Asian Paint

Institutional
Equity
Research
FMCG | India
Asian Paints
APNT IN; ASPN.BO
Sagarika Mukherjee
+91 22 4227 3386
sagarika.mukherjee@sbicapsec.com
SBICAP
Research on Bloomberg SBICAP <GO>, www.securities.com
July 17, 2014
SBICAP Securities Ltd (SSL)

Mafatlal Chambers, A-Wing
2nd Floor, N.M. Joshi Marg
Lower Parel, Mumbai - 400013
+ 91-22-4227 3300/01
sbicapresearch@sbicapsec.com
Please refer to our disclaimer given at the last page.
Asian Paints: Transforming dreams to dcor; Initiating with HOLD
SBICAP Securities Ltd
Table of Contents
Back Executive summary Transforming dreams to dcor .................................................................... 3

Industry growth drivers for decorative paints ........................................................................................... 4
Change in consumer behavior to propel growth and premiumization ....................................................... 6
Investment Rationale ............................................................................................................................... 7
Top line CAGR for APNT in F15e-16e expected to be 15% led by 10% CAGR in volumes ............. 7
Operationally strongest and most dynamic in changing the paints industry landscape ................... 10
Rapidly spreading and far reaching distribution network ................................................................. 11
Benign prices for Titanium Dioxide in our assumptions ................................................................... 13
APNT leads the sector in terms of pricing actions ........................................................................... 15
Ad-spends are on the rise due to several product launches ............................................................ 16
EBITDA margin to increase by 60bps in F15-16e ........................................................................... 16
Earnings growth expected to be 20% in F15-F16e ......................................................................... 17
Financial Snapshot ................................................................................................................................ 18
Valuation ................................................................................................................................................ 23
Key Assumptions .................................................................................................................................... 23
Key Risks ............................................................................................................................................... 23
Company Description ............................................................................................................................. 24
Financials ............................................................................................................................................... 30
July 17, 2014 | 2
Initiating Coverage
Current price (16 Jul)

Target price
Upside/(downside)
HOLD
Rs
Rs
%
Market data
Mkt capitalisation
Average daily vol
52-week H/L
Shares O/S
Free float
Promotor holding
Foreign holding
Face value
Transforming dreams to dcor; Initiating with HOLD

We initiate coverage on Asian Paints (APNT) with a HOLD rating and a target
price of Rs592. We value APNT at 32x F16e EPS of Rs18.5 in line with historical
valuations. We are not compressing the multiple despite deceleration in
earnings growth due to superiority in terms of product offerings, efficient
supply chain and vast distribution network that is 2x the next largest
competitor. Nonetheless, earnings growth in F15-16e, expected to be 20% p.a.
led by 15% top line growth and benign raw material inflation, is promising.
580
592
2
Rs bn
'000
Rs
mn
mn
%
%
Rs
556.2
638.9
604 / 373.4
959.2
452.8
52.8
18.0
1.0
Earnings growth expected to decelerate to 20% p.a.: We believe that top line
growth will be at 15% (10% volume growth) in F15-16e period, a shade lower than
19% CAGR (13% volume growth) registered in F04-14 period, in line with fall in
GDP growth rate estimates. We have pencilled in a realisation increase of 5% in F1516e period in-line with average WPI inflation in paints/distempers and benign TiO2
prices. We believe ad-pro expenses are expected to rise by 100bps due to new
product launches in the premium end and BTL activities for increasing reach in the
rural markets. EBITDA margin will increase marginally by 60bps in this period led by
120bps expansion in gross margin. Earnings expected to grow at 20% p.a in F15e16e.
Price performance (%)

Nifty (abs)
Stock (abs)
Relative to Index
1m
1.2
7.4
6.2
3m
14.2
8.4
(5.8)
6m
20.7
17.0
(3.7)
1yr
28.0
19.9
(8.1)
Performance
700
(Rs)
600
500
400
300
Jul-13 Oct-13 Jan-14
Asian Paints (LHS)
Source: Bloomberg, SSLe
(%)
40
30
20
10
0
Apr-14
(10)
Jul-14
Rel. to BSETMCG (RHS)
Operationally strongest and most dynamic in changing the industry landscape:

Asian Paints has a strong supply chain as 1) it has rapidly identified lucrative
catchment areas and set-up depots to achieve the shortest delivery time of 4-5 hrs
compared to 24 hrs of other players. 2) It has a wide product portfolio that spans all
price points (distempers to premium emulsions). The company is able to deliver 9095% of the order placed as inventory availability is high at all times as compared to
60-65% of other players. 3) The inventory churn is much faster (15 days of APNT
compared to 1.5months of others) due to strong supply chain and wider distribution
network at all levels (CNF, dealers, retailers and contractors).
Initiate coverage with HOLD rating and TP Rs592: APNT has traded at 34x/32x
historically for 3yr/2yr average. We estimate APNT will deliver 20% earnings growth a
tad lower than 24% average delivered in F04-14 period. However, we believe it will
command a premium over other companies due to its size, network, and innovation
capabilities. Hence we value the company at 32x F16e EPS of Rs18.5 with a
target price of Rs592 and HOLD rating on the stock.
Key risks to our call: Delay in kick starting the economy and volatility in TiO2 prices
and fluctuation in foreign exchange rates
Financial Summary
Y/E March (Rs mn)
Sales (mn)
F12
F13
F14e
F15e
F16e
96,322
109,386
127,148
144,449
168,758
16.8
Growth(%)
24.7
13.6
16.2
13.6
EBITDA margin (%)
15.7
15.9
15.7
16.1
16.3
9,652
10,919
12,288
14,749
17,706
EPS (Rs)
10.3
11.6
12.7
15.4
18.5
Growth(%)
17.3
12.7
9.4
21.0
20.0
P/E (x)
56.3
49.9
45.6
37.7
31.4
0.7
0.8
0.9
1.1
1.3
ROCE(%)
46.8
43.8
41.0
40.2
40.7
ROE(%)
39.1
35.6
33.1
33.3
33.5
Net Profit (mn)
Dividend yield (%)
Source: Company, SSLe
July 17, 2014 | 3
Industry growth drivers for decorative paints

Volume growth in decorative paints is cyclical in nature
Historically, the correlation between real GDP growth rate and volume growth
witnessed for top 5 paint players has been quite high as the product is very
discretionary in nature. The GDP factor (x) is around 2x for the top 5 players (Asian
paints, Berger, Kansai Nerolac, Akzo Nobel, Shalimar paints) in the industry (which
comprise 74% of the paints market). In F08-14 period, the industry registered a
CAGR of 18% of which 10%/8% was volume/price growth respectively.
2.5
13.5
2.0
(%)
18.0
9.0
1.5
4.5
1.0
(x)
Decorative paints growth linked with GDP
0.5
0.0
F04
F05
GDP (LHS)
F06
F07
F08
F09
F10
F11
Volume growth (RHS)
F12
F13
F14
Correlation factor (LHS)
Source: IMF, APNT, Berger Paints, Kansai Nerolac, Akzo Nobel, Shalimar, SSLe
Asian paints (2.2x) and Berger paints (2.3x) are the only two companies that have
correlation factor higher than that of the overall industry indicating that their volume
growth is a tad bit higher than others. APNT and Berger also have a higher
contribution coming from decorative paints rather than industrial and auto paints,
which is the case with Akzo Nobel and Kansai Nerolac. As a result, the volume growth
for Kansai Nerolac and Akzo Nobel are more susceptible to the economic cycles and
off late the moderation in 2-wheelers and passenger car vehicles have adversely hit
them.
36
16,000,000
32
2,100,000
24
12,000,000
24
1,400,000
12
700,000
(No. of units)
2,800,000
0
F09
F10
Passenger (LHS)
F11
F12
F13
4,000,000
0
F08
F14
Growth (RHS)
16
(12)
F08
8,000,000
(%)
Two wheeler volumes show salience in this environment
(%)
(No. of units)
Indian passenger car vehicles market de-grew in 2013-14

leading to pressure on automotive paints demand
F09
F10
F11
Two Wheelers (LHS)
F12
F13
F14
Growth (RHS)
Source: SIAM, SSLe
July 17, 2014 | 4
APNT has stabilized volume growth and gained market share

100%
90%
Market Share(%)
80%
70%
60%
50%
40%
30%
20%
10%
APNT
Kansai
Berger
Akzo
F13
F12
F11
F10
F09
F08
F07
F06
F05
F04
F03
F02
F01
F00
F99
F98
F97
F96
F95
F94
F93
0%
Shalimar
Source: APNT, Berger Paints, Kansai Nerolac, Akzo Nobel, Shalimar, SSLe
Industrial and auto data indicate moderation in

growth going ahead.
Industrial growth remains sluggish leading to contraction in demand for

industrial paints
The Index of Industrial Production (IIP) declined by -0.1% F14, compared with 1.1 % in
F13. Contraction in consumer durables and capital goods were the key reasons
behind contraction in the index, hence showing that demand from industrial and
automotive segment (coil and protective coatings) continues to be under pressure.
Data suggests contraction in industrial output leading to weak demand for
industrial paints.
Growth over corresponding period of previous year

Period
Basic
Weight
Capital
456.82
88.25
Intermediate
Consumer
goods
156.86
Durables
298.08
84.6
Nondurables
General
213.47
1000
2005-06
6.1
18.1
6.6
10.7
16.2
8.6
8.6
2006-07
8.9
23.3
11.5
16.1
25.3
12.3
12.9
2007-08
8.9
48.5
7.3
17.6
33.1
10.2
15.5
2008-09
1.7
11.3
0.0
0.9
11.1
(5.0)
2.5
2009-10
4.7
1.0
6.0
7.7
17.0
1.4
5.3
2010-11
6.0
14.8
7.4
8.5
14.2
4.2
8.2
2011-12
5.5
(4.0)
(0.6)
4.4
2.6
5.9
2.9
2012-13
2.5
(6.0)
1.6
2.4
2.0
2.8
1.1
2013-14
2.1
YTD FY15
6.8
Source: CSO, SSLe
(3.6)
9.3
3.1
3.0
(2.8)
(0.7)
(12.2)
(2.5)
4.8
0.5
(0.1)
4.1
IIP Index Industrial growth remains sluggish

18
15.5
12.9
(%)
13
8.6
8.2
8
5.3
4.1
2.9
2.5
1.1
(0.1)
(2)
F06
F07
F08
F09
F10
F11
F12
F13
F14
YTD
F15
Source: CSO, SSLe

July 17, 2014 | 5
Change in consumer
premiumization
Paint companies poised to benefit from changing

consumer preferences and favorable demographics
in India
behaviour
to
propel
growth
and
Economic growth and higher disposable income has led to a shift in demand
India has grown at an average annual rate of 7.3% in the past decade with an
accelerated growth for a period of four years in F04-08 where the growth average
around 8.8%. The rapid economic growth had increased and enhanced employment
and business opportunities and in turn increased disposable incomes. The benefits of
growth trickled down, increasing the number of people from the economically weaker
class to join the middle class. This phenomenon has led to shift in demand from
unbranded to branded consumer goods like from lime to distempers in rural areas and
to high-end emulsions in urban areas. This trend is supported by the fact that
emulsions (interiors & exteriors) have registered the fastest growth (23.9% & 27%
respectively) within the various categories of paints in F08-14 period while the industry
registered a CAGR of 18% (10%/8% was volume/price growth respectively).
Distempers, cement paints and enamels were laggards during the same period.
Exterior emulsion paints have grown explosively at the cost of cement paints
and lime colours
27
28
23.9
14
17.8
11.4
10.80
8.6
8.6
Wood
Finishes
Cement
paint
Distemper
Exterior
Emulsion
Interior
Emulsion
Enamel
Putty
5.1
Primers,
Thinners
(%)
21
Source: Industry, SSLe
Urbanization set to increase by 2% p.a. till 2030 which will provide support for
growth in decoratives: Urbanization in India has increased from 27.9% in 2001 to
31% in 2011. As per industry estimates, the population in urban areas will increase to
560 mn (40.1% of population) in 2030 from 360mn (29.4% of population) in 2008,
registering a growth of 2% p.a. which is an additional support for volume growth in
decorative paints.
Repainting cycle has shortened from 10 yrs to 7 yrs as colour trends change
every year: As per APNT management, repainting comprises 70% of the volumes in
decorative category and the cycle has gradually shortened from 8-10 years to 6-7
years. More and more customers, especially in the urban areas have taken to the idea
of good-looking houses and now like to apply colour effects according to the latest
trends in walls paints. APNT has launched ColourNext in 2003 which is a research
based annual trend forecasting initiative, which predicts the colours that are likely to
have the most influence on Indian interiors every year. ColourNext is the outcome of
extensive research spread over six months involving over 100 designers and multidisciplinary experts from across India studying societal, lifestyle and design trends.
July 17, 2014 | 6
Investment Rationale
Top line CAGR for APNT in F15e-16e expected to be 15% led by 10% CAGR in
volumes for decorative segment
APNT has registered sales CAGR of 19% in F04-14 period led by volume growth in
decorative segment of 13% in the same period. We believe the volume growth will be
around 10% in next two years as per the GDP growth of 5.1%/6.3% in F15e/F16e and
applying a factor of 1.7x (in-line with factors taken from years when GDP growth was
subdued). Price led growth will be 5% in line with the pricing action of 6% taken by
APNT in F04-14 period. WPI inflation for paints since 2004 also suggests that price
increases have been around 5-6% on average every year. Industrial and auto paints
are expected to be flat during this period and pricing action is very marginal in this
segment.
GDP growth expected to fall to 6.3% levels from 7.3% seen in the last decade
12
GDP growth(%)
F91
F92
F93
F94
F95
F96
F97
F98
F99
F00
F01
F02
F03
F04
F05
F06
F07
F08
F09
F10
F11
F12
F13
F14
F15e
F16e
Source: IMF, SSLe
5.0
17.5
3.5
10.0
2.0
2.5
0.5
(5.0)
GDP Growth % (LHS)
(x)
25.0
F92
F93
F94
F95
F96
F97
F98
F99
F00
F01
F02
F03
F04
F05
F06
F07
F08
F09
F10
F11
F12
F13
F14
F15e
F16e
(%)
Volume growth linked to GDP
(1.0)
Sales Growth % (LHS)
GDP Multiplier (RHS)

Source: IMF, Company, SSLe
July 17, 2014 | 7
Decoratives Sales (LHS)
(%)
F16e
F15e
F14
0
F13
0
F12
F11
40,000
F10
15
F09
80,000
F08
23
F07
120,000
F06
30
F05
160,000
F04
(Rs mn)
Decorative sales registered CAGR of 19% in F04-14 period
Growth (RHS)
Sales quantity became 13x in 20 years; volume CAGR expected to be 10% in

F15-16e period
25
900,000
18
600,000
10
300,000
(5)
F91
F92
F93
F94
F95
F96
F97
F98
F99
F00
F01
F02
F03
F04
F05
F06
F07
F08
F09
F10
F11
F12
F13
F14
F15e
F16e
(%)
(KL)
Volume growth will decelerate to 10% from 13% in

F04-14 period
1,200,000
Sales Quantity (LHS)
Growth (RHS)
Increase in realization for product portfolio of APNT

24.0
20.8
16.5
(%)
13.8
10.1
9.8
9.0
7.1
6.2
8.4
6
1.3
1.5
1.6
(2.1)
4.2
3.2 3.3
2.1
(4.4)
(1.1)
4.8
(0.7) (0.1)
(1.0)
F92
F93
F94
F95
F96
F97
F98
F99
F00
F01
F02
F03
F04
F05
F06
F07
F08
F09
F10
F11
F12
F13
F14
F15e
F16e
(2.5)
(6.0)
1.4
July 17, 2014 | 8
Increase in realization for APNT in line with WPI inflation in paints (~4-5%)
20%
Dec-12
May-13
Oct-13
Apr-14
Dec-12
Oct-13
Apr-14
Jun-12
Jun-12
May-13
Jul-11
Jan-12
Jul-11
Jan-12
Feb-11
Sep-10
Oct-09
Mar-10
Apr-09
Nov-08
May-08
Jul-07
Dec-07
Jan-07
Feb-06
Aug-06
0%
Apr-05
10%
Sep-05
We believe WPI inflation in paints can be looked at

as a benchmark for price increases
WPI Inflation (%)
30%
-10%
Source: CSO, SSLe
WPI Inflation in distemper Average around 4-5%
20%
Feb-11
Sep-10
Mar-10
Oct-09
Apr-09
Nov-08
May-08
Jul-07
Dec-07
Jan-07
Apr-05
Sep-05
0%
Feb-06
10%
Aug-06
WPI Inflation (%)
30%
-10%
Source: CSO, SSLe
The overseas business registered a CAGR of 15% in F04-14 period and is expected
to grow at 13% in F15-16e period. We have pencilled in slight moderation taking into
account the muted GDP growth estimates for respective regions.
Middle East and Asia have been the fastest growing geographies
20
18.9
18.3
16.2
15.0
15
(%)
12.5
12.5
10.3
9.0
10
5.1 5.3
5
0
Total
Caribbean
Middle East
F07-14
Asia (South South Pacific

Asia + SE Asia)
F15-16e
July 17, 2014 | 9
Operationally strongest and most dynamic in changing the paints

industry landscape
APNT has leveraged relevant information

technology trends to fine tune the supply chain to
target products and services to the right audience
and at the right time.
Leveraging relevant technology trends to make supply chain more efficient

Asian Paints has a strong supply chain as 1) it has rapidly identified lucrative
catchment areas (smallest sales of around Rs100-200mn) and set-up depots around it
to cater to the local demands. This has let them achieve the shortest delivery time of
4-5 hrs compared to 24 hrs of other players. 2) it has a wide product portfolio that
spans all price points (distempers to premium emulsions). The company is able to
deliver 90-95% of the order placed as inventory availability is high at all times as
compared to 60-65% of other players. 3) the inventory churn is much faster (15 days
for Asian Paints compared to 1.5months of others) due to strong supply chain and
wider distribution network at all levels (CNF, dealers, retailers and contractors). The
strength of its network and supply chain has giving it the pricing power to charge a
premium of 5% over other players in all the segments.
APNT has leveraged relevant information technology trends to fine tune the supply
chain to reduce stock-outs. The CRM platform has been strengthened to form an ideal
place to target products and services to the right audience and at the right time.
Growth strategy is fuelled by strong R&D support

to launch new products and enhance capabilities.
APNT launched 16 new products in decorative
segment in F14 spanning interiors/exteriors and
water proofing segment
Extremely active R&D team fueling growth strategy with new products and
capabilities: APNT has a strong focus on new capabilities/ development for new
products, feature enhancement of existing products and productivity improvement and
cost reduction. In F14, APNT launched 16 new products in the decorative segment. In
the exterior wall coating segment, your Company has launched the top end new
product Ultima Protek based on in house developed acrylicnanosilica hybrid
emulsion which comes with ten years warranty. Apcolite Advanced - an interior mid
segment emulsion paint with excellent stain cleanability and burnish resistance. In the
recent past APNT has also commercialized several brands in the wall putties and
water proofing segment.
Apcolite advanced was launched to bridge the gap between Apcolite Premium
Emulsion and Royale. The key highlight in the interior emulsion category has been
the nationwide launch of Royale Aspira.
16 new product launches in F14 to reduce dependence on enamels and
distempers
Apcolite advanced was launched to bridge the

gap between Apcolite Premium Emulsion and
Royale. The key highlight in the interior emulsion
category has been the nationwide launch of
Royale Aspira.

July 17, 2014 | 10
Rapidly spreading and far reaching distribution network

Colour world stores have grown at CAGR 20% in F04-14 period aiding the
volume growth of 13% witnessed in the same period
In 1998, the tinting machine made its advent in the paint market, which allowed
customers to mix colours to get the particular shade they wanted. The advent of tinting
machines also made the supply chain more efficient. Typically, fewer SKUs (stockkeeping units) mean less choice for the customer but tinting machines allow the
dealers to hold far less inventory than they would otherwise need to offer customers a
choice of 1,300 colours. The machines brought more customers into the shops, the
dealers became more involved in the product and that increased the awareness about
the brand. The wide product offering in terms of finishes/colours/effects etc are
changing the perception about interior/exterior paints in the consumers mind and the
widespread network of colour worlds/ colour idea stores is making the customer more
involved in product purchasing.
Rapid expansion of its network and installation of

tinting machines at dealer level has given a first
mover advantage to APNT and has led to higher
barriers to entry
Colour world stores with tinting machines introduced to customize colours and
increase customer involvement
APNTcolourworldstore
F10
F11
27,000
23,800
20,000
15,000
12,000
8,500
7,000
15,000
7,000
5,500
14,000
10,000
21,000
4,300
(No. of stores)
28,000
F04
F05
F06
F07
F08
F09
F12
F13
F14
Tinting machines available with dealers

24,000
(Nos)
18,000
27000
12,000
6,000
12000
7500
5500
0
APNT
Berger Paints
Kansai Nerolac
Akzo Nobel
Source: Company, Industry, SSLe
July 17, 2014 | 11
Spreadingthe color idea store to promote

premium paints among customers and provide
painting services.
APNT zoomed past the other players in terms of

installing tinting machines at distributor level. Tinting
machines provide flexibility in terms of inventory
management and reduces the requirement to predict
specifications of future demands.
APNT is driving colour consultancy services to educate consumers: Colour idea

stores are award winning concept stores which provide expert advice from
experienced colour consultants and services required for painting the house. The idea
is to provide the consumer with the right ambience in which to check out all the options
and get some advice, especially since not all dealers have the resources or time to
educate customers. Currently APNT has 160-170 colour idea stores and these stores
have successfully promoted premium, smooth and texture paints and colour
consultancy services were extended to 28000 customers in FY13.
Rapidly spreading the network of colour world stores has given them the first
mover advantage; raised barriers to entry: Asian Paints has total retail reach of
about 35k outlets of which Colour World dealers comprise 27k across the country.
Asian Paints has 27k tinting machines with dealers compared to 12k of Berger. In
2001, Asian Paints had 2750 tinting machines in the market and they have grown by
12x in 2001-13 period. We gathered that each company has an exclusive tinting
machine which cannot be used to produce shades of other brands. Since Asian Paints
has a wide colour portfolio and has products that span all price points, it could rapidly
tie up with dealers/retailers across the country (initiative began pre-2001) by supplying
tinting machines and banking facilities for the same. Cost of a tinting machine is Rs3.5
lac (was around Rs5lac in 2001) and around Rs2-2.5lacs is borne by the dealer
himself. They have a three way arrangement with banks which provide credit to
dealers for buying the machine from paint companies. Secondly, the pay-back period
for the machine is around 5 years. Initially Asian Paints used to bear the cost of the
installation which the dealer would pay back in terms of lease arrangements. This
raised entry barriers for other players (Berger, Akzo Nobel, Kansai Nerolac) as having
a single tinting machine was sufficient and optimal to meet the demand.
July 17, 2014 | 12
We pencil in benign prices for Titanium Dioxide in our assumptions

Titanium Dioxide prices expected to remain benign this year; packaging material
expected to rise by 6% p.a.
Titanium Dioxide or white pigment forms the bulk of the costs for paint manufacturers.
For APNT pigments (80% white pigment, 20% coloured) form 35% of the cost basket.
Titanium Dioxide prices shot up steeply in 2012 due to artificial shortage created by
major producers of it in the world in order to raise prices. The prices were up by 40%
in 1HC12 due to the same while the entry of Chinese players into the market helped in
easing the prices. Post that, the prices fell by 10-12 % in 2013. We believe that prices
will see moderate inflation of 2% in C14 as has been the trend in prices until now.
Packaging costs (14% of total COGS) have risen by 18% in F14, of which inflation was
~6%. For F15-16e we expect the prices to rise by 6% p.a. for APNT in line with the
trend seen in prices until now. As a result we expect the gross margin of APNT to
expand by 120 bps to 43.5% in F16e from F14 levels. APNT has taken a price hike of
2.2% till May14.
Titanium Dioxide forms the largest component of the cost basket (F14)
Raw material breakup
Others
5%
Acetaldehyde
0%
Monomers
15%
Methanol
0%
Ortho Xylene
0%
Pigments,Exten
ders, Minerals
36%
Oils
6%
Resins
4%
Solvents
16%
Additives
18%
WPI inflation in titanium Dioxide a key indicator of cost inflation for APNT
40%
Apr-14
Oct-13
Dec-12
May-13
Jun-12
Jul-11
Jan-12
Feb-11
Sep-10
Oct-09
Mar-10
Apr-09
Nov-08
May-08
Jul-07
Feb-06
Aug-06
Apr-05
Sep-05
0%
Dec-07
20%
Jan-07
WPI Inflation (%)
60%
-20%
Source: CSO, SSLe
July 17, 2014 | 13
Inflation in pigment prices from the actual purchase made by APNT

40
38.1
38.6
30.8
Inflation (%)
30
25.8
26.2
20
14.0
10
12.8
10.0
9.1
9.9
4.1
0
F04
F05
F06
F07
F08
F09
F10
F11
F12
F13
F14
July 17, 2014 | 14
APNT leads the sector in terms of pricing actions

Paint companies regularly pass on the inflation to the end consumer by taking
price hikes: Material costs form 43% of total painting costs (paints + labour charges)
where paint costs could range from Rs20/sq.ft (low end distemper brand) to
Rs37.8/sq.ft. (high end premium emulsion brand) depending upon the brand of paint
used. We believe consumers are not affected by price increases because bulk of the
volumes for decoratives (60-70% of the volumes) comes from repainting which
happens in a cycle of 7-8 years. Secondly, we believe decoratives also fetch the
festival demand and the wedding season in which consumers are flexible in terms of
shelling out the extra amount for special occasions.
Actual price increases taken by APNT
16
13.1
12.0
12.3
(%)
12
8
6.5
5.1
4
3.9
3.6
2.2
0
F08
F09
F10
F11
F12
F13
F14
F15

Note: Data as of May14
APNT has managed to maintain realization

growth in line with price increase showing no
major down trading
Realization growth has been in-line with price hikes showing no major down
trading: Actual price hike taken by APNT (56.5% over last 6 years) is only slightly
higher than the increase in realization (42.9% over last 6 years) of APNT suggesting
that there was no down trading despite the steep hikes taken in certain years.
Additionally it suggests that there was a higher growth registered in the low end of the
product portfolio due to consumers in rural markets switching to branded distempers
from lime wash. Brands like Tractor Emulsion (Rs150/lt), Utsav Acrylic Distemper
(Rs87/kg) and Utsav Enamel (Rs200/lt) have made significant inroads and helped
convert consumers from using unbranded paints/distempers to adopt acrylic
distempers (2x the price of distempers).
Average realization for APNT has grown by 56.5% over last 6 years
12
10.1
9.8
8.4
9
6.2
(%)
6
5
5
3.3
2
F08
(2)
F09
F10
(1.0)
F11
F12
F13
F14
F15e
July 17, 2014 | 15
Ad-spends on the rise due to several product launches

Popularity of branded paints increasing with desire to embellish existing
dwelling units; APNTs ad-spends/discounts on the rise to capture the market
There is an urge for better looking homes (reflected in Har ghar kuch kehta hain
campaign by APNT) driven primarily by increased education and availability of
information and then, by rising incomes. The paints industry has given a fillip to this
demand by continuously innovating in terms of product range (Royale brand of paints
by APNT was launched at the top end of interior paints category with variants like
Special effects and Metallics to render extra smooth finishes with certain designs),
durability (APNT tied up with Dupont USA to co-brand the Royale range of emulsions
with Teflon which renders toughness and durability) to pricing points (Tractor
premium distemper brand and Utsav -economy brand of APNT are present in acrylic
distemper category at very low price point to upgrade consumers from lime/cement
paints to a basic distemper). The industry as a whole is also shifting away from
enamels (75% crude content, oil based paints) to emulsions (35% crude based and
water based paints) and developing environment friendly paints with VOC (volatile
organic compounds) levels standardized under Green seals GS-11 framework.
We expect ad-spends/ discounts to be on the rise for APNT as they are driving
consumption and penetration
11.2
7.7
7.9
7.6
F06
F05
12
F04
(Ad-spends % of sales)
16
13.0
12.1 11.8 12.0 12.5 12.3
13.5
14.2 14.6
F16e
F15e
F14
F13
F12
F11
F10
F09
F08
F07
EBITDA margin to increase by 60bps in F15-16e; gross margin benefits likely to

be ploughed back in to ad-spends/discounts and commissions
20
18.5
17.2
EBITDA Margin(%)
14.9
15
13.0 12.8 12.7 13.0
15.7 15.9 15.7 16.1 16.3
12.3
10
F16e
F15e
F14
F13
F12
F11
F10
F09
F08
F07
F06
F05
F04
July 17, 2014 | 16
We expect earnings growth for F15-16e period to be around 20% p.a. for APNT led by
higher other income and stable tax rates ~30%. APNT is expected to record lower
capex during the next couple of years as it has recently completed its expansion
program in Khandala and Rohtak. This will lead to higher cash accruals and other
income from investments. Effective tax rate is expected to be at 30% for next couple of
years as per managements guidance. We estimate an EPS of Rs15.4/18.5 in
F15e/F16e as per our assumptions.
Earnings growth expected to be 20% in F15-F16e led by higher other income due
to low capex
120
110.0
80
17.3
12.7
9.4
21.0
20.0
F15e
21.5
F14
20.7
F13
32.5
40
F12
(%)
45.6
0.9
(2.8)
F11
F10
F09
F08
F07
F06
F05
F04
(40)
July 17, 2014 | 17
Financial Snapshot
Sales growth accelerated in 2009-14 period compared to 2004-08 period
APNT registered a CAGR growth of 18-19% in the ten year period of 2004-14 of which
the 2004-08 period was marked by a higher volume growth of 16% compared to 12%
in 2009-14 period. This was a reflection of buoyant economic growth witnessed in
2004-08 period (GDP growth 8.8%) compared to 2009-14 period (GDP growth 6%).
Decoratives Sales (LHS)
(%)
F16e
F15e
F14
0
F13
0
F12
F11
40,000
F10
15
F09
80,000
F08
23
F07
120,000
F06
30
F05
160,000
F04
Volume growth has slipped from 16% in 2004-08

to 12% in 2009-14. Expected to fall further to
10% in 2015e-16e
(Rs mn)
Decorative sales registered CAGR of 19% in 2009-14 period
Growth (RHS)
Volumes grew at a CAGR of 12% in 2009-14 period

20
17.8 17.5
15
13.2
13.8
16.4 16.8
13.4
12.5
(Rs bn)
12.0
10
8.7
7.6
7.7
6.0
5
0
F04 F05 F06 F07 F08 F09 F10 F11 F12 F13 F14 F15e F16e
July 17, 2014 | 18
Realisations increased by 6% CAGR in 2009-14 period due to heavy focus on

water based paints and several product launches to drive premiumisation.
12
10.1
9.8
8.4
9
(%)
6.2
5
6
5
4.8
4.2
3.2
3.3
2.1
2
(2)
F04 F05 F06 F07 F08 F09 F10 F11 F12 F13 F14 F15e F16e
(1.0)
APNT also launched a variety of paints in the premium end (Royale Play Special
Effects, Royal Play Metallics, Royale Shyne and Royale Aspira) to upgrade
consumers from mid to premium level paints. The premium emulsions category saw a
revival in F14 with the re-launch of brand Apcolite with the proposition of dependable
performance. A new product, called Apcolite Advanced, was launched to bridge the
gap between Apcolite Premium Emulsion and Royale. Along with this, a significantly
improved packaging and endorsement by a celebrity cricketer created a lot of
excitement and sales in the mid segment of interior emulsions. The key highlight in
interior emulsion category has been nation-wide launch and subsequent success of
ultra luxury Royale Aspira last year. APNT also launched variety of premium brands
in exterior paints segment under the brand Apex Ultima and Ultima Protek (comes
with Teflon co-branding for its top coating).
APNT has the highest operating margin in the industry due to continued focus
on emulsions and product mix improvement
Decoratives as a % of sales risen from 77% in F04 to 82% in F14
84
82
83
82
82
F13
F14
81
79
(%)
Decoratives form the largest product segment

with 82% contribution
78
78
77
77
77
F06
F07
77
76
75
72
F04
F05
F08
F09
F10
F11
F12
Water based paints fetch higher realizations and margins (~500-600bps) and hence
add to the margin kicker for Asian Paints. Decoratives form 82% of the total sales for
APNT which takes the profitability levels higher as decorative paints fetch a margin of
16% as compared to 7% in industrial or automotive paints due to low pricing power,
dependence on OEMs and greater competitive intensity. Industrial paints fetch lower
margins as they are oil based paints.
July 17, 2014 | 19
Margin profile for different business segments

18
15.3
15.5
(%)
14
9
0
APNT
Decoratives
Automotive &
Industrials
Overseas
APNT identified the potential to upgrade customers at all levels (low end distempers,
mid and premium) way back in F05 when the company started heavily advertising its
offering in distempers on one end to convert consumers from using non-branded
paints to distempers.
Higher cash flow generation expected in next

couple of years due to low capex
Free cash flow generation expected to increase in future as most of the capex is
behind them
Asian paints has spent around Rs27.6bn as capex in 2004-14 period of which majority
of the spend ~Rs25bn was done in 2008-14 period as the company increased its
domestic paints capacity from 3.6lac KL in F08 to 9.4lac KL in F14. In F13, APNT
commissioned a state of the art manufacturing unit in Khandala with an initial capacity
of 3lac KL and added another 50,000 KL in Rohtak plant. APNT has already initiated
the phase 2 (phase 1 was completed in F11) expansion in capacity of Rohtak plant to
raise the capacity by another 2lac KL (current capacity 2 lac KL). The new capacity in
Rohtak is expected to be commissioned post F16. APNT has also announced another
set-up of manufacturing plant in Mysore which will be an integrated paint, resins and
emulsions factory, which again is expected to be commissioned post F16.
July 17, 2014 | 20
Installed capacity expanded by 2.5x in F08-14 epriodHeavy investment in capacity expansion already done
Installed capacity expanded by 2.5x in F08-14 periodwith in last couple of years
900,000
4,800
F16e
F15e
F14
F13
F12
F11
F10
F09
F08
F07
F16e
F15e
F14
F13
F12
F11
F10
F09
F08
F07
0
F06
0
F05
1,600
F04
300,000
F06
3,200
F05
600,000
F04
(Rs bn)
6,400
(KL)
1,200,000
Free cash flow generation expected to increase as capacity

expansion is done with
16,000
(Rs bn)
12,000
8,000
4,000
F16e
F15e
F14
F13
F12
F11
F10
F09
F08
F07
F06
F05
F04
July 17, 2014 | 21
Capacity was tripled in F05-13 period owing to strong growth in decoratives

Capacity
Expansion
Location
Purpose
Sriperumbedur , Chennai
Emulsions (5th Factory in India)
Taloja, Maharashtra (Green

Field)
Industrial Coatings (Work initiated)
FY06
6500 MT (Initial capacity of

1200MT) . First phase
designed to enable
production of 3000MT
Baddi, HP (Brown field)
Powder Coatings (2nd manufacturing unit). Will be commssioned in 4QFY06.

Capacity to be augmented in APICL. Acquired land in Baddi in FY05 by taking
100% equity in Surya Powder Coating Ltd (SPCL) . The first plant was located
in Sarigram , Gujarat. APNT well placed to cater to the Northern and western
markets.
FY07
30000 (Initial capacity of

14,000KL)
Taloja, Maharashtra (Green

Field)
Industrial Coatings (Commissioned). Helped in rationalising contract

manufacturers and has led to efficiencies in production and customer service
through manufacture and supply of bulk products from a single location.
FY07
100,000 KL
Ankleshwar
Received environmental and other clearances to produce 100,000KL p.a.
APPG acquired 10.43acres on lease from State Industries Promotion

Corporation of TN to set up a paint plant in Chennai
The capacity was increased due to explosive growth in emulsions
FY05
FY05
FY07
FY07
Capacity
30000 (Initial capacity) Scalable to 1,00,000 KL
30000 (Initial capacity of
14,000KL)
To enhance the auto JVs

supply capability to
automotive OE customers
Expanded capacity to
50,000KL
FY08
FY08
Secured Land
FY08
Sarigram
Plant capacity expanded to meet powder coatings demand
Rohtak
Secured land in Rohtak to expand capacity by 2010
Polymer Plant commissioned during 1QFY08
FY08
3200KL
To enhance the auto JVs supply capability to automotive OE customers.

APPG's first manufacturing unit.
FY09
100,000KL
The capacity was increased due to explosive growth in emulsions
FY09
150000KL
Rohtak , Haryana
FY09
150000KL
140,000KL
Rohtak , Haryana
Erection of 6th plant of APNT going as per schedule to be commissioned in

2010-11
Commissioned
Continued bouyancy in demand for emulsions.
FY10
FY10
300000KL
Khandala
Land acquired in Kesurdi
FY11
150000KL
Rohtak , Haryana
Emulsions (Phase 1) - commissioned
FY12
50000KL
Rohtak , Haryana
Emulsions (Expansion)
FY13
300000KL
Khandala
Emulsions plant commissioned
Source: Company,SSLe
Future Plans: Addition of around 9lacs KL, almost doubling the current capacity in next 7-8 years
Capacity
Expansion
Capacity
Location
Purpose
By F16e
200000KL
Rohtak , Haryana
Emulsions (Phase 2)
Post F16e
700000KL
Mysore, Karnataka
Mysore Integrated Paint & Resins / Emulsions Manufacturing Plant Project.

Capex involved Rs26.5bn
Source: Company,SSLe, CMIE
July 17, 2014 | 22
Valuation
Initiate coverage with HOLD rating and TP Rs592:
Earnings growth in F15-16e is expected to be 20% p.a. led by 15% top line growth and
benign raw material inflation. APNT has traded at 34x/32x historically for 3yr/2yr
average. We estimate APNT will deliver 20% earnings growth a tad lower than 24%
average delivered in F04-14 period. We are not compressing the multiple despite
deceleration in earnings growth due to superiority in terms of product offerings,
efficient supply chain and vast distribution network that is 2x the next largest
competitor. Hence we value the company at 32x F16e EPS of Rs18.5 with a target
price of Rs592 and HOLD rating on the stock.
1-yr Fwd Rolling P/E Chart
600
40
450
30
(x)
300
150
20
10
Apr-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Dec-13
Jun-14
Price
15x
20x
25x
30x
32x
0
Apr-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Dec-13
Jun-14
(Rs)
1-year Forward P/E Band
34x
price (Rs)
Average
1-Std
(-) 1 Std
Key Assumptions
F14e
F15e
F16e
12.5
Decoratives volume growth(%)
7.6
7.7
Inc in realisation(%)
6.1
5.0
5.0
Net sales growth (%)
16.2
13.6
16.8
Gross margin(%)
42.3
43.3
43.5
6.0
6.1
6.0
13.5
14.2
14.6
Employee expenses (% of sales)

Ad-spends (% of sales)
EBITDA growth(%)
15.2
16.2
18.2
EBITDA margin (%)
15.7
16.1
16.3
Source: SSLe
Key risks:
1)
Delay in pick up in investment cycle in India could lead to lower than

expected volume growth
2)
Rupee depreciation against the dollar could lead to erosion of margin
3)
Steep increase in titanium Dioxide prices could lead to price increases and
hence weaken volumes
4)
We suspect the recent foray into household improvement sector to capitalise

on the existing network of hardware stores could be margin dilutive and
capital intensive.
July 17, 2014 | 23
Company Description
Asian Paints (APNT) is Indias largest (54% market share) and Asias third largest
paint company, with a turnover of Rs. 127.15 bn and net profit of Rs12.3bn. APNT
operates in 17 countries and has 23 manufacturing facilities in the world servicing
consumers in over 65 countries with 7000 employees worldwide. Domestic decorative
segment forms the largest (82% of sales) and most profitable segment (92% of profits)
for APNT. The group operates in five regions across the world (14% of sales) with
market leadership in most of the geographies. APNT has the widest distribution
network in the industry with retail reach of 35,000 outlets of which 27000 are colour
world outlets.
Decorative Paints: Largest business segment with 82% market share; key driver
of growth
In Decorative paints, APNT is present in all the four segments v.i.z Interior Wall
Finishes, Exterior Wall Finishes, Enamels and Wood Finishes. It also introduced many
innovative concepts in the Indian paint industry like Colour Worlds (Dealer Tinting
Systems), Home Solutions (painting solutions Service), Kids World (painting solutions
for kids room), Colour Next (Prediction of Colour Trends through in-depth research)
and Royale Play Special Effect Paints, just to name a few.
Decoratives form the largest and the most profitable segment for APNT
Decorative
82%
International
14%
Industrial
and
Automotive
4%
Decoratives
, 92%
International
, 8%
Industrial &
Automotive
, 0%
APNT has always been a leader in the paint industry with 54% market share in the
domestic decorative paints market. Decorative paints account for 75% of the overall
paint market (~Rs300bn) in India which is touted to be at Rs230bn which has grown at
16% CAGR in 2005-14 period. APNT has been at the fore front of innovation,
technology and marketing initiatives in order to drive further penetration and
premiumization within the existing customer base. APNT has been pushing new
concepts in India like Colour Worlds, Home Solutions, Colour Next, and Kids World to
increase the customers engagement in the choice of colours and the whole painting
process which in turn leads to higher realizations (due to adoption of products at the
premium end) and increases the frequency of painting as well.
Industrial and automotive coatings contribute 4% to the company revenues
Asian Paints also operates through PPG Asian Paints Pvt Ltd (50:50 JV between
Asian Paints and PPG Inc, USA, one of the largest automotive coatings manufacturer
in the world) to service the increasing requirements of the Indian automotive coatings
market. APNT is the second largest automotive coating supplier in India, catering to
both automotive OEM and refinish segments.
Asian Paints has formed another 50:50 JV with PPG named Asian Paints PPG Pvt
Ltd to service the protective, industrial powder, industrial containers and light
industrial coatings markets.
July 17, 2014 | 24
APNTs revenue share in both the JVs together is Rs5.61bn (4% to consolidated
revenues) and operates at wafer thin margin of 3% due to low pricing power and
relatively smaller size compared to the market leader (Kansai Nerolac) in this space.
International presence in 17 countries and market leader in eleven; capacity
expansion underway in Asia and Middle East to support growth
The group operates in five regions across the world viz. South Asia, South East Asia,
South Pacific, Middle East and Caribbean region through the five corporate brands viz.
Asian Paints, Berger International, SCIB Paints, Apco Coatings and Taubmans. The
overseas business registered a CAGR of 15% in F04-14 period and is expected to
grow at 13% in F15-16e period. We have pencilled in slight moderation taking into
account the muted GDP growth estimates for respective regions.
The Middle East region is the largest operating region for the group outside India. The
region contributes 51% of the revenue from overseas operations. The new plant being
set up by the subsidiary in Oman at Sohar is expected to be completed by the end of
financial year 2014-15. The company is also underway to expand the capacity of its
Bangladesh plant from 12,000 KL to 24,000 KL per annum and will be commissioned
in F15.
In April, 2014, APNTs wholly owned subsidiary in Mauritius, Asian Paints
(International) Limited (APIL), signed an agreement with shareholders of Kadisco
Chemical Industry PLC., Ethiopia to acquire either directly or through its subsidiaries
51% of its share capital. Kadisco is a major paints player in the Ethiopian market and
is involved in the manufacturing and selling of paints, other coatings and adhesives in
Ethiopia.
Geography wise sales break-up
Asia
29%
Geography wise profit break-up

South
Pacific
8%
Asia
29%
Caribbean
13%
Middle East
50%
South
Pacific
16%
Middle East
54%
Caribbean
1%
Over the years, profitability has improved in Asia region for APNT while all the other
regions have underperformed. We believe that the future growth and profitability
drivers of the overseas business will lie in Middle East and Asia region due to strong
growth and due to market leadership position in these geographies.
July 17, 2014 | 25
International Business Summary

Y/E Mar
F07
F08
F09
F10
(15m)
F11
F12
F13
F14
Total
6,323
7,030
9,110
12,124
9,880
11,555
14,568
16,832
Caribbean
1,523
1,500
1,633
1,958
1,568
1,718
1,996
2,154
Middle East
2,606
3,190
4,651
6,521
5,159
5,784
7,365
8,430
Asia (South Asia + SE Asia)
1,464
1,720
2,206
2,795
2,403
3,147
4,061
4,915
South Pacific
730
620
620
850
750
906
1,146
1,333
EBIT (Rs mn)
213
560
698
1,818
1,079
1,059
1,306
1,480
28
70
57
109
119
76
75
17
253
420
559
1,215
681
615
778
802
(118)
20
23
371
150
246
290
427
Caribbean
Middle East
Asia
South Pacific
50
50
58
123
129
122
163
234
EBIT Margin (%)
3.4
8.0
7.7
15.0
10.9
9.2
9.0
8.8
Caribbean
1.8
4.7
3.5
5.6
7.6
4.4
3.8
0.8
Middle East
9.7
13.2
12.0
18.6
13.2
10.6
10.6
9.5
(8.1)
1.2
1.0
13.3
6.2
7.8
7.1
8.7
6.8
8.1
9.4
14.5
17.2
13.5
14.2
17.6
Asia
South Pacific
APNT has a strong foothold in decorative paints category in our neighbouring

countries like Nepal, Bangladesh and Sri Lanka. The company is also one of the
leading players in institutional segment in Middle East region. The performance in
Caribbean region has been under severe pressure
July 17, 2014 | 26
Overseas footprint
Colorworlds
Plant Capacity
(KL)
Comments
Commencement
400
8000
Market Leader. The manufacturing plant is located Hetuada industrial

estate
1985
Bangladesh
200
Expansion from
12,000 KL to
24,000 KL per
annum is nearing
completion and
commissioning is
expected by the
first quarter of
2014-15.
JV with Confidence Cement - leading & reputed producer of cement

in Bangladesh. Plant situated in Gazipur. 500+ dealer network. Has
become the 2nd largest paint company in Bangladesh. Depots are
strategically located in Dhaka, Chittagong, Sylhet, Khulna, Comilla,
Bogra
2002
Sri Lanka
200
5500
One of the largest paint companies in Sri Lanka, manufacturing

complete range of Protective and Decorative paints. The subsidiary
at Sri Lanka has acquired land at Matugama Industrial
estate for a new manufacturing facility.
1999
Bahrain
It is the leading paint company in Bahrain. One of the few companies

that has manufacturing setup in Bahrain. They have 75 retailers
selling the product in Bahrain. With a strong base in Bahrain the
company also exports to Saudi Arabia. Berger Paints is also the
default company of choice when it comes to the large projects and
governmental undertakings in the housing and educational sectors.
1989
Oman
JV with Al-Hassan Group of companies has used the strength of both

the corporates to build a good retail network across the Sultanate.
Starting with a focus on wood coatings, Asian Paints has now
become the market leader in this segment with a wide range of
products and unmatched service capabilities. Asian Paints is the
preferred supplier for the largest joineries in Oman.
1999
UAE
Berger Paints is among the fastest growing coating companies in the

UAE. The company has established a good presence across all the
emirates, and with a state-of-the-art manufacturing facility in Al
Quoz, Dubai, Berger Paints is well placed to serve the growing
requirements of the UAE. The company has a very good presence
in the institutional segment, bagging some key projects like the
International City, Jumeirah Islands, Dubai Healthcare City etc.
The wide range of products that Berger Paints offers to its consumers
is available through the high-end Colourworld showrooms.
Barbados,
Jamaica,
Trinidad
Berger, which commenced manufacturing in the Caribbean in 1953 is

the largest Paint Manufacturing Company in the English speaking
Caribbean - a legacy inherited from Lewis Berger, the German colour
chemist who founded the Berger Paints' dynasty in London, in 1760.
With manufacturing centres in Barbados, Jamaica and Trinidad, the
most notable contribution to Berger's success has been the
Company's on-going commitment to the development and
manufacture of paint products which are technologically correct,
environmentally friendly and formulated to withstand harsh tropical
conditions.
Singapore Group Head Office
Berger Paints Singapore, today, operates a full scale manufacturing

plant making a wide range of paint products of the highest quality
standards. It also exports to several countries. Berger Coatings are
recognised and specified by leading multinational companies in the
Oil and Gas industry, Engineering and Construction industry and by
owners of ocean fleets.
Country
Nepal
1953
1939, listed in 1994
July 17, 2014 | 27
APNT has shown some concentrated effort in

diversifying the business into home improvement
solutions with the acquisition of Sleek and Ess
Ess.
Foray into home improvement and dcor

In F13, APNT embarked on new journey to cater to the growing demand of
contemporary home improvement category with acquisition of 51% stake in Sleek
Group for a consideration of Rs1.2bn. In F14, Sleek registered a turnover of Rs810mn
and made a loss of Rs35mn. Sleek is a major player in the organized modern kitchen
space and is engaged in the business of manufacturing, selling and distribution of
modular kitchens as well as kitchen components including wire baskets, cabinets,
appliances, accessories, etc., with a pan India presence. It has a retail network of
more than 30 showrooms including shop-in-shops and a network of more than 250
dealers. For future growth, APNT has chalked out plans to expand the business
presence of Sleek in geographies where it is currently limited, configuring the IT
systems and enhancement of manpower and process capabilities. With this initiative,
APNT plans to increase the synergies between the expansion of the network for Sleek
and APNTs current dealership network. We believe this will lead to higher thorough
put within the existing network. Along with the entry into kitchens, APNT has identified
bathroom fittings as an opportunity area. It has entered into a binding agreement in
May, 2014 to acquire the entire front end sales business of Ess Ess Bathroom
Products Pvt. Ltd., including brands, network and sales infrastructure.
July 17, 2014 | 28
Key management personnel

Mr. Ashwin C. Choksi Chairman: Mr Choksi served as the Managing Director of
Asian Paints Limited since 1984. Mr. Choksi has been the Non-Executive Chairman of
Asian Paints Limited since April 1, 2009 and has been its Director since December 18,
2003. He joined Asian Paints in 1965 in the materials function of the Company. He
rose to the position of Managing Director in 1984 and subsequently became Executive
Chairman in 1997 served until 31 March, 2009. He served as a Non Executive Director
of Berger International Ltd. from May 18, 2009 to June 21, 2 013. Mr. Choksi holds a
Masters degree in Commerce from the University of Mumbai, India. He holds an
Masters degree in Commerce from Sydenham College, Mumbai.
Mr. K. B. S. Anand MD & CEO: Mr Bakshi has been the Managing Director and
Chief Executive Officer of Asian Paints Limited since April 1, 2012 and served as its
President of decorative business unit prior to taking up this position. Mr. Anand served
as Vice President of Sales & Marketing at Asian Paints Ltd. He has over 33 years of
experience. Mr. Anand has been an Additional Director of Asian Paints Ltd since April
1, 2012. Mr. Anand holds B.Tech., P.G.D.M. degree from IIM, Calcutta.
Mr. Jalaj Ashwin Dani - President, International Business: He manages the
international operations of Asian Paints that span across 23 countries. Mr. Dani serves
as the President of Human Resources, International and Chemicals at Asian Paints
Ltd., the ultimate parent company of Berger International Limited. Mr. Dani served as
the President of International Business Unit at Asian Paints Ltd. He is associated with
various Chambers of Commerce in India and abroad. He serves as the Chairman of
Western Region of the Indian Paints Association and a Member of The Young
President Organization, U.S.A. Mr. Dani holds a Master's Degree in Chemical
Engineering from Massachusetts Institute of Technology and a Bachelor's Degree in
Chemical Engineering from the University of Wisconsin, U.S.A. He has attended the
Advanced Management Program conducted by INSEAD, France.
Mr. Jayesh Merchant CFO: Mr. Merchant serves as Compliance Officer, Company
Secretary, Chief Financial Officer and Vice President of Corporate Finance at Asian
Paints Limited. Mr. Merchant serves as President of Industrial JVs at Asian Paints
Limited. Mr. Merchant served as Director of Finance at UTV Software Communications
Limited form 2000 to 2002. Mr. Merchant served as the Group Vice President of
Finance and Company Secretary at Ion Exchange (India) Ltd. from 1995 to 2000, prior
to which he was an Assistant Company Secretary in Castrol India Limited form 1984 to
1995. He has been a Non-Executive Director of Berger International Limited since May
18, 2009. Mr. Merchant is overall in-charge of Corporate Finance, Accounts, Taxation,
Internal Audit, Legal and Secretarial of Berger. He holds Commerce and Law Degrees
from Bombay University and is an Associate member of the Institute of Chartered
Accountants of India as well as the Institute of Company Secretaries of India.
July 17, 2014 | 29
Financials
Income Statement
Balance Sheet
F12
F13
F14e
F15e
96,322
109,386
127,148
144,449
Y/E Mar (Rsmn)

Net sales
24.7
13.6
16.2
13.6
Operating expenses
81,211
92,036
107,169
121,234
EBITDA
15,112
17,349
19,979
23,214
growth (%)
F16e Y/E Mar (Rsmn)

168,758 Cash & Bank balances
16.8
25,973
31,240
35,569
39,919
46,507
2,182
1,298
1,944
1,944
1,944
19,176
25,002
26,332
26,457
26,371
3,547
2,807
7,212
9,712
12,212
Total assets
57,122
67,866
80,373
92,614
108,568
Current liabilities
23,012
27,283
32,065
35,898
41,800
3,411
2,510
2,538
2,738
2,938
1,847
2,623
2,917
2,917
2,917
28,270
32,416
37,520
41,554
47,655
Other Current assets
141,322 Investments
27,436
15.2
16.2
2,457
2,876
EBIT
13,901
15,803
17,522
20,339
24,351 Other non-current assets
Other income
1,074
1,145
1,342
1,822
2,197
367
422
439
18.2
Net fixed assets
3,086 Goodwill & intangible assets
472
(100.0)
PBT
14,541
16,582
18,342
21,722
Tax
4,274
4,394
5,364
6,517
7,823 Other non-current liabilities
Effective tax rate (%)
29.4
26.5
29.2
30.0
30.0
PAT
10,206
11,595
12,627
15,206
18,253
Minority interest
318.5
456.4
439.5
456.2
547.6
9,887
11,139
12,188
14,749
17,706 Reserves & surplus
Non-recurring items
(235.0)
(219.9)
100.0
Adjusted Net profit
9,652
10,919
12,288
14,749
17.3
12.7
9.4
21.0
20.0
F12
F13
F14e
F15e
F16e Y/E Mar (Rsmn)
Extraordinary/Exceptional item
Reported Net profit
growth (%)
26,076 Borrowings
Total liabilities
Share capital
Shareholders' funds
17,706 Minority interest
Key Financials ratios

Y/E Mar
F16e
21,535
14.8
434
F15e
14,583
1,546
Interest paid
F14e
9,317
13.5
Depreciation &amortisation
F13
7,520
1,211
growth (%)
F12
6,243
Total equity & liabilities
959
959
959
959
959
26,526
32,884
39,434
47,185
56,491
27,485
33,843
40,393
48,144
57,450
1,367
1,608
2,460
2,916
3,464
57,122
67,866
80,373
92,614
108,568
Cash Flow Statement
Profitability and return ratios (%)
Pre-tax profit
F12
14,541
F13
16,552
F14e
F15e
18,342
21,722
2,876
F16e
26,076
EBITDAM
15.7
15.9
15.7
16.1
16.3
Depreciation
1,211
1,546
2,556
EBITM
14.4
14.4
13.8
14.1
14.4
Chg in working capital
(4,101)
(1,587)
(1,682)
(868)
NPM
10.0
10.0
9.7
10.2
10.5
Total tax paid
(4,296)
(4,385)
(4,802)
(6,517)
(7,823)
RoE
39.1
35.6
33.1
33.3
33.5
Other operating activities
(359)
(259)
(416)
(1,383)
(1,725)
RoCE
46.8
43.8
41.0
40.2
40.7
Operating CF
6,996
11,868
13,999
15,830
18,575
RoIC
71.2
60.7
59.8
67.3
78.9
Capital expenditure
(5,464)
(6,438)
(2,492)
(3,000)
(3,000)
Chg in investments
1,075
(4,113)
(2,500)
(2,500)
Per share data (Rs)

O/s shares (mn)
959
959
959
959
959
Other investing activities
EPS
10.3
11.6
12.7
15.4
18.5
Investing CF
FDEPS
10.3
11.6
12.7
15.4
18.5
FCF
CEPS
11.6
13.2
15.3
18.4
21.7
BV
28.7
35.3
42.1
50.2
59.9
4.0
4.6
5.2
6.3
7.5
DPS
Debt raised/(repaid)
Other financing activities
P/E
56.3
49.9
45.6
37.7
P/BV
20.2
16.4
13.8
11.6
9.7
EV/EBITDA
36.6
31.8
27.5
23.7
20.0
5.7
5.0
4.3
3.8
3.3
EV/Sales
31.4
1,277
1,470
(3,856)
(4,535)
919
(6,029)
577
(4,223)
(4,030)
1,533
5,430
11,507
12,830
15,575
Equity raised/(repaid)
Dividend (incl. tax)
Valuation ratios (x)
532
984
3,086
(1,038)
Financing CF
Net chg in cash & bank bal.
Closing cash & bank bal
969
(3,831)
(1,016)
(369)
(4,621)
(5,467)
200
(6,022)
200
(7,229)
(404)
(371)
(333)
(439)
(472)
(3,266)
(6,007)
(6,169)
(6,261)
(7,501)
1,326
1,802
5,346
7,044
7,520
9,317
14,583
21,535
(126)
6,243
Other key ratios

D/E (x)
DSO (days)
27.2
29.7
28.9
28.9
28.9
Du Pont Analysis - RoE
10.0
10.0
9.7
10.2
10.5
Asset turnover (x)
3.2
3.0
3.0
2.9
2.8
Equity multiplier (x)
1.2
1.2
1.2
1.1
1.1
39.1
35.6
33.1
33.3
33.5
NPM (%)
RoE (%)
July 17, 2014 | 30
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SBICAP Securities Ltd (SSL)

Asian Paints: Transforming dreams to dcor; Initiating with HOLD

SBICAP Securities Ltd

Back Executive summary Transforming dreams to dcor .................................................................... 3

July 17, 2014 | 2

Asian Paints: Transforming dreams to dcor; Initiating with HOLD

Current price (16 Jul)

Transforming dreams to dcor; Initiating with HOLD

Price performance (%)

Source: Bloomberg, SSLe

Rel. to BSETMCG (RHS)

SBICAP Securities Ltd

Operationally strongest and most dynamic in changing the industry landscape:

EBITDA margin (%)

Net Profit (mn)

Dividend yield (%)

Source: Company, SSLe

July 17, 2014 | 3

Asian Paints: Transforming dreams to dcor; Initiating with HOLD

SBICAP Securities Ltd

Industry growth drivers for decorative paints

Decorative paints growth linked with GDP

Volume growth (RHS)

Correlation factor (LHS)

Two wheeler volumes show salience in this environment

Indian passenger car vehicles market de-grew in 2013-14

Two Wheelers (LHS)

Source: SIAM, SSLe

July 17, 2014 | 4

Asian Paints: Transforming dreams to dcor; Initiating with HOLD

SBICAP Securities Ltd

APNT has stabilized volume growth and gained market share

Industrial and auto data indicate moderation in

Industrial growth remains sluggish leading to contraction in demand for

Growth over corresponding period of previous year

IIP Index Industrial growth remains sluggish

Source: CSO, SSLe

July 17, 2014 | 5

Asian Paints: Transforming dreams to dcor; Initiating with HOLD

SBICAP Securities Ltd

Paint companies poised to benefit from changing

Source: Industry, SSLe

July 17, 2014 | 6

Asian Paints: Transforming dreams to dcor; Initiating with HOLD

SBICAP Securities Ltd

Source: IMF, SSLe

GDP Growth % (LHS)

Volume growth linked to GDP

Sales Growth % (LHS)

GDP Multiplier (RHS)

July 17, 2014 | 7

Asian Paints: Transforming dreams to dcor; Initiating with HOLD

SBICAP Securities Ltd

Decoratives Sales (LHS)

Decorative sales registered CAGR of 19% in F04-14 period

Source: Company, SSLe

Sales quantity became 13x in 20 years; volume CAGR expected to be 10% in

Volume growth will decelerate to 10% from 13% in

Sales Quantity (LHS)

Source: Company, SSLe

Increase in realization for product portfolio of APNT

Source: Company, SSLe