3102_ n_051 mohini gupta_ asian paints

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Har ghar kuch kehta hain....

Asian

Paints Ltd.

Fundamental

Analysis

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 market,

Decorative segment accounts

for 70% of the total demand for

paints whereas the industrialsegment 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. Top-

line 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 Nerolac’s 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.

http://www.equitymaster.com/detail.asp?date=04/17/2004&story=3&title=Identifying-a-paint-stock-Dos-and-Donts

http://www.equitymaster.com/detail.asp?date=04/17/2004&story=3&title=Identifying-a-paint-stock-Dos-and-Donts



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.

PORTER’S 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 world’s 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 paintcompany in India. Asian Paints

manufactures a wide range of paints

for Decorative and Industrial use.

It is now India’s 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

International Limited; in Egypt through SCIB

14%

8%

51%

27%

Sales

Caribbean

South Pacific

Middle East

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 in2011.

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 coatingscompanies 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

37%

16%

14%

11%

6%

4%

12%

Market Share (Paint Manufacturing Industry)

Asian Paints

Nerolac

Berger Paints

ICI

Jenson & Nicholson

Shalimar

Others



FINANCIAL PERFORMANCE (based on past Five Year Financial Data)

Net Revenue from Operations, EBITA

EBITA Margin (%)

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

Net Rev 4,279 5,134 6,336 7,964 8,972

EBITA 619.00 1,154.00 1,232.00 1,493.00 1,673.00

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

14%

22%

19% 19% 19%

0%

5%

10%

15%

20%

25%

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



Profit before Tax & Profit after Tax

Net Cash Flow from Operations

546

1105 1122

13631516

362

775 775

9581050

0

200

400

600

800

1000

1200

1400

1600

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

PBT PAT

500

1,1411,097

1,280

1,484

-

200

400

600

800

1,000

1,200

1,400

1,600

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

R s . i n C

r o r e s

CF

Linear (CF)



Average Capital Employed

Return on Capital Employed

1,0961,397

1,833

2,359

2,866

-

500

1,000

1,500

2,000

2,500

3,000

3,500

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

Avg. Cap. Employed

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

Series 1 51% 78% 62% 59% 54%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%



Dividend per share & Earnings per share

Dividend Payout Ratio

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

DPS 18 27 32 40 46

EPS 38.4 78.1 80.8 99.9 109.5

P/E Ratio 18.95 19.82 28.82 31.41 42.32

0

20

40

60

80

100

120

I n R

s .

54%

39%

46% 47%49%

0%

10%

20%

30%

40%

50%

60%

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

DP Ratio

DP Ratio



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

Net Fixed Assets

Asset Turnover Ratio

623707

1,057 1,009

2,102

-

500

1,000

1,500

2,000

2,500

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

Net Fixed Assets

Net Fixed Assets

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

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





Shareholding Pattern

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

53%

27%

20%

Shareholding Pattern

Promoters

Institutions

Non- Institutions



Other Valuation Ratios

Company Industry Sector

P/E Ratio 40.94 16.64 15.21

P/E High – Last 5 Yrs 42.34 41.03 35.32

P/E Low – Last 5 Yrs 18.96 8.43 9.25

Price to Book Ratio 1.49 2.16 2.65

Price to Cash flow Ratio 33.97 10.69 10.61

Beta 0.61 1.14 1.09

Estimated PEG Ratio 1.6502

Price to Sale Ratio 3.96 1.03 2.84

5 Yrs Dividend Growth 40.09 20.70 22.74

5 Yrs EPS Growth 15.88 28.06 34.48Source: - 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 iscurrently 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 Mar '12 Mar '11 Mar '10 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 95.92 95.92 95.92 95.92 95.92

Equity Share Capital 95.92 95.92 95.92 95.92 95.92

Share Application Money 0 0 0 0 0

Preference Share Capital 0 0 0 0 0

Reserves 2,926.34 2,391.86 1,879.40 1,461.30 998.55

Revaluation Reserves 0 0 0 0 0Networth 3,022.26 2,487.78 1,975.32 1,557.22 1,094.47

Secured Loans 9.28 17.01 23.43 25.59 24.59

Unsecured Loans 37.48 151.21 40.7 40.7 40.7

Total Debt 46.76 168.22 64.13 66.29 65.29

Total Liabilities 3,069.02 2,656.00 2,039.45 1,623.51 1,159.76



Application of Funds

Gross Block 2,803.73 1,659.51 1,611.22 1,194.39 1,116.93

Less: Accum. Depreciation 701.84 650.47 554.03 486.93 494.02

Net Block 2,101.89 1,009.04 1,057.19 707.46 622.91

Capital Work in Progress 52.55 827.3 67.32 380.72 164.64

Investments 449.7 542.22 1,034.76 703.69 234.77

Inventories 1,480.79 1,264.42 1,071.76 763.14 546.71

Sundry Debtors 633.88 500.24 366.68 331.43 311.02

Cash and Bank Balance 566.86 450.94 20.28 28.58 128.05

Total Current Assets 2,681.53 2,215.60 1,458.72 1,123.15 985.78

Loans and Advances 362.61 361.22 270.88 241.68 186.37

Fixed Deposits 0 50.03 0.19 0.02 0.21

Total CA, Loans &

Advances

3,044.14 2,626.85 1,729.79 1,364.85 1,172.36

Deffered Credit 0 0 0 0 0

Current Liabilities 2,078.94 1,929.18 1,511.37 1,229.04 849.08

Provisions 500.32 420.23 338.24 304.17 185.84

Total CL & Provisions 2,579.26 2,349.41 1,849.61 1,533.21 1,034.92

Net Current Assets 464.88 277.44 -119.82 -168.36 137.44

Miscellaneous Expenses 0 0 0 0 0

Total Assets 3,069.02 2,656.00 2,039.45 1,623.51 1,159.76



Contingent Liabilities 464.28 414.71 505.87 223.8 356.87

Book Value (Rs) 315.08 259.36 205.93 162.35 114.1

PROFIT AND LOSS ACCOUNT

Standalone Profit & Loss

account

------------------- in Rs. Cr. -------------------



Income

Sales Turnover 8,971.70 9,139.39 7,244.59 5,794.09 5,042.40

Excise Duty 0 812.31 638.57 426.37 532.28

Net Sales 8,971.70 8,327.08 6,606.02 5,367.72 4,510.12

Other Income 126.15 90.43 72.38 150.61 23.86

Stock Adjustments 175.91 143.78 157.54 130.83 0.61

Total Income 9,273.76 8,561.29 6,835.94 5,649.16 4,534.59

Expenditure

Raw Materials 5,361.00 4,866.63 3,812.47 2,966.23 2,641.09

Power & Fuel Cost 101.65 74.29 65.98 47.03 45.78

Employee Cost 404.59 343.51 302.34 262.73 239.77

Other ManufacturingExpenses

0 77.05 61.46 52.3 40.45

Selling and Admin

Expenses

0 1,672.74 1,331.85 1,119.89 939.16

Miscellaneous Expenses 1,733.10 36.77 28.19 17.41 10.55

Preoperative Exp

Capitalised

0 0 0 0 0

Total Expenses 7,600.34 7,070.99 5,602.29 4,465.59 3,916.80

Operating Profit

1,547.27 1,399.87 1,161.27 1,032.96 593.93

PBDIT 1,673.42 1,490.30 1,233.65 1,183.57 617.79Interest 30.56 27.88 16.34 19.1 15.91

PBDT 1,642.86 1,462.42 1,217.31 1,164.47 601.88

Depreciation 126.98 99.49 94.48 60.74 57.15

Other Written Off 0 0 0 0 0

Profit Before Tax 1,515.88 1,362.93 1,122.83 1,103.73 544.73

Extra-ordinary items 0 2.38 4.22 7.23 3.6

PBT (Post Extra-ord Items) 1,515.88 1,365.31 1,127.05 1,110.96 548.33

Tax 465.88 406.92 351.9 336.46 185.97

Reported Net Profit 1,050.00 958.39 775.15 774.5 362.36

Total Value Addition 2,239.34 2,204.36 1,789.82 1,499.36 1,275.71



Preference Dividend 0 0 0 0 0

Equity Dividend 441.23 383.69 306.94 258.98 167.86

Corporate Dividend Tax 74.29 62.24 50.11 43.33 28.53

Per share data (annualised)

Shares in issue (lakhs) 959.2 959.2 959.2 959.2 959.2

Earning Per Share (Rs) 109.47 99.92 80.81 80.74 37.78

Equity Dividend (%) 460 400 320 270 175

Book Value (Rs) 315.08 259.36 205.93 162.35 114.1

CASHFLOW STATEMENT

Cash Flow ------------------- in Rs. Cr. -------------------



Net Profit Before Tax

1515.88 1362.93 1122.83 1104.81 547.88

Net Cash From Operating

Activities

1081.12 753.67 743.25 847.41 325.21

Net Cash (used in)/from

Investing Activities

-424.87 -464.87 -410.23 -241.81 -16.69

Net Cash (used in)/from

Financing Activities

-590.35 -297.06 -321.15 -237.99 -221.61

Net (decrease)/increase In

Cash and Cash Equivalents

65.9 -8.26 11.85 367.61 86.91

Opening Cash & Cash

Equivalents

500.97 509.23 495.55 127.94 41.35

Closing Cash & Cash

Equivalents

566.87 500.97 507.4 495.55 128.26

3102_ n_051 mohini gupta_ asian paints

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