27 July 2016
Results Update | Sector: Consumer
Asian Paints
Neutral
BSE SENSEX
28,024
S&P CNX
8,615
CMP: INR1,062 TP: INR970(-9%)
Healthy growth, stellar margin performance
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the Asiamoney Brokers Poll 2016 for
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Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
APNT IN
959.2
1018.5 / 15.6
1080 / 779
1/9/23
1040
47.2
Financials & Valuations (INR b)
2016 2018E
Y/E Mar
153.3 160.5
Net Sales
26.1
31.2
EBITDA
17.8
21.4
NP
18.5
22.3
EPS (INR)
25.0
20.1
EPS Gr. (%)
58.4
68.3
BV/Sh. (INR)
34.4
35.1
RoE (%)
30.8
32.1
RoCE (%)
57.3
47.7
P/E (x)
18.2
15.6
P/BV (x)
2018E
187.8
36.1
24.8
25.9
16.3
80.7
34.8
31.8
41.0
13.2
Estimate change
TP change
Rating change
+8%
+13%
Asian Paints (APNT)
posted 1Q17 consol. sales growth of 9.1% YoY (est.11.5%)
to INR36.4b (IndAS) with estimated 11% volume growth (management
mentioned lower double digit growth) in the domestic decorative paints
business despite base of 12% volume growth in 1Q16. Consol. EBITDA/Adj. PAT
grew 20.9% (est.14.6%)/ 17.9% YoY (est.14.9%) to INR8.2b and INR5.3b resp.
Domestic Decorative paints business posted est. 11% volume growth
aided by
recovery in demand, reducing repainting cycles and continued strong rural
growth ahead of urban growth led by increase in permanent dwellings, low
base and expanding distribution reach.
Gross margin expanded 450bp YoY
(est. 200bp YoY) to 47.2% led by benign
input costs. Despite higher other expenses (up 180bp YoY) and employee
expenses (up 50bp YoY) EBITDA margin expanded 220 bp YoY (est. 50 bp YoY
improvement) to 22.6%. Thus EBITDA posted growth of 20.9% YoY (est. 14.6%)
to INR8.2b. High depreciation (up 29% YoY) and higher tax rate (up 170 bp YoY
to 32.5) led to PAT growth of 17.9% YoY (est. 14.9%) to INR5.3b. Imputed sub.
Sales, EBITDA and Adj. PAT grew 10.5%, 29.1% and 29.4% resp.
Concall takeaways:
(a) Demand uniformly good all across the country. There
has been no major shift from unorganized to organized recently which makes
the double digit domestic decorative volume growth highly creditable; (b)
Healthy demand is also being witnessed in kitchen and batch fittings as well as
industrial and auto paints.
Valuation and view:
We upgrade estimates by 8% due to possible pick-up in
demand in 2HFY17 and sustained gross margin improvements. APNT enjoys
strong position in the Deco Paints industry, backed by unparalleled supply
chain leadership. However, steep stock price increase of 19% in last 3 months
and fair valuations prevents us from being more constructive. Maintain Neutral
with a revised target price of INR970 (36x June’2018).
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Krishnan Sambamoorthy
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Vishal Punmiya
(Vishal.Punmiya@MotilalOswal.com); +91 22 6129 1547

Asian Paints
Key quarterly charts
Exhibit 1: Last price action taken in 4QFY16
4.4
2.6
2.9
1.0
Price Increase/Decrease(%)
1.82.1
1.0
1.01.2
1.2
3.2
2.5
2.2 2.0
1.3
1.2
0.4
Exhibit 2: Volume growth for decorative domestic business
is estimated at 11%
Volume Growth (%)
15
10
12
7
12
11
10
3
(2.0)
(2.0)
4
12
7
13
1.2
11
(0.3)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: Healthy margin improvement in standalone business
Quarterly Performance (Standalone)
Y/E March
Net Sales
Change (%)
Raw Material/PM
Gross Profit
Gross Margin (%)
Operating Expenses
% of Sales
EBITDA
Margin (%)
Change (%)
Interest
Depreciation
Other Income
PBT
Tax
Effective Tax Rate (%)
Adjusted PAT
Change (%)
FY16
1Q
27,429
15,530
11,899
43.4
5,811
21.2
6,088
22.2
28
566
671
6,165
1,890
30.6
4,275
FY17
1Q
29,837
9
15,376
14,462
48.5
7,160
24.0
7,301
24.5
19.9
42
740
788
7,307
2,295
31.4
5,012
17.2
Source: Company, MOSL
Concall Takeaways
Demand and outlook
Domestic economy recovery seen, however trajectory is uneven.
Decorative segment reported low double digit volume growth.
There has been a recovery in demand in the last 3 quarters now for Asian Paints
Demand uniformly good all across the country.
There has been no major shift from unorganized to organized (whole industry is
growing at healthy pace) which makes the double digit domestic decorative
volume growth highly creditable especially given 12% volume growth in the base
quarter.
27 July 2016
2

Asian Paints
In fact the management stated that if GDP grows faster then pace of volume
growth will quicken to high double digit volume growth witnessed in the latter
part of the last decade.
Monsoon progress is a bright spot and bodes well for rural demand.
For Asian Paints rural growth continues to be consistently higher than urban
growth because of lower base, increase in permanent dwellings and expanding
reach of Asian Paints.
Have seen good demand in all 3 key domestic consumer segments viz paints
kitchen and bath fittings.
Range and reach in kitchen and bath fittings expanding thereby aiding growth.
Premiumization in paints continuing as it has been in the last decade.
Good demand recovery seen for industrial, auto and powder coating as well.
International business growth aided by healthy growth in Nepal.
Margins
Comfortable with these levels of margins. Will look at growth opportunity and
work on pricing strategy along that. Management believes they are not
sacrificing on growth currently despite sharp margin increases.
Depreciation increase
March 2016 commissioned third phase of Rohtak plant 400,000 kl from 200,000
kl earlier. Also expanded Ankleshwar and Kasna leading to higher depreciation
YoY.
Ind AS impact on sales
Incentive to dealers and cash discount now deducted from sales.
PPG AP Management control with PPG won’t be added to sales now.
AP PPG management control with AP so sales will be added.
New products and expansion
Every year add 2000-3000 retailers.
Will continue to add 60-80 colour idea stores a year.
Loctite is moving reasonably well. Localised supply as of now. As they roll out
more, advertisement intensity will increase. The limited products launched so
far expand India wide in the next 2 quarters.
AP Homes Coimbatore experience has been good as has been the learning. Will
update on expansion plans later.
Capex
INR 6 bn capex this year.
Mysore and Vizag plant expansion 17.9 bn capex over 2 years.
Indonesia plant- Have received approvals towards end of June quarter.
For the new businesses no significant capex plans.
Other points
Labour is 60-70% of cost of painting 5 years ago around 50:50.
No significant DIY demand improvement.
27 July 2016
3

Asian Paints
Egypt, Ethiopia and Trinidad could have exchange related issues in the current
year.
Average painting cycle is now once in 4-5 years.
The company is adding 2000-3000 retailers every year.
Valuation and View
We upgrade estimates by 8% due to possible pick-up in demand in 2HFY17 and
sustained gross margin improvements. APNT enjoys strong position in the Deco
Paints industry, backed by unparalleled supply chain leadership.
However, steep stock price increase of 19% in last 3 months and fair valuations
prevents us from being more constructive. Maintain Neutral with a revised
target price of INR970 (36x June’2018).
Exhibit 4: Upgrade estimates by 8% due to possible pick-up in demand in 2HFY17 and
sustained gross margin improvements
New
INR m
Sales
EBITDA
PAT
FY17E
160,457
31,167
21,358
FY18E
187,832
36,081
24,844
FY17E
174,566
29,910
20,603
Old
FY18E
204,349
33,302
22,926
Change
FY17E
-8.1%
4.2%
3.7%
FY18E
-8.1%
8.3%
8.4%
Source: Company, MOSL
27 July 2016
4

Asian Paints
Financials and Valuations
Income Statement
(INR Million)
Y/E March
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
Net Sales
77,223
95,983
108,744
125,816
140,053
153,307
160,457
187,832
Change (%)
15.6
24.3
13.3
15.7
11.3
9.5
4.7
17.1
Raw Materials
44,746
57,770
64,130
73,407
79,715
82,056
92,276
109,414
Gross Profit
32,477
38,213
44,614
52,409
60,339
71,251
68,181
78,418
Margin (%)
42.1
39.8
41.0
41.7
43.1
46.5
42.5
41.7
Operating Expenses
19,196
23,465
27,936
33,762
39,759
45,199
37,014
42,337
EBITDA
13,281
14,749
16,677
18,647
20,579
26,052
31,167
36,081
Change (%)
8.2
11.1
13.1
11.8
10.4
26.6
19.6
15.8
Margin (%)
17.2
15.4
15.3
14.8
14.7
17.0
19.4
19.2
Depreciation
1,131
1,211
1,546
2,457
2,659
2,880
3,242
3,480
Int. and Fin. Charges
232
410
367
422
348
405
417
424
Other Income
680
1,413
1,788
2,674
3,472
4,041
4,380
4,663
Profit before Taxes
12,597
14,541
16,552
18,442
21,045
26,809
31,889
36,840
0.3
15.4
13.8
11.4
14.1
27.4
19.0
15.5
Change (%)
Margin (%)
16.3
15.1
15.2
14.7
15.0
17.5
19.9
19.6
Tax
3,502
4,274
4,364
5,378
6,576
8,095
9,407
10,868
Tax Rate (%)
30.0
29.8
29.9
31.0
30.9
31.7
31.0
31.0
PBT Before Minority
8,813
10,206
11,595
12,727
14,549
18,317
22,004
25,420
Minority Interest
381
319
456
440
322
531
646
576
Adjusted PAT
8,432
9,887
11,139
12,288
14,227
17,787
21,358
24,844
1.0
17.3
12.7
10.3
15.8
25.0
20.1
16.3
Change (%)
Margin (%)
10.9
10.3
10.2
9.8
10.2
11.6
13.3
13.2
Exceptional/Prior Period inc
0
0
0
-100
-276
-525
0
0
Reported PAT
8,432
9,887
11,139
12,188
13,952
17,262
21,358
24,844
Note: We have adjusted FY17 and FY18 P&L numbers for Ind AS Impact. Since Ind AS Balance Sheet has not been shared we have retained
earlier numbers.
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Other Liability
Minority Interest
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Investments
Curr. Assets, L&A
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. and Prov.
Account Payables
Other Liabilities
Provisions
Net Current Assets
Godwill on Cons.
Application of Funds
E: MOSL Estimates
FY11
959
20,915
21,874
2,334
979
1,099
26,287
19,878
7,151
12,727
433
4,290
28,284
13,054
5,731
6,262
3,237
19,819
10,874
5,277
3,668
8,465
372
26,287
FY12
959
26,526
27,485
3,411
1,063
1,367
33,326
21,043
8,453
12,590
6,171
3,547
34,398
15,989
7,813
6,243
4,354
23,796
12,625
6,722
4,449
10,602
415
33,326
FY13
959
32,884
33,843
2,510
1,638
1,608
39,598
33,851
9,884
23,967
592
2,957
39,887
18,303
9,809
7,367
4,408
28,247
14,416
8,438
5,394
11,639
442
39,598
FY14
959
39,433
40,392
2,492
1,970
2,460
47,314
36,621
12,419
24,202
716
14,236
40,187
20,699
11,103
2,290
6,095
33,441
17,457
9,298
6,686
6,746
1,414
47,313
FY15
959
46,465
47,424
4,182
1,909
2,637
56,151
38,664
14,522
24,142
1,960
15,878
44,707
22,585
11,821
2,044
8,257
32,995
15,488
9,914
7,593
11,712
2,458
56,151
FY16
959
55,094
56,053
3,256
2,277
2,942
64,527
49,128
17,074
32,054
1,108
20,982
45,308
20,640
12,483
4,204
7,981
36,901
15,901
12,124
8,877
8,407
1,977
64,527
(INR Million)
FY17E
959
64,532
65,491
2,706
2,771
3,588
74,555
53,128
20,316
32,813
1,108
25,178
54,004
23,435
14,348
7,976
8,245
40,524
16,433
14,102
9,989
13,480
1,977
74,555
FY18E
959
76,470
77,429
2,156
3,342
4,164
87,090
59,128
23,795
35,333
1,108
30,214
63,712
27,433
16,796
9,609
9,874
45,253
19,485
14,128
11,640
18,459
1,977
87,090
27 July 2016
5

Asian Paints
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout %
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
FY11
8.8
10.0
22.8
3.7
36.4
FY12
10.3
11.6
28.7
4.6
38.8
FY13
11.6
13.2
35.3
5.4
39.6
FY14
12.8
15.4
42.1
6.2
41.4
FY15
14.8
17.6
49.4
7.3
41.1
FY16
18.5
21.5
58.4
9.0
40.4
FY17E
22.3
25.6
68.3
11.7
44.9
FY18E
25.9
29.5
80.7
13.5
44.4
71.6
60.3
7.2
48.8
21.5
0.7
57.3
49.3
6.5
38.3
18.2
0.8
47.7
41.4
6.2
31.7
15.6
1.1
41.0
36.0
5.2
27.2
13.2
1.3
43.3
38.0
48.1
27
2.9
40.1
35.2
46.9
30
2.9
36.3
32.5
40.3
33
2.7
33.1
30.0
29.4
32
2.7
32.4
28.6
25.7
31
2.5
34.4
30.8
28.4
30
2.4
35.1
32.1
30.9
33
2.2
34.8
31.8
31.7
33
2.2
0.1
0.1
0.1
0.1
0.1
0.1
0.0
0.0
Cash Flow Statement
Y/E March
OP/(loss) before Tax
Depreciation
Net interest
Direct Taxes Paid
(Incr)/Decr in WC
CF from Operations
Incr in FA
Pur of Investments
CF from Invest.
Incr in Debt
Dividend Paid
Int./Div. Received
Interest Paid
Others
CF from Fin. Activity
Incr/Decr of Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
FY11
12,597
1,131
-448
-3,502
-1,771
8,007
-1,235
1,951
717
42
-3,571
680
-232
-440
-3,521
5,204
1,058
6,262
FY12
14,541
1,211
-1,004
-4,274
-2,156
8,318
-6,903
742
-6,161
1,077
-4,459
1,413
-410
202
-2,177
-19
6,262
6,243
FY13
16,552
1,546
-1,421
-4,364
87
12,400
-7,230
591
-6,639
-902
-5,155
1,788
-367
-2
-4,638
1,123
6,243
7,367
FY14
18,442
2,457
-2,252
-5,378
-184
13,086
-2,894
-11,279
-14,173
-18
-5,904
2,674
-422
-320
-3,990
-5,077
7,367
2,290
FY15
21,045
2,659
-3,124
-6,576
-5,212
8,791
-3,287
-1,642
-4,930
1,690
-6,981
3,472
-348
-1,942
-4,108
-246
2,290
2,044
FY16
26,809
2,880
-3,636
-8,095
5,466
23,423
-9,612
-5,104
-14,716
-926
-8,645
4,041
-405
-611
-6,546
2,161
2,044
4,205
(INR Million)
FY17E
31,889
3,242
-3,963
-9,407
-1,301
20,459
-4,000
-4,196
-8,196
-550
-11,223
4,380
-417
-681
-8,490
3,772
4,204
7,977
FY18E
36,840
3,480
-4,239
-10,868
-3,346
21,866
-6,000
-5,036
-11,036
-550
-12,906
4,663
-424
18
-9,199
1,632
7,976
9,609
27 July 2016
6

Asian Paints
Corporate profile
Company description
Asian Paints is India's leading paint
manufacturer and marketer, with a dominant
share in the decorative segment. AONT has
operations in 19 countries with 26 paint
manufacturing facilities, servicing consumers in
over 65 countries. APNT has also forayed into
the Home Improvement and Décor space in
India with the acquisition of
Sleek
group and
Ess Ess
Bathroom Products.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Jun-16
Promoter
DII
FII
Others
52.8
7.5
18.8
20.9
Mar-16
52.8
9.1
18.0
20.1
Jun-15
52.8
9.9
17.0
20.4
Source: Capitaline
Exhibit 3: Top holders
Holder Name
LIC of India
Ojasvi Trading Private Limited
% Holding
5.1
4.9
Note: FII Includes depository receipts
Source: Capitaline
Exhibit 4: Top management
Name
Ashwin Choksi
Ashwin Dani
K B S Anand
Jayesh Merchant
Designation
Chairman
Vice Chairman
Managing Director & CEO
CFO & Company Secretary
Exhibit 5: Directors
Name
Ashwin Choksi
Ashwin Dani
K B S Anand
Mahendra Choksi
S Sivaram*
S Ramadorai*
Dipankar Basu*
Name
Mahendra Shah*
Deepak Satwalekar*
Malav Dani
Amrita Vakil
M K Sharma*
Abhay Vakil
Vibha Paul Rishi*
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
BSR & Co LLP
K R Chandratre
RA & Co
Shah & Co
Type
Statutory
Secretarial Audit
Cost Auditor
Statutory
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
MOSL
forecast
22.3
25.9
Consensus
forecast
21.8
25.7
Source: Bloomberg
Variation
(%)
2.2
0.7
FY17
FY18
27 July 2016
7

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In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
Kadambari Balachandran
kadambari.balachandran@motilaloswal.com
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Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd
27 July 2016
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