
Asian Paints received the Ernst & Young ‘Entrepreneur of the Year –
Manufacturing’ award in 2003.
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VISION STATEMENT
“Asian Paints aims to become one of the top five decorative coatingscompanies world-wide by leveraging its expertise in the higher growth emerging
markets. Simultaneously, the company intends to build long term value in the industrial
coatings business through alliances with established global partners.”
MISSION STATEMENT
“To provide paints as per market demand, ensuring desired level and
quality of customer service, continued availability of the right product mix of right quality
at the right time”.
PORTFOLIO OF PRODUCTS
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COMPETITORS
Source: - Moneycontrol.com
MARKET SHARE
37%
16%
14%
11%
6%
4%
12%
Market Share (Paint Manufacturing Industry)
Asian Paints
Nerolac
Berger Paints
ICI
Jenson & Nicholson
Shalimar
Others
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FINANCIAL PERFORMANCE (based on past Five Year Financial Data)
Net Revenue from Operations, EBITA
EBITA Margin (%)
2008-09 2009-10 2010-11 2011-12 2012-13
Net Rev 4,279 5,134 6,336 7,964 8,972
EBITA 619.00 1,154.00 1,232.00 1,493.00 1,673.00
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
14%
22%
19% 19% 19%
0%
5%
10%
15%
20%
25%
2008-09 2009-10 2010-11 2011-12 2012-13
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Profit before Tax & Profit after Tax
Net Cash Flow from Operations
546
1105 1122
13631516
362
775 775
9581050
0
200
400
600
800
1000
1200
1400
1600
2008-09 2009-10 2010-11 2011-12 2012-13
PBT PAT
500
1,1411,097
1,280
1,484
-
200
400
600
800
1,000
1,200
1,400
1,600
2008-09 2009-10 2010-11 2011-12 2012-13
R s . i n C
r o r e s
CF
Linear (CF)
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Average Capital Employed
Return on Capital Employed
1,0961,397
1,833
2,359
2,866
-
500
1,000
1,500
2,000
2,500
3,000
3,500
2008-09 2009-10 2010-11 2011-12 2012-13
Avg. Cap. Employed
2008-09 2009-10 2010-11 2011-12 2012-13
Series 1 51% 78% 62% 59% 54%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
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Dividend per share & Earnings per share
Dividend Payout Ratio
2008-09 2009-10 2010-11 2011-12 2012-13
DPS 18 27 32 40 46
EPS 38.4 78.1 80.8 99.9 109.5
P/E Ratio 18.95 19.82 28.82 31.41 42.32
0
20
40
60
80
100
120
I n R
s .
54%
39%
46% 47%49%
0%
10%
20%
30%
40%
50%
60%
2008-09 2009-10 2010-11 2011-12 2012-13
DP Ratio
DP Ratio
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The Company has maintained an average dividend yield of 1.09 % over the last 5financial years.
Net Fixed Assets
Asset Turnover Ratio
623707
1,057 1,009
2,102
-
500
1,000
1,500
2,000
2,500
2008-09 2009-10 2010-11 2011-12 2012-13
Net Fixed Assets
Net Fixed Assets
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2008-09 2009-10 2010-11 2011-12 2012-13
Asset Turnover Ratio
Asset Turnover Ratio
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Shareholding Pattern
Large promoter holding indicates conviction and sincerity of the promoters. Along with this, Large
institutional holding indicates the confidence of seasoned investors. At the same time, it can also
lead to high volatility in the stock price as institutions buy and sell larger stakes than retail
participants.
Yearly Chart (v/s Nifty)
Source:- Moneycontrol.com
53%
27%
20%
Shareholding Pattern
Promoters
Institutions
Non- Institutions
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Other Valuation Ratios
Company Industry Sector
P/E Ratio 40.94 16.64 15.21
P/E High – Last 5 Yrs 42.34 41.03 35.32
P/E Low – Last 5 Yrs 18.96 8.43 9.25
Price to Book Ratio 1.49 2.16 2.65
Price to Cash flow Ratio 33.97 10.69 10.61
Beta 0.61 1.14 1.09
Estimated PEG Ratio 1.6502
Price to Sale Ratio 3.96 1.03 2.84
5 Yrs Dividend Growth 40.09 20.70 22.74
5 Yrs EPS Growth 15.88 28.06 34.48Source: - in.reuters.com, Bloomberg.com
Future Opportunities and Prospects
Asian Paints as seen above is the leader of the Paint Industry having the largest market
share. It has over the course of years have established itself in the mind of the
consumers with its efficient marketing and advertising resulting in a high degree of
brand loyalty and a strong distribution network which is around twice as large as its
nearest competitors.
As we know the Indian Paint Industry is growing at an average rate of 15% p.a. over the
past few years with the Decorative Segment (75% of the paint industry) taking the lead
with Asian Paint as the market leader in this segment. Also the current per capita
consumption of paints in India is very low against that of developed countries, marking a
huge potential for growth.
The company is also focusing aggressively on the industrial paints segment where it iscurrently holding the 2nd position. The demand for industrial paints is expected to rise
with the growing demand from the automotive sector and construction sector.
The company is diversifying into kitchen components with the acquisitions of a 51%
stake in the Sleek Group. It is a major organized player in the modern kitchen space and
is engaged in manufacturing, selling and distributing kitchens and kitchen components
(including wire baskets, cabinets, appliances, accessories etc), with a pan-India
presence.
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Threats and Concerns
The Indian Paint Industry is a raw material intensive industry with over 300 materials
going into the making. Major raw materials are crude linked and titanium dioxide and
fluctuations of their prices directly affect the production cost. Exchange rate fluctuations
also affect the prices of the imported materials and generally the increase in prices of
raw materials is passed onto the customers.
Also, with the entry of well established foreign companies and increase in the amount
spent in advertising and marketing resulting in an increase in the competition in the
market which may ultimately result in lowering of profit margins.
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Bibliography
www.asianpaints.com
www.moneycontrol.com
in.reuters.com
Wikipedia.com Yahoo finance
www.bloomberg.com
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Annexures
BALANCE SHEET
Standalone Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '13 Mar '12 Mar '11 Mar '10 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 95.92 95.92 95.92 95.92 95.92
Equity Share Capital 95.92 95.92 95.92 95.92 95.92
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 2,926.34 2,391.86 1,879.40 1,461.30 998.55
Revaluation Reserves 0 0 0 0 0Networth 3,022.26 2,487.78 1,975.32 1,557.22 1,094.47
Secured Loans 9.28 17.01 23.43 25.59 24.59
Unsecured Loans 37.48 151.21 40.7 40.7 40.7
Total Debt 46.76 168.22 64.13 66.29 65.29
Total Liabilities 3,069.02 2,656.00 2,039.45 1,623.51 1,159.76
Mar '13 Mar '12 Mar '11 Mar '10 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Application of Funds
Gross Block 2,803.73 1,659.51 1,611.22 1,194.39 1,116.93
Less: Accum. Depreciation 701.84 650.47 554.03 486.93 494.02
Net Block 2,101.89 1,009.04 1,057.19 707.46 622.91
Capital Work in Progress 52.55 827.3 67.32 380.72 164.64
Investments 449.7 542.22 1,034.76 703.69 234.77
Inventories 1,480.79 1,264.42 1,071.76 763.14 546.71
Sundry Debtors 633.88 500.24 366.68 331.43 311.02
Cash and Bank Balance 566.86 450.94 20.28 28.58 128.05
Total Current Assets 2,681.53 2,215.60 1,458.72 1,123.15 985.78
Loans and Advances 362.61 361.22 270.88 241.68 186.37
Fixed Deposits 0 50.03 0.19 0.02 0.21
Total CA, Loans &
Advances
3,044.14 2,626.85 1,729.79 1,364.85 1,172.36
Deffered Credit 0 0 0 0 0
Current Liabilities 2,078.94 1,929.18 1,511.37 1,229.04 849.08
Provisions 500.32 420.23 338.24 304.17 185.84
Total CL & Provisions 2,579.26 2,349.41 1,849.61 1,533.21 1,034.92
Net Current Assets 464.88 277.44 -119.82 -168.36 137.44
Miscellaneous Expenses 0 0 0 0 0
Total Assets 3,069.02 2,656.00 2,039.45 1,623.51 1,159.76
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Contingent Liabilities 464.28 414.71 505.87 223.8 356.87
Book Value (Rs) 315.08 259.36 205.93 162.35 114.1
PROFIT AND LOSS ACCOUNT
Standalone Profit & Loss
account
------------------- in Rs. Cr. -------------------
Mar '13 Mar '12 Mar '11 Mar '10 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 8,971.70 9,139.39 7,244.59 5,794.09 5,042.40
Excise Duty 0 812.31 638.57 426.37 532.28
Net Sales 8,971.70 8,327.08 6,606.02 5,367.72 4,510.12
Other Income 126.15 90.43 72.38 150.61 23.86
Stock Adjustments 175.91 143.78 157.54 130.83 0.61
Total Income 9,273.76 8,561.29 6,835.94 5,649.16 4,534.59
Expenditure
Raw Materials 5,361.00 4,866.63 3,812.47 2,966.23 2,641.09
Power & Fuel Cost 101.65 74.29 65.98 47.03 45.78
Employee Cost 404.59 343.51 302.34 262.73 239.77
Other ManufacturingExpenses
0 77.05 61.46 52.3 40.45
Selling and Admin
Expenses
0 1,672.74 1,331.85 1,119.89 939.16
Miscellaneous Expenses 1,733.10 36.77 28.19 17.41 10.55
Preoperative Exp
Capitalised
0 0 0 0 0
Total Expenses 7,600.34 7,070.99 5,602.29 4,465.59 3,916.80
Operating Profit
1,547.27 1,399.87 1,161.27 1,032.96 593.93
PBDIT 1,673.42 1,490.30 1,233.65 1,183.57 617.79Interest 30.56 27.88 16.34 19.1 15.91
PBDT 1,642.86 1,462.42 1,217.31 1,164.47 601.88
Depreciation 126.98 99.49 94.48 60.74 57.15
Other Written Off 0 0 0 0 0
Profit Before Tax 1,515.88 1,362.93 1,122.83 1,103.73 544.73
Extra-ordinary items 0 2.38 4.22 7.23 3.6
PBT (Post Extra-ord Items) 1,515.88 1,365.31 1,127.05 1,110.96 548.33
Tax 465.88 406.92 351.9 336.46 185.97
Reported Net Profit 1,050.00 958.39 775.15 774.5 362.36
Total Value Addition 2,239.34 2,204.36 1,789.82 1,499.36 1,275.71
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Preference Dividend 0 0 0 0 0
Equity Dividend 441.23 383.69 306.94 258.98 167.86
Corporate Dividend Tax 74.29 62.24 50.11 43.33 28.53
Per share data (annualised)
Shares in issue (lakhs) 959.2 959.2 959.2 959.2 959.2
Earning Per Share (Rs) 109.47 99.92 80.81 80.74 37.78
Equity Dividend (%) 460 400 320 270 175
Book Value (Rs) 315.08 259.36 205.93 162.35 114.1
CASHFLOW STATEMENT
Cash Flow ------------------- in Rs. Cr. -------------------
Mar '13 Mar '12 Mar '11 Mar '10 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Net Profit Before Tax
1515.88 1362.93 1122.83 1104.81 547.88
Net Cash From Operating
Activities
1081.12 753.67 743.25 847.41 325.21
Net Cash (used in)/from
Investing Activities
-424.87 -464.87 -410.23 -241.81 -16.69
Net Cash (used in)/from
Financing Activities
-590.35 -297.06 -321.15 -237.99 -221.61
Net (decrease)/increase In
Cash and Cash Equivalents
65.9 -8.26 11.85 367.61 86.91
Opening Cash & Cash
Equivalents
500.97 509.23 495.55 127.94 41.35
Closing Cash & Cash
Equivalents
566.87 500.97 507.4 495.55 128.26