1

SYNOPSIS

• Asian Paints is India’s largest paint

company & Asia’s third largest paint

company, with a turnover of Rs 77.06

billion.

• During the quarter ended, the robust

growth of Net Sales is increased by

18.66% Rs. 2636.60 million.

• During the quarter, the Company

invested Rs 15 crores in AP Coatings

Ltd., Company’s owned subsidiary.

• Net Sales and PAT of the company

are expected to grow at a CAGR of

13% and 6% over 2010 to 2013E

respectively.

• Asian Paints is present in 22

countries with 27 manufacturing

locations, over 2500 SKU's,

Integrated SAP - ERP & i2 - SCM

solution.

• Asian Paints is the 10th largest

decorative paint company in the

world.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 77062.40 13956.00 8432.40 87.91 37.42

FY 12E 87851.14 15228.67 9243.44 96.37 34.14

FY 13E 96636.25 16751.53 10195.33 106.29 30.95

Stock Data:

Sector: Paints

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 3365.95/2366.00

Volume (2 wk. Avg.) 5505.00

BSE Code 500820

Market Cap (Rs in mn) 315576.80

Share Holding Pattern

1 Year Comparative Graph

ASIAN PAINTS BSE SENSEX

C.M.P: Rs. 3290.00 Target Price: Rs. 3717.00 Date: Sep. 05th 2011 BUY

Asian Paints Ltd Result Update: Q1 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Asian Paints Ltd 3290.00 315576.80 87.91 37.42 14.43 320.00

Kansai Nerolac Paints 820.00 4451.48 39.95 20.68 4.68 100.00

Berger Paints India Ltd 100.25 3469.38 4.39 22.84 4.81 65.00

Shalimar Paints Ltd 411.00 155.59 31.57 13.02 2.90 80.00

Investment Highlights

� Q1 FY12 Results Update

Asian Paints Ltd has posted net sales of Rs 22603.70 million for the quarter ended

on June 30, 2011 as against Rs 18302.20 million in the same quarter last year, an

increase of 23.50%. It has reported net profit of Rs 2636.60 million for the quarter

ended on June 30, 2011 as against Rs 2221.90 million in the same quarter last

year, a decline of 18.66%. Total income grew by 23.92% to Rs 22909.00 million

from Rs. 18486.30 million in the same quarter last year. During the quarter, it

reported earnings of Rs 27.49 a share.

Quarterly Results - Consolidated (Rs in mn)

As At June-11 June-10 %change

Net sales 22603.70 18302.20 23.50%

Net Profit 2636.60 2221.90 18.66%

Basic EPS 27.49 23.16 18.66%

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Break up of Expenditure

• Company plans to increase the installed capacity at Rohtak in Haryana

In April 2010, the state-of-the-art manufacturing facility at Rohtak in Haryana was

commissioned with an initial capacity of 150,000 Kilo Liters (KL) per annum.

Company plans to increase the installed capacity at this plant to 200,000 KL per

annum by fourth quarter of FY 2011-12.

• Construction commenced at Khandala near Pune (in Maharashtra) for the

seventh Decorative Paints plant

Construction work proposed for seventh decorative paint plant in Khandala,

Maharashtra with an initial capacity of 300,000 KL per annum of paints with an

investment of around 1000 crores. The plant will be commissioned sometime around

the last quarter of FY 2012-13. The Khandala plant can be expanded to 400,000 KL

per annum later.

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Company Profile

Asian Paints is India’s largest paint company and Asia’s third largest paint company,

with a turnover of Rs 77.06 billion. The group has an enviable reputation in the

corporate world for professionalism, fast track growth, and building shareholder

equity. Asian Paints operates in 22 countries and has 27 paint manufacturing

facilities in the world servicing consumers in over 65 countries. Besides Asian Paints,

the group operates around the world through its subsidiaries Berger International

Limited, Apco Coatings, SCIB Paints and Taubmans.

Global Presence

• Caribbean- Barbados, Jamaica, Trinidad & Tobago

• Middle East - Egypt, Oman, Bahrain & UAE

• Asia – India, Bangladesh, Nepal, Sri Lanka & Singapore

• South Pacific - Fiji, Solomon Islands, Samoa, Tonga & Vanuatu

Subsidiaries

Directly held subsidiaries of the company are:

• APCO Coatings

• Asian Paints Industrial Coatings Limited

• Berger International Ltd

• SCIB paints

• Asian PPG Industries Ltd (JV)

• Taubmans Paints

Business Segments Company business is divided mainly into two segments. They are:

• Paints Segment

• Chemicals Segment

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1) Paints Segment

This is the primary business of the company. Out of the total revenue earned by

the group 9% is generated from this segment. This segment is divided into two.

• Decorative Paints:

Decorative Paints business contributes around 94% in the total paint business.

The company ranks no. 1, in the country in this segment with around 8500 colors

to offer to its customers. It has 5 manufacturing plants operating all over the

country, which is strategically located in-order to cater to the widely spread,

market.

In Decorative paint segment, the Company operates in four main segments i.e.

interior wall finish, Exterior wall finish, Enamels and Wood Finishes. Besides, the

company outsources around 25-30% of its total production. Decorative paints

segment constitute around 72% of the paint market in India.

Segments

Paints

Decorative Paints

Interior Wall

Finish

Exterior Wall Finish

Enamels

Wood

Finishes

Industrial Paints

Industrial Paints

Powder Coating

Other Industrial

Paints

Chemicals

Phthatic Anhydride

Penraerythritol

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• Industrial Paint Segment:

In this business, the company caters to automotive, powder, protective coatings,

road markings segment, floor coatings and General Industrial Paints. Most of the

industrial paints business is operated by two companies’ viz. Asian PPG Ltd. and

Asian Paints Industrial Coating Ltd. The company ranks first in the automotive

paints business in domestic market. The company ranks second in protective

segment and first in the road-marking segment. Recently it has entered in floor

coating segment.

2) Chemicals Segment

Chemical business includes manufacturing of Phthalic Anhydride (PAN) and

Penraerythritol (PENTA). APL has its PAN manufacturing plant at Gujarat (capacity

– 25,200 MT) and PENTA manufacturing facility at Tamil Nadu (capacity – 3000

MT). The company consumes nearly 50% of its production as captive consumption

and sells the remaining in the open market. This business contributes around 3%

to company’s consolidated revenues.

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Financial Results

12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 66809.40 77062.40 87851.14 96636.25

Other Income 1405.00 826.30 908.93 999.82

Total Income 68214.40 77888.70 88760.07 97636.07

Expenditure -54533.20 -63932.70 -73531.40 -80884.54

Operating Profit 13681.20 13956.00 15228.67 16751.53

Interest -284.70 -222.30 -253.42 -283.83

Gross profit 13396.50 13733.70 14975.24 16467.70

Depreciation -835.60 -1131.30 -1244.43 -1368.87

Exceptional Items 9.30 0.00 0.00 0.00

Profit Before Tax 12570.20 12602.40 13730.81 15098.83

Tax -3731.10 -3788.90 -4098.65 -4507.00

Profit After Tax 8839.10 8813.50 9632.17 10591.83

Extraordinary Items 0.00 0.00 0.00 0.00

Minority Interest -482.70 -381.10 -388.72 -396.50

Net Profit 8356.40 8432.40 9243.44 10195.33

Equity capital 959.20 959.20 959.20 959.20

Reserves 16140.60 20915.00 30547.17 41138.99

Face value 10.00 10.00 10.00 10.00

EPS 87.12 87.91 96.37 106.29

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Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) 31-Dec-10 31-Mar-11 30-Jun-11 30-Sep-11E

Description 3m 3m 3m 3m

Net sales 20996.00 19656.30 22603.70 24864.07

Other income 193.70 199.60 305.30 338.88

Total Income 21189.70 19855.90 22909.00 25202.95

Expenditure -17546.90 -16761.90 -18682.00 -20587.45

Operating profit 3642.80 3094.00 4227.00 4615.50

Interest -58.50 -76.00 -65.10 -70.96

Gross profit 3584.30 3018.00 4161.90 4544.54

Depreciation -286.40 -291.60 -291.10 -299.83

Exceptional Items 0.00 0.00 0.00 0.00

Profit Before Tax 3297.90 2726.40 3870.80 4244.71

Tax -974.20 -817.70 -1154.90 -1273.41

Profit After Tax 2323.70 1908.70 2715.90 2971.30

Extraordinary Items 0.00 0.00 0.00 0.00

Minority Interest -120.40 -48.50 -79.30 -81.68

Net Profit 2203.30 1860.20 2636.60 2889.62

Equity capital 959.20 959.20 959.2 959.2

Face value 10.00 10.00 10.00 10.00

EPS 22.97 19.39 27.49 30.13

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. Of Shares(in mn) 95.92 95.92 95.92 95.92

EBITDA Margin (%) 20.48% 18.11% 17.33% 17.33%

PBT Margin (%) 18.82% 16.35% 15.63% 15.62%

PAT Margin (%) 13.23% 11.44% 10.96% 10.96%

P/E Ratio (x) 37.76 37.42 34.14 30.95

ROE (%) 51.69% 40.29% 30.57% 25.16%

ROCE (%) 74.86% 62.29% 48.49% 40.55%

Debt Equity Ratio 0.13 0.11 0.08 0.06

EV/EBITDA (x) 23.07 22.61 20.72 18.84

Book Value (Rs.) 178.27 228.05 328.47 438.89

P/BV 18.45 14.43 10.02 7.50

Charts:

Net Sales & PAT

10

P/E Ratio(x)

Debt Equity Ratio

11

EV/EBITDA(x)

P/BV

12

Outlook and Conclusion

At the current market price of Rs.3290.00, the stock is trading at 34.14 x

FY12E and 30.95 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.96.37 and Rs.106.29 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 13% and

6% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 20.72 x for FY12E and 18.84 x

for FY13E.

Price to Book Value of the stock is expected to be at 10.02 x and 7.50 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.3717.00 for Medium to Long term investment.

Industry Overview

Paint is defined as the group of emulsions, consisting of pigments suspended in a

liquid medium, for use as decorative or protective coatings. “Paint” ranges from the

broad group of environmentally-sound latex paints used to decorate and protect

homes and the translucent coatings that line the interior of food containers, to the

chemically-complex, multi-component finishes that automobile manufacturers apply

on the assembly line.

Paint industry is going through a colorful & happy time with demand rising sharply.

Growth in housing, automobiles and construction are all driving the rise in current

consumption.

Decorative paints cater to the housing sector; industrial paints cater to automobile

original equipment manufacturers (OEMs), industries and railways.

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Paint demand can also be categorized into new or refinish/refurbishment demand.

Fresh demand depends on the construction, housing and auto sectors, while

refinish/refurbishment demand is directly related to the disposable incomes and

higher aspirations of consumers i.e. both the ability as well as the willingness to

spend.

A boom in the Indian housing sector, increasing urbanization, easy availability of

housing loans and a shift from semi-permanent to permanent housing structures have

been driving growth in the decorative paints segment, which accounts for nearly 65-

70% of the Indian paint industry. There is seasonality involved in the demand for

decorative paints. Consumption peaks around festive time.

Market Structure

The paint industry volume in India has been consistently growing at more than 15%

per annum for some years now. The strong growth was supported by a favourable

monsoon and good industrial growth especially in the automotive sector. Growth in

turnover was significantly higher than the volume growth as large price increases had

to be affected during the year.

In International Business, political turmoil in Egypt and Bahrain impacted business

conditions in these countries during the last quarter of the year. While South Asian

markets fared relatively better, the impact of economic slowdown persisted in some of

the other international markets where your Company operates.

Indian Paints Industry can be classified into two sub-segments:

• Decorative Paints

• Industrial Paints

The paint industry is divided into organized and unorganized sector. The unorganized

segment plays a huge role in decorative paint segment due to low technical know-how

and highly scattered market. The organized segment constitutes around 54% of the

14

total volume and 65% of value of paints industry. Again the whole paints industry can

be classified into decorative (75% of total industry size) and industrial paints (25% of

total industry size). Further, in organized segment, the top 6 players account for

around 84% by volume and 63% by value. The remaining players in organized

business are largely present in non-auto industrial segment, and the unorganized

players are mainly operational in decorative paints segment as industrial paints

requires high technological know how and client tie-ups.

Decorative paint (including interior and exterior wall finishes, enamels, wood finishes

and ancillary products) constitutes around 72% of the paint market in India. 2010-11

was a good year for the paint industry.

Sharp increase in raw material prices was one of the key concerns identified by

Company for FY 2010-11 and as expected, it posed significant challenges throughout

the year. The recovery of the global economy leading to a revival of demand especially

in countries like India, China and the U.S., coupled with the rise in crude prices and

shortage of key raw materials has led to a steady increase in prices across all

categories of raw materials. In India, factors like power shortages, increase in labour

and transportation cost also contributed to the inflation. The overall impact of

inflation during the year was in excess of 13%. This was countered through price

increases at regular intervals (five in all totaling over 12% for the year). Fortunately,

this substantial increase in prices did not affect demand which continued to be

robust. Margins, however, were under severe pressure during the year and continue to

be a concern going forward

Conclusion With the revival of the construction boom post recession also the resurgence of the

automotive and consumer durable industries, the Indian paint industry is heading for

an exciting phase of growth and profitability. Demand in case of industrial segment is

also expected to increase going forward. 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,

15

especially powder coatings and high performance coatings will also propel topline

growth of paint majors in the medium term. A better focus on supply chain or

distribution mechanism backed by aggressive promotion will drive the fortunes of the

Indian paint industry like never before over the years to come.

______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

16

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