ATS Research Desk

ATS Research Desk Fundamental Report Asian Paints Limited

Company Profile Asian Paints Limited is India’s leading paint company with a group turnover of Rs.17,084.76 crores. The company was established in 1942. It is now Asia’s fourth largest paint company. The company operates in 19 countries, has 26 paint manufacturing facilities in the world and it has a consumer base in over 65 countries. The group operates around the world through its subsidiaries Berger International Limited, Apco Coatings, SCIB Paints, Taubmans and Kadisco. Asian Paints manufactures wide range of paints for Decorative and Industrial use. Apco coatings have an R&D team which is one of the largest in Asia-pacific region. The product portfolio of Apco Coatings includes timber finishes, industrial, marine, automotive, road markings and specialty products. Berger paints has strong presence in the Caribbean region, with operations in key locations in Jamaica, Barbados and Trinidad. In the middle-east, the company is present in UAE, Oman and Dubai.. Kadisco is one of the leading paints company in Ethiopia and became part of the Asian Paints group in 2015. Kadisco manufactures decorative paints, industrial paints, automotive paints, other coatings and Adhesives in Ethiopia.In decorative paints, the company is present in all four segments – Interior wall finishes, Exterior wall finishes, Enamels and Wood finishes. It also offers water proofing, wall coverings and adhesives in its product portfolio. In industrial paints, the company is present in Indian automotive coatings market, protective industrial powders, industrial containers and light industrial coatings markets in India. Investment Rationale CMP(26/7/17)(Rs) 52 Week H/L Market Cap (Cr) Equity Cap (Cr) Face Value (Rs) Promoter Holding (%) Non-Promoter Holding (%) Total (%)

1151.95 1230.00/850.10 108,495 95.9 1.00 52.8

   

Market share of 70% along with its subsidiary Berger Paints. Consistent growth in revenues and net profits over 5 years. Growth in international operations. Sales turnover of over four times its closest competitor.

47.2 100

Financial Summary Particulars(Cr) FY13 Net Sales 10,938.60 Cost of Sales 9,092.10 Profit after Tax 1,113.90 EPS(Rs) 11.60

FY14 12,714.80 10,582.70 1,218.80 12.70

FY15 14,182.80 11,777.70 1,395.20 14.50

FY16 15,841.70 12,859.20 1,745.20 18.20

FY17 17,084.80 13,800.80 1,939.40 20.20

Outlook The company generated sales of Rs.17,084.80 crores in FY17 with net profits of Rs.1,939.40 crores. The company has generated a consistent profit margin of around 10% for the last 5 years, and a 7% growth in revenues. In FY17, the company paid a dividend of 1,030% of the face value. We can expect the company to continue to perform at current levels in the near future unless the company faces an extraordinary situation. Although the PE ratio of the stock is at 57 as compared to industry PE of 56, the stock can be purchased for its stable growth and dividend income. ATS Wealth Managers Pvt Ltd

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Company Overview Asian Paints Limited is an Indian multinational paint company which is headquartered in Mumbai. The company is engaged in manufacturing, selling and distribution of paints, coatings, products related to home décor, bath fittings and related services. Asian Paints Limited is the holding company of Berger International. Together with Berger Paints, Asian Paints controls 70% of market share in organized paints market in India. In 1950s, the company launched a ‘washable distemper’, which was a balance between cheap dry distemper which peeled easily and more expensive plastic emulsions, by promoting their brand tractor distemper. Below is the breakup of sales segmented by product and geography.

Revenue Breakup - Geography Caribbean 13% South Pacific 8% Middle East 50%

South and SE Asia 29%

Revenue Breakup - Product 12%

2%

Enamels Distemper

17%

50%

Interior Paint Exterior Paint

19%

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Wood Finish

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Key Ratios Key Ratios Debt-Equity Ratio Current Ratio Inventory Turnover Ratio Total Asset Turnover Ratio EBITDM (%) EBITM (%) ROCE (%) RONW (%) Payout (%) Price/Book Value (x) EV/EBITDA (x) Market Cap/Sales

FY13 0.07 1.29 5.99 161.59 18.65 17.26 31.91 34.74 42.02 15.60 27.86 5.25

FY14 0.06 1.43 6.14 158.15 18.72 16.68 29.99 32.46 43.48 14.56 26.51 5.03

FY15 0.09 1.51 6.28 159.13 18.86 16.94 29.39 31.37 44.08 18.34 35.29 6.66

FY16 0.05 1.47 7.53 153.14 21.38 19.50 30.14 32.18 45.03 16.79 30.76 6.59

FY17 0.07 1.89 5.82 123.11 23.50 21.16 24.57 25.94 42.29 14.78 34.51 8.12

The company has very low debt which indicates that the profits accrue largely to the company’s shareholders instead of creditors. The current ratio indicates that the company is making optimum use of its current assets and is able to service its debts and payables effectively. In FY17, the company earned a net profit of Rs.1,940 crores. The company used its net profits to purchase Property, Plant and Equipment worth Rs.611 crores and Rs.290 crores worth of term deposits. The company paid-out dividends worth Rs.913.5 crores in the FY17. This indicates that the company management is committed to enhance the company’s value for its shareholders.

Management Profile Key Personnel Designation and Experience Ashwin Choksi Chairman: Ashwin Choksi obtained his Master’s degree in commerce from Syndenham College from Mumbai. He joined Asian paints in 1965. K.B.S. Anand MD & CEO: K.B.S Anand is the CEO and MD of Asian Paints Limited since 2012. He serves as President of Decorative Business Unit. Ashwin Dani Vice-Chairman: Ashwin Dani is the Vice Chairman of the board of Asian Paints Limited. He started his career in 1967, as a Development Chemist with Inmount Corp. (now BASF), Detroit, USA, a supplier of Automotive OEM and refinishes. He joined Asian Paints as a Senior Executive in 1968.


Auditors B S R & Company LLP

Deloitte Haskins & Sells LLP

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Industry Overview Paint is composed of four types of components: pigments, solvents, resins and various additives. The pigments give the paint color, solvents make is easy to apply, resins help it dry, and additives serve as fillers and have anti-fungicidal properties. The basic white pigment is titanium dioxide, and black pigment is commonly made from carbon black. Other pigments used to make paint are iron oxide and cadmium sulfide, for reds, metallic salts for yellow and orange, and iron blue and chrome for blue and green colors. Solvents are low viscosity volatile liquids. They include petroleum mineral spirits and aromatic solvents such as benzol, alcohol, esters, ketones and acetone. The most commonly used natural resins are linseed, coconut and soybean oil. Alkyds, acrylics, epoxies and polyurethanes are among the synthetic resins used to manufacture paint. Additives serve many purposes. Calcium Carbonate and Aluminum Silicate are simply fillers that give the paint body substance without changing its properties. Other additives give certain desired characteristics in paints; e.g. thixotropic agents give the paint its smooth texture etc. The size of the Indian paints market is Rs.29,600 crores in FY17. It is anticipated that the Indian paint market will grow with CAGR of 14% from FY17 to FY20. In the Indian paint industry, branding, distribution strength and innovative use of technology have become decisive aspects of growth against a backdrop of ever changing customer preferences. Increasing demand from rural markets, huge potential for innovative technologies, soaring housing industry and extensively varied product portfolios are propelling the demand for paint throughout the country. Northern and Western India hold the maximum demand for paint in the market. New demand in southern and eastern regions is driving the paint market further. Indian paints and coatings market is mainly driven by demand of two types of paints –decorative paints that constitute 75% of the market and industrial paints which constitute the remaining 25%. The major players in the Indian paints and coatings market are Asian Paints, Kansai Nerolac, Berger Paints, Akzo Nobel and Shalimar Paints. The market is highly organized with about 70% of the market dominated by organized players. In the unorganized segment, there are about 2000 units having small and medium sized paint manufacturing plants. The paints sector is raw material intensive, with over 300 raw materials (30% petro-based derivatives) involved in the manufacturing process. Since most raw materials are petroleum based, the industry benefits from lower crude prices. Decoratives: Major segments in the decoratives include exterior wall paints, interior wall paints, wood finishes, enamel and ancillary products such as primers, putties etc. Decorative paints account for over 75% of 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. This segment is price sensitive and is a higher margin business as compared to industrial segment. Industrial: Three main segments of industrial paints include automotive coatings, powder coatings and protective coatings. Kansai Nerolac is the market leader in this segment. Users of industrial paints include automobile, engineering and consumer durables industries. The industrial paints segment is far more technology intensive than the decorative segment. Below is the product costing for Asian Paints in FY17:


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Component Raw Materials Employee and Financing Costs Inventory and Storage Costs Taxes Freight & Handling Charges Advertising Costs Power, Fuels, Spares, Repair & Maintenance Other Expenses Profits Total

Percentage Cost 53.70% 7.40% 4.40% 6.30% 5.50% 3.40% 1.40% 4.9% 13.00% 100%

Investment Rationale  Market share of 70% along with its subsidiary Berger Paints Asian Paints Limited is the market leader in the decorative paints segment in India, with annual sales of 17,000 crores with a profit margin of 10% in FY17. Asian Paints has a 53% market share excluding a 17% market share from its subsidiary Berger International. The company controls around 70% of the organized paint market. The organized paints market in India is worth Rs.24,285 crores.  Consistent growth in revenues and net profits over 5 years The company has averaged a revenue growth of 7% over the last 5 years and has maintained consistent profit margins of 10% over the period. The company has a history of dividend payments over the last 10 years and has paid a dividend of 1,030% of the face value in FY17. The company reinvests its profits into property, plant & equipment and to buy term deposits and liquid mutual funds.  Growth in international operations The company has international operations in the middle-east (Bahrain, Egypt, Oman, UAE), South and South-East Asia, Caribbean Islands and South Pacific. These locations can diversify the company’s market risk which arises from fluctuating demand for paint.  Sales turnover of over four times its closest competitor Asian Paints Limited has sales of over four times its closest competitor Kansai Nerolac. This has created a huge barrier to entry and has given the company a tremendous first-mover advantage in the Indian Paints Market. Although Kansai Nerolac is the market leader in the industrial paints segment, Asian paints is the market leader in decorative paints (housing) segment which constitutes to 75% of the paints market.


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Consolidated Balance Sheet

ASSETS NON-CURRENT ASSETS Tangible Assets Intangible Assets Capital Work-In-Progress Fixed Assets Non-Current Investments Deferred Tax Assets [Net] Long Term Loans And Advances Other Non-Current Assets Total Non-Current Assets CURRENT ASSETS Current Investments Inventories Trade Receivables Cash And Cash Equivalents Short Term Loans And Advances Other Current Assets Total Current Assets Total Assets EQUITIES AND LIABILITIES SHAREHOLDER'S FUNDS Equity Share Capital Total Share Capital Reserves and Surplus Total Reserves and Surplus Total Shareholders’ Funds Minority Interest NON-CURRENT LIABILITIES Long Term Borrowings Deferred Tax Liabilities [Net] Other Long Term Liabilities Long Term Provisions Total Non-Current Liabilities CURRENT LIABILITIES Short Term Borrowings Trade Payables Other Current Liabilities Short Term Provisions Total Current Liabilities Total Capital And Liabilities


FY13

FY14

FY15

FY16

FY17

2,365.68 31.06 59.21 2,455.95 150.12 2.35 106.49 23.32 2,782.46

2,330.74 89.45 71.6 2,491.79 192.13 2.19 130.25 25.22 2,982.97

2,290.16 124.07 196 2,610.23 385.88 0.2 278.46 36.71 3,557.29

3,074.59 130.82 110.8 3,316.21 539.25 0.51 179.32 49.75 4,282.70

2,956.65 153.61 257.54 3,367.80 1,300.65 16.16 356.05 221.53 5,454.08

130.56 1,830.29 980.88 751.98 214.6 98.19 4,006.50 6,788.96

529.06 2,069.86 1,110.28 931.66 246.46 169.14 5,056.46 8,039.43

1,201.91 2,258.52 1,179.85 204.36 261.95 248.6 5,355.19 8,912.48

1,558.94 2,064.00 1,248.26 420.43 288.98 280.02 5,860.63 10,143.33

1,351.34 2,626.94 1,446.60 801.21 439.54 300.05 6,965.68 12,419.76

95.92 95.92 3,288.37 3,288.37 3,384.29 160.77

95.92 95.92 3,943.30 3,943.30 4,039.22 246.02

95.92 95.92 4,646.44 4,646.44 4,742.36 263.67

95.92 95.92 5,509.33 5,509.33 5,605.25 294.21

95.92 95.92 7,506.38 7,506.38 7,602.30 375.45

47.8 156.73 9.39 98.57 312.49

41.4 190.01 9.13 108.53 349.07

78.28 180.14 11.13 119.67 389.22

74.91 217.6 10.57 124.36 427.44

41.07 359.19 10.85 146.03 557.14

189.86 1,441.57 859.16 440.82 2,931.41 6,788.96

198.63 1,745.72 901.45 559.32 3,405.12 8,039.43

331.62 1,548.75 997.45 639.41 3,517.23 8,912.48

231.08 1,590.10 1,231.95 763.3 3,816.43 10,143.33

504.43 1,922.83 1,266.93 190.68 3,884.87 12,419.76

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Consolidated Income Statement

INCOME Revenue From Operations [Gross] Less: Excise/Service Tax/Other Levies Revenue From Operations [Net] Other Operating Revenues Total Operating Revenues Other Income Total Revenue EXPENSES Cost Of Materials Consumed Purchase Of Stock-In Trade Changes In Inventories Of FG,WIP And Stock-In Trade Employee Benefit Expenses Finance Costs Depreciation And Amortization Expenses Other Expenses Total Expenses Profit/Loss Before Exceptional, Extra Ordinary Items And Tax Exceptional Items Profit/Loss Before Tax Tax Expenses-Continued Operations Current Tax Less: MAT Credit Entitlement Deferred Tax Tax For Earlier Years Total Tax Expenses Profit/Loss After Tax And Before Extra-Ordinary Items Profit/Loss From Continuing Operations Profit/Loss For The Period Minority Interest Share Of Profit/Loss Of Associates Consolidated Profit/Loss After MI And Associates OTHER ADDITIONAL INFORMATION EARNINGS PER SHARE Basic EPS (Rs.) Diluted EPS (Rs.)


FY13

FY14

FY15

FY16

FY17

12,033.94

13,889.10

15,473.19

16,946.82

16,895.29

1,127.93

1,307.46

1,467.86

1,616.10

1,794.56

10,906.01

12,581.64

14,005.33

15,330.72

15,100.73

64.73 10,970.74 114.52 11,085.26

133.17 12,714.81 134.22 12,849.03

177.48 14,182.81 169.71 14,352.52

203.42 15,534.14 200.72 15,734.86

189.47 15,290.20 262.60 15,552.80

6,254.94 333.07 -149.56

7,025.28 405.72 -90.28

7,531.17 588.37 -148.07

7,311.09 723.20 171.30

8,109.96 851.75 -531.07

623.56 36.65 154.60

759.71 42.22 245.66

907.11 34.76 265.92

1,017.84 40.51 287.97

1,086.29 30.58 338.84

2,176.79 9,430.05 1,655.21

2,616.49 11,004.80 1,844.23

3,068.82 12,248.08 2,104.44

3,502.09 13,054.00 2,680.86

2,751.84 12,638.19 2,914.61

0.00 1,655.21

-9.96 1,834.27

-27.57 2,076.87

-52.45 2,628.41

0.00 2,914.61

439.37 0.00 59.32 -3.00 495.69 1,159.52

536.40 0.00 33.75 1.36 571.51 1,262.76

658.70 0.00 -8.05 -1.11 649.54 1,427.33

812.18 -3.43 39.60 -6.07 849.14 1,779.27

895.32 -0.53 49.33 2.80 947.98 1,966.63

1,159.52

1,262.76

1,427.33

1,779.27

1,966.63

1,159.52 -45.64 0.00

1,262.76 -43.95 0.00

1,427.33 -32.18 0.00

1,779.27 -53.06 0.00

1,966.63 -76.82 49.61

1,113.88

1,218.81

1,395.15

1,726.21

1,939.42

116.00 116.00

13.00 13.00

15.00 15.00

18.00 18.00

20.00 20.00

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Stock Performance Chart

Vivek Anavatti, MBA Vivek @adityatrading.com Equity Research Analyst Disclaimer: This report is only for the information of our customers. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. ATS and/or its group companies do not as assume any responsibility or liability resulting from the use of such information.


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