22 January 2013
3QFY13 Results Update |
Sector: Consumer-Paints
Asian Paints
BSE Sensex
S&P CNX
20,102
6,082
Bloomberg
APNT IN
Equity Shares (m)
95.9
M.Cap. (INR b)/(USD b) 412.1/7.6
52-Week Range (INR) 4,494/2,764
1,6,12 Rel. Perf. (%)
-6/0/38
CMP: INR4,296
TP: INR5,000
Buy
Financials & Valuation (INR b)
Y/E March
Sales
EBITDA
Adj. PAT
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
35.5
12.3
22.5
1.4
29.1
10.1
18.3
1.6
23.7
8.2
14.9
1.9
2013E 2014E 2015E
111.2
18.0
11.6
17.4
349.7
34.6
46.5
41.3
130.8
22.1
14.1
147.5
21.8
427.0
34.5
46.4
40.7
155.0
26.8
17.4
181.3
22.9
526.4
34.4
45.8
38.6
Adj. EPS (INR) 121.1
3QFY13 results better than expected:
Asian Paints (APNT) has posted better
than expected results for 3QFY13. Consolidated PAT grew 30.5% YoY to
INR3.35b (v/s our estimate of INR3.15b). Revenue grew 18.7% YoY, 1.5% ahead
of our estimate. Consolidated EBITDA margin expanded 80bp YoY to 16.3%
(v/s our estimate of 16.7%), with gross margin expanding 90bp YoY.
Standalone sales up 20% YoY:
Standalone (Decorative Paints) sales grew 20%
YoY to INR25.2b. Gross margin expanded 90bp YoY and EBITDA margin
expanded 50bp YoY to 17.4%. We expect APNT's domestic Decorative Paints
volumes to have grown ~13% YoY, beating both consensus as well as our
estimates. This was driven by strong festive season sales. Our channel checks
suggest that paints demand remains healthy even in 4Q.
International and industrial subsidiary/JV sales up 13% YoY:
International
and industrial subsidiary/JV sales (imputed as the difference between
consolidated and standalone entities) were up ~13% YoY. Operating margin
expanded 200bp to 11%, as business in Middle East and Asia continued to
outperform other international subsidiaries.
Revising estimates, stock recommendation upwards:
We raise our earnings
estimates by 2% for FY14 and ~5% for FY15 to incorporate higher than
estimated growth in volumes and other income, and improving gross margin
trend. We like APNT's distribution, brand and thought leadership in the Indian
Paints segment, which is expected to cross INR500b in size in the next three
years, driven by rising incomes, growing urbanization, and consequently,
rising number of nuclear families. We upgrade APNT to Buy, with a revised
target price of INR5,000 (27x FY15E EPS). Spike in input costs and slowdown
in discretionary demand are our key concerns.
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +9122 3982 5404
Sreekanth P V S
(Sreekanth.P@MotilalOswal.com); +9122 3029 5120
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Asian Paints
Consolidated sales up 18.7%; subsidiaries sales up 13%
Consol net sales - marginally above estimates at 18.7% YoY growth and came in at
INR 30.3b (est INR 29.9b).
Gross margin expanded 90bp yoy to 40.3% on account of softening in TiO2 prices.
APNT has recently implemented a marginal 0.2% price cut to pass on the input
cost benefits to consumers.
RM index for the quarter has declined from 102.56 from 107.71 in 2QFY13 (FY12 as
base = 100)
EBITDA margins expanded 80bp YoY and came in marginally lower to estimates at
16.3% (est 16.7%). As a result EBITDA increased by ~25% to INR 4.94b vs. est INR
4.97b.
We expect operating margins to improve further hereon as input cost (Tio2) has
stabilized at the lower levels and rupee has appreciated marginally from the lows.
Other income went up 93% to INR467mn and tax rate declined 40bps YoY to 29.5%;
consequently Adj PAT grew by 30.5% to INR 3.35b. Rise in other income is due to
higher dividend income from the subsidiaries.
The construction work at the Khandala plant is progressing as per schedule. The
first phase of 3,00,000 KL per annum plant is expected to be on stream in Q413.
The plant can be further scaled upto 4,00,000 KL per annum
Gross margins and operating margins expand
Consol sales up 19% YoY
Source: Company, MOSL
Correction in TiO2 reflecting in gross margin expansion
Source: Company, MOSL
22 January 2013
2

Asian Paints
Stand-alone business: Domestic Decoratives volumes increase ~13%, gross
margins expand 90bp YoY
Standalone sales grew at 20 % at INR 25.23b. We estimate domestic decorative
Paints volume growth at ~13 % YoY on account of strong festive season.
Gross margin expanded 90bps yoy to 41.3%. APNT took last price hike in May
(3.2%). However, Ti02 prices have come off significantly from the peak levels.
EBITDA margins improved 50bp YoY to 17.4. EBITDA increased by ~23% to INR 4.38b.
PAT grew 25% as other income increased by 48% and tax rate came in higher by
70bp YoY at 30.6%.
Domestic Deco Paints sales up 20% led by ~13% volume growth Domestic decorative volumes up 13% YoY
Raw material index down by ~5% QoQ
Gross margins up 90bp YoY, while operating margins up 50 bp
Source: Company, MOSL
International division + Industrial subs (imputed as difference between
Standalone and Consolidated)
International business plus Industrial JVs posted 13 % revenue growth led by
Middle East and Asia continue to outperform in international segment
EBITDA grew 38% as margins expanded 200 bps to 11%.
58% decline in interest costs and lower tax rate led to 3.6x jump in subsidiaries
PAT to INR232mn.
Industrial business continued to remain weak due to slowing Auto demand and
weak pick up in private capex.
22 January 2013
3

Asian Paints
Raise estimates by 2-5% for FY13-15E; upgrade to BUY with a TP of INR5,000
Our recent channel checks suggest continued healthy demand in Decoratives
segment post festive season.
Tio2 prices have stabilized at lower levels after correcting from the peak. This
gives good margin visibility for APNT which has recently taken 0.2% price cuts to
pass on the input cost benefits. Currency appreciation, though marginal for now,
also helps input costs at the margin.
We are revising our earnings estimates up by 2% for FY13E and ~5% for FY14E and
FY15E, respectively to incorporate better than estimated volume growth, other
income and improving gross margin trends.
We like APNT's distribution, brand and thought leadership in the Indian Paints
segment which is expected to cross INR500b size in next three years, driven by
rising incomes, growing urbanisation and consequently rising nuclear families.
Rising incomes is leading to shrinking of repainting cycle in Decorative paints,
thereby raising visibility on medium and long term Paints volume growth.
Correction in input cost i.e. Tio2 augurs well for medium term gross margins.
We upgrade Asian Paints to
Buy
with a revised a 12 month forward target price of
INR5,000 (P/E of 27x on FY15E EPS). Spike in input costs and slowdown in
discretionary demand are the key concerns.
22 January 2013
4

Asian Paints
Asian Paints: an investment profile
Company description
Asian Paints is India's largest paint manufacturer and
marketer, with a dominant share in the decoratives
segment. For the industrials and automotive segment,
it has a JV with PPG of the US. Asian Paints acquired
Berger International of Singapore to expand its
operations in other markets in Asia, the Middle East and
the Caribbean.
Recent developments
APNT reduced prices in few SKUs by 0.25% in 3QFY13.
APNT expects Khandala plant to be commissioned
in Q4FY13 with capacity of 300,000KL.
Valuation and view
We upgrade Asian Paints to
Buy
with a revised a 12
month forward target price of INR5,000 (P/E of 27x
on FY15E EPS).
Spike in input costs and slowdown in discretionary
demand are the key concerns.
Key investment arguments
Expansion in housing and construction will drive
demand for decorative paints over the next 3-5 years.
International operations, which have turned around,
will contribute to the company's earnings.
Sector view
We are positive on the long term demand potential
in the sector. Near term concerns notwithstanding,
Asian Paints has displayed strong resilience in
volume growth.
Longer term prospects bright, given rising incomes
and low penetration.
Key investment risks
High spread and geographical diversification
increases risk of execution.
Other players in the decorative segment are
Comparative valuations
P/E (x)
EV/EBITDA (x)
EV/Sales (x)
P/BV (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
Asian Paints
35.5
29.1
22.5
18.3
3.6
3.1
12.3
10.1
ITC
31.5
24.4
19.0
15.6
7.0
5.9
9.7
8.2
HUVR
34.4
29.6
25.6
21.8
4.1
3.6
23.9
18.4
EPS: MOST forecast v/s consensus (INR)
MOSL
Forecast
121.1
147.5
FY13
FY14
Consensus
Forecast
120.4
146.1
Variation
(%)
0.6
0.9
Target price and recommendation
Current
Price (INR)
4,296
Target
Price (INR)
5,000
Upside
(%)
16.4
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Dec-12
Promoter
Domestic Inst
Foreign
Others
52.8
8.6
20.1
18.5
Sep-12
52.8
8.8
19.6
18.8
Dec-11
52.8
8.6
19.5
19.0
22 January 2013
5

Asian Paints
Financials and Valuation
22 January 2013
6

Asian Paints
N O T E S
22 January 2013
7

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Asian Paints
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