Asian Paints Ltd.

Fundamental Analysis
Har ghar kuch kehta hain....

Mohini Gupta
N-051 MBA (PT) 3rd Year 1st Semester

THE INDIAN PAINT INDUSTRY

The Indian Paint industry, estimated to be Rs.21, 000 Cr. industry, has been growing at a rate of above 15% for the past few years. The organized players of the industry cater to about 65% of the overall demand, whereas the unorganized players take care of the remaining 35%, in value terms. The unorganized players mainly dominate the distemper segment. The industry consists of two segments, namely Decorative segment -Major segments in decorative include exterior wall paints, interior wall paints, wood finishes and enamel and ancillary products such as primers, putties etc. Decorative paints account for over 77.3% of the 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. Demand in the festive season (September-December) is significant, as compared to other periods. This segment is price sensitive and is a higher margin business as compared to industrial segment. Industrial segment - Three main segments of the industrial sector include automotive coatings, powder coatings and protective coatings. Kansai Nerolac is the market leader in this segment. User industries for industrial paints include automobiles engineering and consumer durables. The industrial paints segment is far more technology intensive than the decorative segment. consists of powder coatings, In the domestic segment market, accounts

Decorative

for 70% of the total demand for paints whereas the industrial segment accounts for the remaining 30%. Globally, the demand for paints is almost equally distributed, where both the segments account for close to 50% of demand. The paints sector is raw material intensive,

with over 300 raw materials (50% petro-based derivatives) involved in the manufacturing process. Since most of the raw materials are petroleum based, the industry benefits from softening crude prices. CURRENT SCENARIO The paint industry is expected to grow at 12-13% annually over the next five years. FY12 was a challenging year for the industry as a whole due to subdued demand across key sectors and rising inflation. The unorganised sector controls around 35% of the paint market, with the organised sector accounting for the balance. In the unorganised segment, there are about 2,000 units having small and medium sized paint manufacturing plants. Top organised players include Asian Paints, Kansai Nerolac, Berger Paints and ICI. Financial Year 2012 was a mixed bag for the paint companies. While all the 3 players viz. Asian Paints, Kansai Nerolac and Berger Paints reported strong growth in sales, operating margins came under severe pressure due to raw material price inflation. Topline growth was boosted by strong demand from the rural markets. Nonetheless, the demand environment in the industrial segment continues to remain challenging due to hawkish interest rate environment. Performance on the margins front was a big disappointment. Rising prices of crude oil and titanium dioxide increased the overall expenditure thereby impacting profitability growth. However, companies are undertaking a gradual and calibrated price increase to shield margins. Nonetheless, as a complete pass on of raw material price increase is not possible in the industrial segment, the blended margins continue to suffer. All the key players are in an expansion phase. Asian Paints plant in Khandala, Maharashtra is under construction and is expected to be commissioned by 4QFY13. Kansai Nerolacs capacity expansion plans at Jainpur and Bawal culminated during the year. Berger Paints has also undertaken capacity expansion for its plants located in Andhra Pradesh (AP). The first phase of the project in AP is expected to be completed in the middle of 2013. Further, expansion of water based plant at Rishra and Goa is also on track.

FUTURE SCENARIO The market for paints in India is expected to grow at 1.5 times to 2 times GDP in the next five years. With GDP growth expected to be between 5-6% levels, the top three players are likely to clock above industry growth rates in the future, considering they have a strong brand and good reach. Decorative paints segment is expected to witness higher growth going forward. The fiscal incentives given by the government to the housing sector have benefited the housing sector immensely. This will benefit key players in the long term. Although the demand for industrial paints is lukewarm it is expected to increase going forward. This is on account of increasing investments in infrastructure. 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, especially powder coatings and high performance coatings will also propel topline growth of paint majors in the medium term.

PORTERS FIVE FORCES

Threat of New Entrants: Relatively low The paint industry in India is dominated by few players with well developed brand loyalty, distribution network, technology and efficient working capital playing an important part in discouraging any new entry into the industry. Bargaining powers of buyers: Medium The two main buyers for this Industry are the households who are more price sensitive because of the number of options available to them and the other buyer being the Industrial segment where the revenue margin is relatively low.

Bargaining power of suppliers: Moderately High The Indian Paint industry is raw material intensive industry with more than 300 products going into the manufacturing of the final products. The raw material can be divided into different categories like pigments, additives, solvents, binders etc. Titanium Dioxide is one of the key pigment used in the production of paint and is facing a global supply shortage. Thus supplier of this material has solid bargaining power. Threat of Substitutes: Low to Medium The availability of substitute of very minimal. In the rural areas lime wash is conventionally used substitute for paints. One alternative option for decorative walls available today is Wallpaper. Rivalry among competitors: Low to Medium Four top players of the Industry have about 80% of the market share of the organised market. The current market growth rate also provides for an ample opportunity for all the players in the market to grow but with saturation of the market, competition may also increase. Unorganised market also provides some boost to the overall competition.

ASIAN PAINTS Company Profile The company was incorporated in 1942, as a partnership firm by four friends. Chimanlal Choksi, Champaklal Choksey, Suryakant Dani and Arvind Vakil were the four friends who started the company and had the willingness and courage to take on the worlds biggest paint companies operating in India at that time. Suryakant Dani had a garage having a monthly rent of Rs.75.00 where he did paint work for various vehicles and it is this garage where Asian Paints started its operations. The name that was initially given to the company was The Asian Oil & Paint Company. Over the course of 25 years Asian Paints became a corporate force and India's leading paints company. Driven by its strong consumer-focus and innovative spirit, the company has been the market leader in paints since 1968, making it over four decades of leadership. Today it is double the size of any other paint company in India. Asian Paints manufactures a wide range of paints for Decorative and Industrial use. It is now Indias largest paint company and third largest paint company in Asia with a gross revenue of over USD 2 Billion in FY 2012. It is currently operating in over 17 countries with 23 paint manufacturing facilities. It has manufacturing facilities in each of these countries and is the largest paint company in ten overseas markets. Asian Paints operates in five regions across the world viz. South Asia, Southeast Asia, South Pacific, Middle East and Caribbean region through the five corporate brands viz. Asian Paints, Berger International, SCIB Paints, Apco Coatings and Taubmans. In ten markets, it operates through its subsidiary, Berger 51% International Limited; in Egypt through SCIB 27% 14% 8% Caribbean South Pacific Middle East

Sales

Asia

Paints; in five markets in the South Pacific it operates through Apco Coatings and in Fiji and Samoa it also operates through Taubmans.

Awards & Recognition Asian Paints was included in Forbes Magazine's - Asia's Fab 50 List of companies in 2011, 2012 and 2013. Asian Paints was ranked 13th amongst the top paint companies in the world by Coatings World - Top Companies Report 2013 (July 2013 Issue). In March 2012, Asian Paints was presented the Asian Centre for Corporate Governance & Sustainability Award for the Best Governed Company in 2011. Mr. P M Murty, the then MD & CEO, Asian Paints received the 'CEO of the Year' award from Business Standard, one of India's leading business dailies (March 2011). Asian Paints receives the Best Audit Committee Award from the Asian Centre for Corporate Governance & Sustainability (Feb 2011) Awarded the "Sword of Honour" by the British Safety Council for all the paint plants in India. This award is considered as the pinnacle of achievement in safety across the world. Forbes Global Magazine, USA ranked Asian Paints amongst the 200 'Best Small Companies of the world' in 2002 and 2003 and amongst the top 200 'Under a Billion Firms' of Asia in 2005. The Asset - one of Asia's leading financial magazines ranked Asian Paints amongst the leading Indian companies in Corporate Governance in 2002 and 2005. Asian Paints received the Ernst & Young Entrepreneur of the Year Manufacturing award in 2003.

VISION STATEMENT

Asian Paints aims to become one of the top five decorative coatings companies world-wide by leveraging its expertise in the higher growth emerging markets. Simultaneously, the company intends to build long term value in the industrial coatings business through alliances with established global partners.

MISSION STATEMENT

To provide paints as per market demand, ensuring desired level and quality of customer service, continued availability of the right product mix of right quality at the right time.

PORTFOLIO OF PRODUCTS

COMPETITORS

Source: - Moneycontrol.com

MARKET SHARE

Market Share (Paint Manufacturing Industry)

12% 4% 6% 37% Asian Paints Nerolac Berger Paints ICI 11% Jenson & Nicholson Shalimar 14% Others

16%

FINANCIAL PERFORMANCE

(based on past Five Year Financial Data)

Net Revenue from Operations, EBITA 10,000 9,000 8,000 7,000 6,000 5,000 4,000

3,000
2,000 1,000 Net Rev EBITA 2008-09 4,279 619.00 2009-10 5,134 1,154.00 2010-11 6,336 1,232.00 2011-12 7,964 1,493.00 2012-13 8,972 1,673.00

EBITA Margin (%) 25% 22% 20% 19% 19% 19%

15%

14%

10%

5%

0%
2008-09 2009-10 2010-11 2011-12 2012-13

Profit before Tax & Profit after Tax

1600 1400 1200 1000 800 600 400 200 0 2008-09 2009-10 2010-11 PBT PAT 2011-12 546 362 775 775 1105 1122 958 1363

1516

1050

2012-13

Net Cash Flow from Operations

1,600 1,400 1,200 1,000 800 600 400 200 2008-09 2009-10 2010-11 2011-12 2012-13 500 1,141 1,097 CF 1,280 1,484

Rs. in Crores

Linear (CF)

Average Capital Employed

Avg. Cap. Employed

3,500 3,000 2,500 2,000 1,500 1,000 500 2008-09 2009-10 2010-11 2011-12 2012-13 1,397 1,096 1,833 2,359 2,866

Return on Capital Employed

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Series 1 2008-09 51% 2009-10 78% 2010-11 62% 2011-12 59% 2012-13 54%

Dividend per share & Earnings per share 120 100 80 In Rs. 60 40 20 0 DPS EPS P/E Ratio

2008-09 18 38.4 18.95

2009-10 27 78.1 19.82

2010-11 32 80.8 28.82

2011-12 40 99.9 31.41

2012-13 46 109.5 42.32

Dividend Payout Ratio

DP Ratio
60% 54% 50% 46% 40% 30% 20% 10% 0% 2008-09 2009-10 2010-11 2011-12 2012-13 39% 47% 49%

DP Ratio

The Company has maintained an average dividend yield of 1.09 % over the last 5 financial years. Net Fixed Assets

Net Fixed Assets

2,500

2,000

2,102

1,500 Net Fixed Assets 1,000 707 1,057 623 1,009

500

2008-09 2009-10 2010-11 2011-12 2012-13

Asset Turnover Ratio

Asset Turnover Ratio

9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 2008-09 2009-10 2010-11 2011-12 2012-13 Asset Turnover Ratio

Shareholding Pattern

Shareholding Pattern

20%

Promoters 53% 27% Institutions Non- Institutions

Large promoter holding indicates conviction and sincerity of the promoters. Along with this, Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.
Yearly Chart (v/s Nifty)

Source:- Moneycontrol.com

Other Valuation Ratios Company 40.94 42.34 18.96 1.49 33.97 0.61 1.6502 3.96 40.09 15.88 Industry 16.64 41.03 8.43 2.16 10.69 1.14 1.03 20.70 28.06 Sector 15.21 35.32 9.25 2.65 10.61 1.09 2.84 22.74 34.48

P/E Ratio P/E High Last 5 Yrs P/E Low Last 5 Yrs Price to Book Ratio Price to Cash flow Ratio Beta Estimated PEG Ratio Price to Sale Ratio 5 Yrs Dividend Growth 5 Yrs EPS Growth

Source: - in.reuters.com, Bloomberg.com

Future Opportunities and Prospects Asian Paints as seen above is the leader of the Paint Industry having the largest market share. It has over the course of years have established itself in the mind of the consumers with its efficient marketing and advertising resulting in a high degree of brand loyalty and a strong distribution network which is around twice as large as its nearest competitors. As we know the Indian Paint Industry is growing at an average rate of 15% p.a. over the past few years with the Decorative Segment (75% of the paint industry) taking the lead with Asian Paint as the market leader in this segment. Also the current per capita consumption of paints in India is very low against that of developed countries, marking a huge potential for growth. The company is also focusing aggressively on the industrial paints segment where it is currently holding the 2nd position. The demand for industrial paints is expected to rise with the growing demand from the automotive sector and construction sector. The company is diversifying into kitchen components with the acquisitions of a 51% stake in the Sleek Group. It is a major organized player in the modern kitchen space and is engaged in manufacturing, selling and distributing kitchens and kitchen components (including wire baskets, cabinets, appliances, accessories etc), with a pan-India presence.

Threats and Concerns The Indian Paint Industry is a raw material intensive industry with over 300 materials going into the making. Major raw materials are crude linked and titanium dioxide and fluctuations of their prices directly affect the production cost. Exchange rate fluctuations also affect the prices of the imported materials and generally the increase in prices of raw materials is passed onto the customers. Also, with the entry of well established foreign companies and increase in the amount spent in advertising and marketing resulting in an increase in the competition in the market which may ultimately result in lowering of profit margins.

Bibliography
www.asianpaints.com www.moneycontrol.com in.reuters.com Wikipedia.com Yahoo finance www.bloomberg.com

Annexures BALANCE SHEET

Standalone Balance Sheet

------------------- in Rs. Cr. ------------------Mar '13 12 mths Mar '12 12 mths Mar '11 12 mths Mar '10 12 mths Mar '09 12 mths

Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities

95.92 95.92 95.92 95.92 95.92 95.92 95.92 95.92 95.92 95.92 0 0 0 0 0 0 0 0 0 0 2,926.34 2,391.86 1,879.40 1,461.30 998.55 0 0 0 0 0 3,022.26 2,487.78 1,975.32 1,557.22 1,094.47 9.28 17.01 23.43 25.59 24.59 37.48 151.21 40.7 40.7 40.7 46.76 168.22 64.13 66.29 65.29 3,069.02 2,656.00 2,039.45 1,623.51 1,159.76 Mar '13 Mar '12 Mar '11 Mar '10 Mar '09 12 mths 12 mths 12 mths 12 mths 12 mths

Application of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets 2,803.73 1,659.51 701.84 650.47 2,101.89 1,009.04 52.55 827.3 449.7 542.22 1,480.79 1,264.42 633.88 500.24 566.86 450.94 2,681.53 2,215.60 362.61 361.22 0 50.03 3,044.14 2,626.85 1,611.22 554.03 1,057.19 67.32 1,034.76 1,071.76 366.68 20.28 1,458.72 270.88 0.19 1,729.79 1,194.39 1,116.93 486.93 494.02 707.46 622.91 380.72 164.64 703.69 234.77 763.14 546.71 331.43 311.02 28.58 128.05 1,123.15 985.78 241.68 186.37 0.02 0.21 1,364.85 1,172.36

0 0 0 0 0 2,078.94 1,929.18 1,511.37 1,229.04 849.08 500.32 420.23 338.24 304.17 185.84 2,579.26 2,349.41 1,849.61 1,533.21 1,034.92 464.88 277.44 -119.82 -168.36 137.44 0 0 0 0 0 3,069.02 2,656.00 2,039.45 1,623.51 1,159.76

Contingent Liabilities Book Value (Rs)

464.28 315.08

414.71 259.36

505.87 205.93

223.8 162.35

356.87 114.1

PROFIT AND LOSS ACCOUNT

Standalone Profit & Loss account

------------------- in Rs. Cr. ------------------Mar '13 12 mths Mar '12 12 mths Mar '11 12 mths Mar '10 12 mths Mar '09 12 mths

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition

8,971.70 9,139.39 7,244.59 5,794.09 0 812.31 638.57 426.37 8,971.70 8,327.08 6,606.02 5,367.72 126.15 90.43 72.38 150.61 175.91 143.78 157.54 130.83 9,273.76 8,561.29 6,835.94 5,649.16 5,361.00 4,866.63 101.65 74.29 404.59 343.51 0 77.05 0 1,672.74 1,733.10 0 36.77 0 3,812.47 2,966.23 65.98 47.03 302.34 262.73 61.46 52.3 1,331.85 28.19 0 1,119.89 17.41 0

5,042.40 532.28 4,510.12 23.86 0.61 4,534.59 2,641.09 45.78 239.77 40.45 939.16 10.55 0 3,916.80 593.93 617.79 15.91 601.88 57.15 0 544.73 3.6 548.33 185.97 362.36 1,275.71

7,600.34 7,070.99 1,547.27 1,399.87 1,673.42 30.56 1,642.86 126.98 0 1,515.88 0 1,515.88 465.88 1,050.00 2,239.34 1,490.30 27.88 1,462.42 99.49 0 1,362.93 2.38 1,365.31 406.92 958.39 2,204.36

5,602.29 4,465.59 1,161.27 1,032.96 1,233.65 16.34 1,217.31 94.48 0 1,122.83 4.22 1,127.05 351.9 775.15 1,789.82 1,183.57 19.1 1,164.47 60.74 0 1,103.73 7.23 1,110.96 336.46 774.5 1,499.36

Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

0 441.23 74.29 959.2 109.47 460 315.08

0 383.69 62.24 959.2 99.92 400 259.36

0 306.94 50.11 959.2 80.81 320 205.93

0 258.98 43.33 959.2 80.74 270 162.35

0 167.86 28.53 959.2 37.78 175 114.1

CASHFLOW STATEMENT

Cash Flow

------------------- in Rs. Cr. ------------------Mar '13 Mar '12 Mar '11 Mar '10 Mar '09 12 mths 12 mths 12 mths 12 mths 12 mths 1515.88 1362.93 1122.83 1104.81 847.41 -241.81 -237.99 367.61 127.94 495.55 547.88 325.21 -16.69 -221.61 86.91 41.35 128.26

Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents

1081.12 -424.87 -590.35 65.9 500.97 566.87

753.67 -464.87 -297.06 -8.26 509.23 500.97

743.25 -410.23 -321.15 11.85 495.55 507.4