10 May 2013
4QFY13 Results Update |
Sector: Consumer-Paints
Asian Paints
BSE Sensex
S&P CNX
19,939
6,050
Bloomberg
APNT IN
Equity Shares (m)
95.9
M.Cap. (INR b)/(USD b) 448.3/8.3
52-Week Range (INR) 5,047/3,448
1,6,12 Rel. Perf. (%)
-6/7/5
CMP: INR4,674
TP: INR4,300
Neutral
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 (%)
40.3
13.4
26.5
1.3
35.6
11.4
22.2
1.5
29.4
9.6
18.8
1.8
2013 2014E 2015E
109.1
16.7
11.1
12.7
348.9
33.3
44.2
41.6
125.0
19.9
12.6
131.3
13.1
410.0
32.0
43.9
45.7
143.7
23.2
15.2
158.9
21.0
487.1
32.6
43.3
44.0
Adj. EPS (INR) 116.1
Asian Paints' (APNT) results were below estimates, with consolidated Adj
PAT at INR2.51b, down 3% YoY (est INR2.9b). Consolidated net sales growth
was below estimate at 6.9% at INR27.13b (est INR29.3b). EBITDA margin
declined 100bp at 13.8% (est 16.3%).
Volume growth was well below estimate (est of 8%), driven by weak
discretionary consumption environment, as per management.
Gross margin expanded 270bp YoY to 42.8% on account of softening Titanium
dioxide (TiO2) prices. RM index for the quarter declined to 101.76 from 106.67
in 4QFY13 (FY12 as base = 100). RM price trends are expected to remain
favorable in FY14, as per management.
EBITDA margin contracted 100bp YoY and was lower-than-estimated at 13.8%
(est 16.3%) on account of steep increase in other expenditure (320bp) and
employee costs (60bp). Thus, EBITDA remained flat at INR3.7b (est INR4.7b).
International division posted strong 23% YoY. EBIT margin rose 40bp YoY to
9.6% in International division for FY13.
We lower estimates by 10-14% for FY14E and FY15E on lower volume growth
and increase in other expenses to factor higher inflation in power, fuel and
transportation costs.
We recently downgraded APNT's rating to Neutral (refer our note dated April
2, 2013 - "Valuations at peak; downgrade to Neutral") citing downside risks
to volume growth, reflection of Tio2 price correction benefits in the price
and lifetime high valuations. While long term paints opportunity remains
intact, we believe current valuations at 35.6x FY14E and 29.4x FY15E discounts
the positives more than adequately and leave little room for an upside. We
maintain a
Neutral
rating with a revised target price of INR4,300 (27x FY15E).
Improvement in discretionary consumption environment, with continued
benign RM prices are key upside risks to our rating.
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 7%; decorative volumes flat; FY14 volumes will likely
remain weak
Consol net sales - below estimates at 7% YoY growth and came in at INR 27.1b (est
INR 29.3b). We estimate domestic decorative paints volume growth at ~2%. Price
hikes for FY13 stood at 5%.
Volume growth came in well below estimates (est 8%) attributable to the prevalent
weak discretionary consumption environment as per management. In the analyst
meet, management mentioned about the challenge to the Paints volume growth
and possible break-down of historical "paints volume growth = 2x GDP growth"
equation.
Gross margin expanded 270bp yoy to 42.8% on account of softening in TiO2 prices.
RM index for the quarter has declined to 101.76 from 106.67 in 4QFY13 (FY12 as
base = 100). RM price trends are expected to remain favorable in FY14 as per
management.
EBITDA margins contracted 100bp YoY and came in lower than estimated at 13.8%
(est 16.3%) on account of steep increase in other expenditure (320bp) and
employee costs (up 60bp).
As a result, EBITDA remained flat at INR 3.7b (est INR 4.7b).
Steep rise in other income is driven by inflation in power, fuel and freight costs.
This necessitated price hike of 1.2% in May'13 despite favorable RM environment,
as per management.
Other income went up 23% to INR577mn and tax rate increased 200bp YoY to
31.3%; consequently Adj PAT declined 3.2% to INR 2.5b.
Khandala plant with a capacity of 3lakh litres was commissioned during the quarter.
Total installed capacity now stands at 944k KL.
Consolidated operating margins down 100bp
Sales 7% below estimates
Source: Company, MOSL
Sharp correction in Ti02 prices aid gross margin expansion
Source: Company, MOSL
10 May 2013
2

Asian Paints
Stand-alone business: Domestic Decoratives volumes increase ~3%, gross
margins expand 300bp YoY
Standalone sales grew at 7.2 % at INR 22.16b. We estimate domestic decorative
Paints volume growth at ~3 % YoY.
Gross margin expanded 300bps yoy to 43.3% as Ti02 prices have come off
significantly from the peak levels.
EBITDA margins contracted 60bp YoY to 15.3% as other expenditure increased
300bp and staff cost was up 60bp. EBITDA increased by ~3% to INR 3.38b.
200bp increase in tax rate to 31.7% led to a PAT decline of 2% to INR2.3b.
Standalone sales up 7%
Decorative volumes posted an estimated ~2% growth
Sharp increase in other expenses negate gross margin savings RM index turns favorable
Source: Company, MOSL
International division posts strong performance in 2HFY13; aided by
currency depreciation
International business plus Industrial JVs posted 5.4 % revenue growth led by
Middle East, South Pacific and Asia continue to outperform in international
segment.
However, due to steep increase in employee costs (up 50bp) and other expenditure
(up 400bp) EBITDA margins declined 280bps YoY to 7.1%.
International division posted strong 23% YoY revenue growth for the year led by
currency depreciation benefits which added 10% to the growth.
EBIT margins went up 40bp YoY to 9.6% in international division for FY13.Except
Middle East, all other regions posted margin expansion. We note that 2HFY13
international ebit margins improved a sharper 160bp to 9.8%.
Industrial business continued to remain weak due to slowing Auto demand and
weak pick up in private capex. Auto coatings performance was impacted owing to
slowdown in Auto sales.
3
10 May 2013

Asian Paints
Financial highlights
FY13
Revenue (INR m)
Carribbean
Middle East
Asia
South Pacific
Total
EBIT (INR m)
Carribbean
Middle East
Asia
South Pacific
Total
EBIT (%)
Carribbean
Middle East
Asia
South Pacific
EBIT Margin
1,972
7,267
3,800
1,134
14,173
112
739
356
154
1,361
5.7
10.2
9.4
13.6
9.6
FY12 Chg (%) 2HFY13 2HFY12 Chg (%) 1HFY13 1HFY12 Chg (%)
1,718
5,784
3,147
906
11,555
76
615
246
122
1,059
4.4
10.6
7.8
13.5
9.2
14.8
25.6
20.7
25.2
22.7
47.4
20.2
44.7
26.2
28.5
1,067
3,448
1,986
588
7,089
89
316
202
88
695
8.3
9.2
10.2
15.0
9.8
1,002
2,882
1,670
493
6,047
51
283
98
64
496
5.1
9.8
5.9
13.0
8.2
6.5
19.6
18.9
19.3
17.2
74.5
11.7
106.1
37.5
40.1
905
3,819
1,814
546
7,084
23
423
154
66
666
716
2,902
1,477
413
5,508
25
332
148
58
563
26.4
31.6
22.8
32.2
28.6
-8.0
27.4
4.1
13.8
18.3
2.5
3.5
11.1
11.4
8.5
10.0
12.1
14.0
9.4
10.2
Source: Company, MOSL
FY13 highlights
Consol sales up ~13.6%, Gross margins up 130 bp YoY, EBITDA margins flat at 15.3%
and Adj. PAT growth at 12.7% to INR6.01b
Standalone sales up ~12.6%, Gross margins up 170bp YoY, EBITDA margins up 20 bp
YoY to 16.8%, Adj Pat growth at ~10% to INR 10.85b
Cutting estimates 10-14%; maintain NEUTRAL with a revised TP of INR4,300
We are cutting our estimates by 10-14% for FY14E and FY15E as we lower our
volume growth assumptions and increase other expenses.
Our recent channel checks with Akzo and industry participant suggests continued
challenges for decorative volume growth in FY14.
We had recently downgraded APNT to Neutral (refer our note dated 2nd April
2013) citing downside risks to volume growth, reflection of Tio2 price correction
benefits in the price and lifetime high valuations.
Long term attractive Paints opportunity underpinned by rising incomes and
urbanization remains intact. Given its strong first mover advantage and trade
dominance, we believe APNT is well place to capitalize the Paints opportunity.
However, we believe current valuations at 35.6x FY14E and 29.4x FY15E discounts
the positives more than adequately and leaves little room for error. Thus, we
maintain
Neutral
with a revised TP of INR4,300 (27x FY15E).
Improvement in discretionary consumption environment with continued benign
RM prices are key upside risks to our rating.
Old
New
FY15E
154,973
26,800
17,694
FY14E
124,993
19,901
12,594
FY15E
143,740
23,219
15,245
Change (%)
FY14E
FY15E
-4.4
-7.2
-10.1
-13.4
-10.8
-13.8
Source: MOSL
4
Revised estimates
FY14E
130,786
22,147
14,115
Sales
EBITDA
PAT
10 May 2013

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 entered into an agreement with the promoters
of Sleek Group for acquiring a 51% stake in the Sleek
Group.
Khandala plant commissioned in 4QFY13 with
capacity of 300,000KL.
Valuation and view
We believe current valuations at 35.6x FY14E and
29.4x FY15E discounts the positives more than
adequately and leaves little room for error. Thus,
we maintain
Neutral
with a revised TP of INR4,300
(27x FY15E).
Improvement in discretionary consumption
environment with continued benign RM prices are
key upside risks to our rating.
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.
Key investment risks
High spread and geographical diversification
increases risk of execution.
Other players in the decorative segment are
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.
Comparative valuations
P/E (x)
EV/EBITDA (x)
EV/Sales (x)
P/BV (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
Asian Paints
35.6
29.4
22.2
18.8
3.5
3.0
11.4
9.6
ITC
30.1
25.3
11.2
16.3
7.0
6.0
11.2
10.1
HUVR
35.1
32.0
25.7
22.1
4.1
3.6
21.6
18.4
EPS: MOST forecast v/s consensus (INR)
MOSL
Forecast
131.3
158.9
Consensus
Forecast
146.6
177.0
Variation
(%)
-10.4
-10.2
FY14
FY15
Target price and recommendation
Current
Price (INR)
4,674
Target
Price (INR)
4,300
Upside
(%)
-8.0
Reco.
Neutral
Stock performance (1 year)
Shareholding pattern (%)
Mar-13
Promoter
Domestic Inst
Foreign
Others
10 May 2013
52.8
7.9
20.9
18.4
Dec-12
52.8
8.6
20.1
18.5
Mar-12
52.8
8.8
19.5
18.9
5

Asian Paints
Financials and Valuation
10 May 2013
6

Asian Paints
N O T E S
10 May 2013
7

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Asian Paints
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