2QFY2013 Result Update | FMCG

October 30, 2012

Asian Paints
Performance Highlights
Quarterly Highlights (Consolidated)
(` cr) Revenue EBITDA OPM (%) PAT 2QFY13 2,616 361 13.8 239 2QFY12 2,251 323 14.3 209 % yoy 16.2 11.9 (54)bp 14.6 Angel est. 2,575 386 15 243 % Diff 1.6 (6.5) (119)bp (1.6)

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code FMCG 37,251 (643) 0.3 4170/2551 9,533 10 18,431 5,598 ASPN.BO APNT@IN

`3,884 -

Source: Company, Angel Research

For 2QFY2013, Asian Paints (APL) posted a 14.6% yoy growth in its bottom-line which is in line with estimates. Volume growth for the domestic business is estimated to be ~5-6% yoy for the quarter. The OPM fell by 54bp yoy to 13.8%. We maintain our Neutral view on the stock. Key highlights of the quarter: For 2QFY2013, APL registered a 16.2% yoy growth in its consolidated top-line to `2,616cr. On a stand-alone basis, the revenue rose by ~16.2%, indicating a ~5-6% decline in the domestic volumes considering the price hikes taken by the company over the last one year. Volume growth for the quarter is decent considering the high base as the festival season sales occurred during 2QFY2012. However, there is a shift in the festival season to 3QFY2013 in the current year. The performance on the volume front is much better than the ~1-2% yoy de-growth reported in 1QFY2013. The consolidated OPM fell by 54bp yoy to 13.8%. The cumulative price increase for 1HFY2013 stood at 5.3%. The company didnt take any price hikes during the quarter. Outlook and valuation: APL is currently facing a problem of demand uncertainty both in the domestic and international markets. Over FY2012-14E, we expect the company to post a CAGR of 17% and 19.2% in its top-line and bottom-line respectively. At the current market price, the stock is trading richly at 26.5x FY2014E Earnings. Hence, we maintain our Neutral view on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 52.8 8.7 19.6 18.9

Abs. (%) Sensex APNT

3m 7.5 8.6

1yr 3.5

3yr 15.9

26.7 136.1

Key financials (Consolidated)

Y/E March (` cr) Net Sales % chg Net Profit (Adj.) % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011

FY2012

FY2013E

FY2014E

7,722 15.6 843 1.0 17.2 87.9 44.2 17.0 43.3 45.0 4.7 27.3

9,632 24.7 989 17.3 15.7 103.1 37.7 13.6 40.1 40.7 3.8 24.0

11,198 16.3 1,186 20.0 16.2 123.7 31.4 10.7 38.1 40.1 3.2 19.9

13,184 17.7 1,404 18.4 16.2 146.4 26.5 8.4 35.4 38.5 2.7 16.7 V Srinivasan
022-39357800 Ext: 6831 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Asian Paints | 2QFY2013 Result Update

Exhibit 1: Quarterly Performance (Consolidated)

Y/E March (Rs cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation & Amortisation Other Income Profit/Loss from Associate PBT (excl. Extr Items) (% of Sales) Provision for Taxation (% of PBT) Recurring PAT Minority Interest Extr Income/(Expense) Prior Period Items Reported PAT PATM Adjusted EPS (`)
Source: Company, Angel Research

2QFY13 2,616 1,571 60.1 152 5.8 532 20.3 2,255 361 13.8 12 36 42 356 13.6 104 29.3 252 12 239 9.1 24.9

2QFY12 2,251 1,351 60.0 129 5.7 448 19.9 1,928 323 14.3 9 30 29 313 13.9 95 30.5 218 9 209 9.3 21.8

% chg 16.2 16.3 17.9 18.5 17.0 11.9 37.7 19.2 44.4 13.5 9.0 15.4

1QFY13 2,539 1,484 58.4 159 6.2 459 18.1 2,101 438 17.2 11 33 33 426 16.8 127 29.9 299 11 -

% chg 3.0 5.9 (4.3) 15.8 7.3 (17.5) (343) 11.9 6.9 29.4 (16.6) (18.2) (15.9)

1HFY2013 5,155 3,055 59.3 310 6.0 991 19.2 4,356 799 15.5 23 69 75 782 15.2 231 29.6 550 23 -

1HFY2012 4,502 2,704 60.1 259 5.7 834 18.5 3,797 705 15.7 15 59 69 700 15.5 210 30.1 489 17 472 10.5 49.2

% chg 14.5 13.0 19.9 18.8 14.7 13.3 (16) 50.1 17.0 8.4 11.7 10.0 12.5

14.6 14.6

288 11.4 30.1

(17.0) (17.0)

528 10.2 55.0

11.7 11.7

Top-line grows by 16.2% yoy, volume growth impressive

For 2QFY2013, APL registered a 16.2% yoy growth in its consolidated top-line to `2,616cr. On a stand-alone basis, the revenue rose by 16.2%, indicating a 5-6% growth in the domestic volumes. The performance on the volume front is much better than the ~1-2% yoy de-growth reported in 1QFY2013. The decorative segment witnessed good recovery in demand at the end of the quarter, aiding the volume growth. Premium products in the decorative segment saw higher growth. However, the auto and non-auto industrial segments faced subdued demand conditions. Auto refinish and general insurance segments showed relatively better growth within this segment.

October 30, 2012

Asian Paints | 2QFY2013 Result Update

Exhibit 2: Top-line growth driven by value

3,000 2,500 2,000 2,100 1,500 1,000 1,830 1,811 1,966 2,251 2,561 2,539 2,539 500 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 2,616 2,257 (` cr) 35.0 30.0 25.0 20.0 15.0 10.0 5.0 (yoy %)
(yoy %)

Top-line (LHS) Source: Company, Angel Research

yoy growth (RHS)

Update on international operations

During the quarter, the company reported good value growth across the regions aided largely by translation gains due to INR depreciation. However, the management indicated that political uncertainty and slowdown in economic activity continue to plague the Middle East region, especially Egypt. The sales were hit in the South Asian markets due to weak economic conditions.

Gross margin flat, OPM down

During the quarter, APLs gross margin remained flat as increase in prices was offset by increase in raw material costs. As per the management, the material price index for decorative products stood at 107.7 for 2QFY2013 on a base of 100 for FY2012. However, it was much lower than the index reading of 116.99 for 2QFY2012 taking the base as 100 for FY2011. The industrial business segment too faced margin pressures due to increasing material cost and weak currency. The OPM was marginally down due to higher other expenses which rose by 39bp yoy. On a consolidated basis, APL posted a 14.6% yoy growth in net profit to `239cr, driven by higher operating profit.

Exhibit 3: OPM down on a yoy basis

50.0 40.0 44.2 42.7 43.7 40.3 41.4 40.0 40.0 39.4 40.1 41.6 39.9

Exhibit 4: PAT up by 14.6% yoy

310 260 210 (` cr) 264 257 50.0 40.0 30.0 20.0 10.0 209 261 288 239 2Q13 (10.0) 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

(%)

30.0 20.0 10.0 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 16.6 19.0 18.3 17.2 16.4 14.7 17.2 14.3 15.5 14.8 13.8

220 222 215

160 110 60 10

OPM

Gross margin

PAT (LHS)

186

yoy growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

October 30, 2012

Asian Paints | 2QFY2013 Result Update

Analyst meet highlights

The management indicated that the companys new brand identity signifies its intent to establish a deeper connect with its customers. It is aimed at stirring the customers imagination as well as expanding their vision to a new vista of possibility. The management indicated a capex of `750cr and `500cr in FY2013 and FY2014, respectively, towards scaling capacity at the Rohtak plant and building the Khandala plant. Of the `750cr to be spent in FY2013, `400cr has been spent till date. Phase 1 of Khandala with 3,00,000 KL capacity is expected to be commissioned by 4QFY2013. There are signs of improvement in retail off-take from September.

Investment arguments
Uncertainty over demand conditions hover: APL is currently facing some amount of slowdown in both, the decorative & auto and the industrials segment. Although the demand situation has improved in 2QFY2013 as compared to the previous quarter there is uncertainty with respect to the future demand scenario due to the prolonged slowdown in economy. Sluggishness in the international business: APLs international business has been sluggish for a few quarters now. We do not expect any positive surprises on this front, as lot of uncertainties prevail in many countries in which the company operates.

Outlook and valuation

APL is currently facing problem of demand uncertainty, both in the domestic and international markets. Over FY2012-14E, we expect the company to post a CAGR of 17% and 19.2% in its top-line and bottom-line respectively. At the current market price, the stock is trading richly at 26.5x FY2014E EPS. Hence, we maintain our Neutral view on the stock.

October 30, 2012

Asian Paints | 2QFY2013 Result Update

Exhibit 5: Peer valuation

Company
Asian Paints Britannia Colgate Dabur GCPL GSKCHL* HUL ITC Marico Nestle* Tata Global

Reco
Neutral Buy Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral

Mcap (` cr)
37,251 5,781 17,479 21,738 24,690 12,604 118,980 221,964 12,621 45,058 9,332

CMP (`)
3,884 484 1,285 125 726 2,997 550 284 205 4,673 151

TP (R`)
584 -

Upside (%)
21 -

P/E (x) FY13E FY14E

31.4 23.4 36.0 27.9 33.2 26.9 37.4 30.5 30.3 40.7 22.8 26.5 19.1 30.4 24.1 27.4 22.8 32.3 26.0 24.3 33.4 19.3

EV/Sales (x) FY13E FY14E

3.2 0.9 5.6 3.6 4.3 3.6 4.5 7.2 2.6 5.1 1.2 2.7 0.7 4.9 3.0 3.6 3.0 3.9 6.3 2.2 4.3 1.1

RoE (%) FY13E FY14E

38.1 43.1 101.0 43.2 31.2 34.4 84.5 35.4 31.4 71.2 8.6 35.4 41.9 93.5 41.4 30.0 32.8 75.8 34.7 29.7 60.3 9.5

CAGR # Sales EPS

17.0 17.4 12.8 15.3 22.1 16.8 15.5 17.2 18.6 16.5 9.7 19.2 27.4 13.6 18.3 28.3 24.9 19.7 17.7 27.6 15.0 16.6

Source: Company, Angel research; Note: # Denotes CAGR over FY2012-14E, *December Year Ending.

Exhibit 6: Angel vs. Consensus

Top-line (` cr) Angel estimates Consensus Diff (%)
Source: Angel research, Bloomberg

FY2013E 11,198 11,171 0.2

FY2014E 13,184 13,184 0

EPS (`) Angel estimates Consensus Diff (%)

FY2013E 124 120 2.8

FY2014E 146 145 1.0

Exhibit 7: One year forward PE

40.0 35.0 30.0 25.0 (x) 20.0 15.0 10.0 5.0 Aug-09 Aug-10 Aug-11 Aug-12 Dec-08 Dec-09 Dec-10 Dec-11 Feb-09 Feb-10 Apr-09 Feb-11 Jun-09 Apr-10 Feb-12 Jun-10 Apr-11 Jun-11 Apr-12 Oct-08 Oct-09 Oct-10 Oct-11 Jun-12 Oct-12

Source: Company, Angel Research Note: Blue line indicates 5 year average PE

Company Background
Asian Paints (APL) is India's largest paints company, with a market share of ~50%. The company is mainly present in the decorative segment, which contributes over 75% to its sales. The company features among the top 10 decorative paint players globally. APL has a large distribution network of around 25,000 dealers and 18,000 'Colour World' outlets. The company's international revenue comes from countries in the Caribbean, Middle East, South Pacific and Asian regions.

October 30, 2012

Asian Paints | 2QFY2013 Result Update

Profit & Loss statement (consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Total operating income % chg Total Expenditure Cost of Materials SG&A Personnel Others EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Prior Period & Extra Exp/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earns of asso Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 6,045 581 5,464 5,464 24.0 4,794 3,371 714 372 338 670 1.4 12.3 74 596 (1.0) 10.9 26 51 8.2 620 (3.0) 3.5 617 197 31.8 423 22 401 398 (2.8) 7.3 41.8 41.8 (3.9) 7,107 426 6,681 6,681 22.3 5,454 3,758 853 436 406 1,227 83.2 18.4 84 1,144 92.0 17.1 28 141 11.2 1,256 102.4 (1.2) 1,257 373 29.7 883 48 834 836 110.0 12.5 87.0 87.0 107.9 8,378 655 7,722 7,722 15.6 6,394 4,474 981 454 485 1,328 8.2 17.2 113 1,215 6.2 15.7 23 68 5.4 1,260 0.3 1,260 378 30.0 881 38 843 843 0.9 10.9 87.9 87.9 1.0 10,472 840 9,632 9,632 24.7 8,123 5,777 1,228 526 592 1,509 13.6 15.7 121 1,388 14.2 14.4 41 107 7.4 1,454 15.4 1,454 434 29.8 1,021 32 989 989 17.3 10.3 103.1 103.1 17.3 12,121 924 11,198 11,198 16.3 9,384 6,719 1,377 672 616 1,814 20.2 16.2 149 1,665 20.0 14.9 41 142 8.0 1,766 21.5 1,766 530 30.0 1,236 50 1,186 1,186 20.0 10.6 123.7 123.7 20.0 14,285 1,101 13,184 13,184 17.7 11,048 7,911 1,622 791 725 2,136 17.7 16.2 176 1,960 17.7 14.9 39 142 6.9 2,063 16.8 2,063 609 29.5 1,454 1 50 1,404 1,404 18.4 10.6 146.4 146.4 18.4

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

October 30, 2012

Asian Paints | 2QFY2013 Result Update

Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Long term Provisions Other long term liablities Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 1,799 210 247 1,341 1,192 607 1,641 1,844 106 239 1,498 1,695 149 2,090 1,461 648 813 92 51 78 1,500 628 873 407 37 624 1,988 715 1,273 43 37 429 127 2,701 626 106 1,968 1,910 792 2,701 2,104 845 1,259 617 42 355 349 3,275 624 186 2,464 2,491 784 3,406 2,488 995 1,494 747 42 355 349 3,859 757 213 2,889 2,693 1,166 4,151 2,930 1,170 1,759 732 42 605 349 4,612 966 251 3,396 3,003 1,609 5,096 1,641 2,090 96 1,107 1,203 76 309 53 96 1,614 1,710 94 229 56 96 2,092 2,187 110 229 85 77 13 2,701 96 2,653 2,749 137 336 93 78 13 3,406 96 3,390 3,486 155 326 93 78 13 4,151 96 4,345 4,441 155 316 93 78 13 5,096 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

October 30, 2012

Asian Paints | 2QFY2013 Result Update

Cash flow statement (consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Interest / Dividend (Net) Direct taxes paid Others Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest / Dividend (Net) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2009 FY2010 FY2011 FY2012 622 74 (143) 7 197 (25) 337 (228) 198 (30) 0 (4) 197 7 (207) 100 111 210 1,255 84 134 (5) 373 12 1,105 (354) (546) (900) (79) 236 (5) (310) (105) 210 106 1,260 113 (245) (23) 378 56 783 (123) 195 72 0 357 (23) (334) 520 106 626 1,454 121 (412) (7) 434 223 946 (690) 74 (616) 107 446 (7) (332) (2) 626 624 FY2013E 1,766 149 (216) (30) 530 (65) 1,074 (513) (513) (10) 449 (30) (429) 132 624 757 FY2014E 2,063 176 (245) (32) 609 (40) 1,314 (427) (250) (677) (10) 449 (32) (427) 209 757 966

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

October 30, 2012

Asian Paints | 2QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) 3.7 51 38 68 26 4.5 52 30 75 2 3.9 62 27 77 8 4.6 61 30 80 6 4.5 61 30 76 13 4.5 61 30 73 18 39.8 35.0 36.4 61.3 59.3 57.4 50.7 56.6 43.3 45.4 50.8 40.1 44.1 42.6 38.1 42.4 42.1 35.4 41.8 41.8 49.2 17.5 125.4 87.0 87.0 95.8 27.0 178.3 87.9 87.9 99.7 32.0 228.0 103.1 103.1 115.7 40.0 286.5 123.7 123.7 139.2 40.0 363.4 146.4 146.4 164.7 40.0 463.0 92.8 78.9 31.0 0.5 6.8 55.6 22.7 44.6 40.5 21.8 0.7 5.5 29.9 17.6 44.2 39.0 17.0 0.8 4.7 27.3 13.4 37.7 33.6 13.6 1.0 3.8 24.0 10.7 31.4 27.9 10.7 1.0 3.2 19.9 8.7 26.5 23.6 8.4 1.0 2.7 16.7 7.0 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

October 30, 2012

Asian Paints | 2QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Asian Paints No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

October 30, 2012

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