RESULTS REVIEW 3QFY16

19 JAN 2016

Asian Paints
BUY
INDUSTRY

FMCG

CMP (as on 18 Jan 2016)

Rs 850

Target Price

Rs 937

Nifty

7,351

Sensex

24,118

KEY STOCK DATA

Bloomberg

APNT IN

No. of Shares (mn)

959

MCap (Rs bn)/(US$ mn)

816/12,048

6m avg traded value (Rs mn)

1,021

STOCK PERFORMANCE (%)

52 Week high / low
Absolute (%)
Relative (%)

Rs 927 / 693

3M

6M

12M

(3.6)

3.0

0.8

7.5

18.0

14.8

SHAREHOLDING PATTERN (%)

Promoters
FIs & Local MFs

52.79
9.50

FIIs

17.38

Public & Others

20.33

Source : BSE

Sachin Bobade
sachin.bobade@hdfcsec.com
+91-22-6171-7329
Mehernosh Panthaki
mehernosh.panthaki@hdfcsec.com
+91-22-6171-7340

Hues of growth
Asian Paints (APL) reported outstanding results as
revenues grew by 13.9% YoY (vs. our estimate of 8%)
to Rs 41.6bn. The delayed start of the festive season
in 3QFY16 (vs. 2QFY15) offset the negative impact
caused by sluggish rural growth and price cuts. We are
encouraged by APLs 3QFY16 performance, especially
in a challenging environment.
Considering the pressures on other consumer
companies, APLs impressive double-digit volume
growth (~15%) came as a positive surprise. Although
consumer demand has been sluggish for quite a few
quarters, we believe it will pick up in the near future.
Post 2QFY16, we downgraded APL to NEUTRAL
considering (1) Subdued volume growth, (2) Rural
slowdown and (3) Rich valuations. But the 3Q results
have restored our confidence in the long term
trajectory of this fundamentally robust business.
Revise TP to Rs 937 (+10.3%) based on 5% and 4%
upward revision in FY17E and FY18E earnings and 40x
1-yr rolling forward EPS (38x earlier). Upgrade to BUY.

Highlights of the quarter

Strong volume growth: Asian Paints reported 1315% volume growth in the domestic market
compared to our estimate of 7%.
GM expansion continued: APL reported 330bps
expansion in GM, benefiting from lower TiO2 and
other raw material prices (crude driven).
EBITDA: EBITDA increased by 37.2% YoY to Rs 8.0bn
surpassing our estimate. A 330bps expansion in
GM was cascaded into the EBITDA margin, as 40bps
increase in other expenses was offset by 40bps
decline in employee costs. APAT surged by 40.1%
YoY to Rs 5.2bn (beat estimate by 22%).
Subsidiary business reported 17.4% YoY growth.
Conditions remains challenging in Egypt and Nepal.
Call takeaways: (1) Tier-2 and 3 towns are growing
faster than urban ones, (2) Slowdown visible in
southern markets, (3) Down-trading visible in select
categories, and (4) Ethiopia business reported
better margins.

Financial Summary
(Rs mn)
Net Sales
EBITDA
APAT
EPS (Rs)
P/E (x)
EV/EBITDA (x)
ROE (%)

3QFY16
41,600
8,006
5,157
5.4

3QFY15
36,526
5,835
3,682
3.8

% change 2QFY16
13.9 37,794
37.2
6,208
40.1
3,990
40.1
4.2

FY16E
% change
FY15
FY17E
FY18E
10.1 1,41,828 1,54,992 1,76,752 2,04,909
29.0
22,227
28,050
31,791
36,312
29.3
13,925
17,856
20,224
23,228
29.3
14.5
18.6
21.1
24.2
58.6
45.7
40.3
35.1
36.8
29.0
25.3
21.8
31.7
33.8
31.2
29.6

Source: Company, HDFC sec Inst Research Note: Quarterly numbers are standalone; Annual numbers are consolidated

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

ASIAN PAINTS : RESULTS REVIEW 3QFY16

Despite weak rural growth and

price reductions, domestic
decorative paints volumes grew
by ~15% YoY, aided by festival
season demand

Home improvements business

reported decent growth of
14.7% YoY

Gross margins expanded by

330bps YOY, aided by RM
tailwinds

Higher gross margins resulted

in strong growth in EBITDA
(+37.2% YoY)

Softening of global crude

prices and TiO2 will benefit the
company

Crude and TiO2 contribute

~50% to COGS (highest
amongst FMCG companies)

Quarterly Financials
Year ending March (Rs mn)
Net Sales
Expenditure
COGS
Employee Expenses
Other Expenses
EBITDA
Other Income
Depreciation
EBIT
Interest
PBT
Tax
PAT (Before MI)
Minority Interest (MI)
Extra Ord. Items
PAT
EPS
As % Of Sales
COGS
Employee Expenses
Other Expenses
EBITDA Margin
PBIT
PBT
Tax Rate
APAT

3QFY16
41,600.3
33,594.5
22,003.5
2,469.6
9,121.4
8,005.8
725.0
7,280.8
-166.6
76.1
7,038.1
2,288.3
4,749.8
117.0
-524.5
5,157.3
5.4

3QFY15
36,525.9
30,691.0
20,517.4
2,318.8
7,854.8
5,834.9
673.2
5,161.7
320.5
97.8
5,384.4
1,667.3
3,717.1
35.3
0.0
3,681.8
3.8

% change
13.9
9.5
7.2
6.5
16.1
37.2
7.7
41.1
(152.0)
(22.2)
30.7
37.2
27.8
231.4
NA
40.1
40.1

2QFY16
37,793.6
31,585.6
20,322.2
2,466.2
8,797.2
6,208.0
708.8
5,499.2
575.1
92.2
5,982.1
1,836.2
4,145.9
155.9
0.0
3,990.0
4.2

% change
10.1
6.4
8.3
0.1
3.7
29.0
2.3
32.4
(129.0)
(17.5)
17.7
24.6
14.6
(25.0)
NA
29.3
29.3

52.9
5.9
21.9
19.2
17.5
16.9
32.5
12.4

56.2
6.3
21.5
16.0
14.1
14.7
31.0
10.1

-330 bps
-40 bps
40 bps
330 bps
340 bps
220 bps
150 bps
230 bps

53.8
6.5
23.3
16.4
14.6
15.8
30.7
10.6

-90 bps
-60 bps
-140 bps
280 bps
300 bps
110 bps
180 bps
180 bps

Source: Company, HDFC sec Inst Research

Page | 2

ASIAN PAINTS : RESULTS REVIEW 3QFY16

Revenue Growth

7.0

13.9

18.3
13.2
22.0
18.3
16.6

5.8
6.9
7.8
4.0

4.7

14.0

0.0

%
45
40
35
30
25
20
15
10
5
-5

Source: Company, HDFC sec Inst Research

Gross Margin

EBITDA Margin
24.0
20.0
16.0

30

12.0

20

8.0
4.0

0.0

Source: Company, HDFC sec Inst Research

3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16

10

3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16

Cost benefits are likely to be

utilised partly for accelerating
volume growth

16.4
14.9
17.5
14.6
15.7
15.0
17.5
14.5
16.7
14.5
16.4
16.4
15.6
14.7
16.6
14.8
16.0
15.8
18.9
16.4
19.2

50
40

Price hikes are not likely to

remain positive in the near
term

Value Growth

Source: Company, HDFC sec Inst Research

40.3
41.4
40.3
40.2
39.6
40.2
41.8
40.4
40.6
43.2
43.2
43.3
41.0
41.9
42.6
43.7
43.8
45.1
46.3
46.2
47.1

Consumer demand will

accelerate considering
sluggish growth in the past
few years and expected pentup demand in the ensuing
years

Price growth

3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16

3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16

4Q volume growth is expected

to remain healthy with
favourable base effect

11.6

21.0

7.4

23.5
24.3
22.0

28.0

12.5
16.8
19.0

29.3

35.0

29.6

Revenue growth was largely

driven by low end products
(distempers)

Domestic Decorative Growth Trend

Source: Company, HDFC sec Inst Research

Page | 3

ASIAN PAINTS : RESULTS REVIEW 3QFY16

TiO2: Benign
Softening of global crude
prices (down ~33% YoY) and
TiO2 (down ~7.5% YoY)
providing margin boost

Crude: Sharp decline

INR/kg

300

INR/barrel

7,500
6,000

240

4,500
3,000

180
1,500

The paint industry in Tier-2

and Tier-3 towns were better
than urban during 3Q

Jan-16

Jul-15

Jan-15

Jul-14

Jan-14

Jul-13

Jul-12

Jan-13

Jul-11

Jan-12

Jul-10

Jan-11

Jan-10

Jul-09

Jan-09

Jul-08

Demand and competition will

decide the extent of the
benefits

Source : Company, HDFC sec Inst Research

Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15

120

Source : Company, HDFC sec Inst Research

Assumptions
Company Assumptions
Growth Metrics (%)
Consol. Revenue
Domestic volume
Domestic pricing
As % Of Sales
COGS
Ad spends
EBITDA

FY14

FY15

FY16E

FY17E

FY18E

15.9
9.2
6.3

11.5
11.4
0.4

9.3
9.8*
(1.4)

14.0
11.3*
2.1

15.9
13.6*
2.1

57.7
13.5
15.9

56.2
14.2
15.7

53.5
14.6
18.1

53.8
14.8
18.0

54.1
15.1
17.7

Source: Company, HDFC sec Inst Research

*Upward revision in volume estimates by 0.8% for FY16E

Page | 4

ASIAN PAINTS : RESULTS REVIEW 3QFY16

Change In Estimates
Rs Mn
Revenue
EBITDA
EBITDA Margin
PAT
EPS

New
1,54,992
28,050
18.1%
18,417
18.6

FY16E
OLD Change (%)
1,51,957
2.0
26,507
5.8
17.4%
70bps
17,355
6.1
17.4
7.0

New
1,76,752
31,791
18.0%
20,805
21.1

FY17E
OLD Change (%)
1,73,305
2.0
30,324
4.8
17.5%
50bps
19,794
5.1
19.8
6.3

New
2,04,909
36,312
17.7%
23,861
24.2

FY18E
OLD Change (%)
2,00,923
2.0
34,957
3.9
17.4%
30bps
22,925
4.1
23.0
5.3

Source: HDFC sec Inst Research

Peer Valuations
Mcap CMP
Rating
(Rs bn) (Rs)
Asian Paints
816
850
BUY
Berger
170
245
NEU
Colgate
248
912
NEU
Dabur
434
247
NEU
GCPL
409
1,202 NEU
Gulf Oil Lubricants
25
502
BUY
HUL
1,754
811
NEU
ITC
2,529
316
NEU
Jubilant FoodWorks
79
1,203 BUY
Marico
283
219
NEU
Pidilite
276
538
BUY
Titan
297
335
NEU
Company

TP
(Rs)
937
239
1,017
289
1,375
632
812
332
1,781
223
638
355

Diluted EPS (Rs)

FY15 FY16E FY17E
14.5
18.6
21.1
3.8
5.0
6.3
20.5
23.3
25.4
6.1
7.2
8.0
27.3
33.4
39.0
15.6
19.0
22.0
16.9
18.9
20.2
12.1
12.6
13.7
18.9
19.8
29.6
4.4
5.7
6.4
10.1
13.9
17.4
9.3
7.8
9.6

FY15
58.6
64.3
44.5
40.5
44.1
32.1
48.1
26.2
63.5
49.3
53.1
35.9

P/E( x)
FY16E
45.7
48.8
39.1
34.6
36.0
26.4
42.9
25.0
60.7
38.7
38.7
42.7

FY17E
40.3
38.8
35.9
30.7
30.9
22.8
40.1
23.0
40.6
34.3
30.9
34.7

EV/EBITDA(x)
FY15 FY16E FY17E
36.8
29.0
25.3
34.2
27.5
22.5
30.5
25.8
23.2
33.1
28.2
24.4
30.7
25.5
21.9
19.5
15.9
13.7
33.2
30.3
28.4
17.3
15.9
14.6
29.7
25.9
18.3
31.9
26.1
22.6
35.0
23.9
19.0
25.4
28.9
23.7

FY15
31.7
22.3
81.3
35.7
23.0
41.4
104.2
32.7
20.1
36.0
24.6
29.5

ROE (%)
FY16E
33.8
25.6
74.9
33.0
23.9
43.9
104.9
30.0
17.8
37.0
28.5
21.0

FY17E
31.2
27.3
69.3
29.6
23.2
39.9
102.7
29.3
22.3
34.7
29.6
22.3

Source: Company, HDFC sec Inst Research

Page | 5

ASIAN PAINTS : RESULTS REVIEW 3QFY16

Income Statement
(Rs mn)
Net Revenues
Growth (%)
Material Expenses
Employee Expenses
A&P Expenses
Other Operating Expenses
EBIDTA
EBIDTA (%)
EBIDTA Growth (%)
Depreciation
EBIT
Other Income
Interest
PBT
Tax
RPAT
Minority Interest
EO items (net of tax)
APAT
APAT Growth (%)
EPS
EPS Growth (%)

Balance Sheet
FY14
FY15
FY16E
FY17E
FY18E
1,27,148 1,41,828 1,54,992 1,76,752 2,04,909
15.9
11.5
9.3
14.0
15.9
73,407
79,715
82,850
95,042 1,10,804
7,597
9,323
9,911
10,586
11,900
17,135
20,203
22,616
26,220
30,933
8,848
10,361
11,565
13,113
14,959
20,161
22,227
28,050
31,791
36,312
15.9
15.7
18.1
18.0
17.7
15.3
10.2
26.2
13.3
14.2
2,457
2,659
2,807
3,257
3,574
17,705
19,568
25,242
28,534
32,738
1,060
1,549
1,231
1,930
2,165
422
348
371
409
453
18,343
20,769
26,102
30,055
34,450
5,715
6,495
8,209
9,251
10,589
12,628
14,273
17,893
20,805
23,861
440
322
561
581
634
68
27
(525)
12,121
13,925
17,856
20,224
23,228
9.4
14.5
24.2
16.7
14.9
12.6
14.5
18.6
21.1
24.2
11.9
14.9
28.2
13.3
14.9

Source: Company, HDFC sec Inst Research

(Rs mn)
SOURCES OF FUNDS
Share Capital
Reserves
Total Shareholders Funds
Minority Interest
Long-term Debt
Short-term Debt
Total Debt
Deferred Taxes
Long-term Provisions
TOTAL SOURCES OF
FUNDS
APPLICATION OF FUNDS
Net Block
CWIP
Goodwill
LT Loans & Advances
Total Non-current Assets
Investments
Inventories
Debtors
Cash & Equivalents
Other Current Assets
Current Assets
Creditors
Other Current Liabilities &
Provisions
Total Current Liabilities
Net current Assets
TOTAL APPLICATION OF
FUNDS

FY14

FY15

FY16E

FY17E

FY18E

959
39,433
40,392
2,460
505
1,986
2,492
1,878
931

959
46,464
47,424
2,637
866
3,316
4,182
1,799
1,197

959
57,431
58,390
3,198
925
3,316
4,241
1,799
1,316

959
70,244
71,203
3,779
1,016
3,316
4,333
1,799
1,448

959
85,039
85,998
4,412
1,117
3,316
4,433
1,799
1,593

48,153

57,238

68,945

82,562

98,236

24,202
716
1,414
1,304
27,636
14,236
20,699
11,103
2,290
4,791
38,883
17,666

24,142
1,960
2,458
2,785
31,345
16,245
22,585
11,799
2,044
5,106
41,533
16,024

28,835
1,960
2,458
3,063
36,316
16,245
23,216
12,136
7,073
5,493
47,919
17,511

31,077
1,960
2,458
3,369
38,865
16,245
26,476
13,845
16,577
5,568
62,465
19,970

31,003
1,960
2,458
3,706
39,128
16,245
30,691
16,004
30,120
5,736
82,551
23,151

14,935

15,861

14,023

15,044

16,537

32,601
6,282

31,885
9,648

31,535
16,384

35,013
27,452

39,688
42,863

48,153

57,238

68,945

82,562

98,236

Source: Company, HDFC sec Inst Research

Page | 6

ASIAN PAINTS : RESULTS REVIEW 3QFY16

Cash Flow
(Rs mn)
Reported PBT
Non-operating & EO items
Interest Expenses
Depreciation
Working Capital Change
Tax Paid
OPERATING CASH FLOW ( a )
Capex
Free Cash Flow
Non-operating income
Investments & Others
INVESTING CASH FLOW ( b )
Debt Issuance
Interest
FCFE
Dividend
FINANCING CASH FLOW ( c )
Fx effect
EO items
NET CASH FLOW (a+b+c)
Closing Cash

Key Ratios
FY14
18,343
(8,717)
422
2,556
(1,682)
(4,802)
6,121
(2,336)
3,785
655
(4,087)
(3,432)
(369)
(422)
3,838
(4,812)
(5,604)
106
68
(5,077)
2,290

Source: Company, HDFC sec Inst Research

FY15
20,769
(4,100)
348
2,683
(4,502)
(6,329)
8,868
(4,377)
4,491
706
348
1,054
1,531
(348)
6,370
(6,935)
(5,752)
(67)
27
(246)
2,044

FY16E
26,627
371
2,807
(1,865)
(8,209)
19,731
(7,500)
12,231
60
(371)
12,663
(6,365)
(6,677)
(525)
5,030
7,073

FY17E
FY18E
30,055
34,450
409
453
3,257
3,574
(1,739) (2,061)
(9,251) (10,589)
22,732
25,828
(5,500) (3,500)
17,232
22,328
91
100
(409)
(453)
17,732
22,882
(7,411) (8,432)
(7,728) (8,785)
9,504
13,543
16,577
30,120

PROFITABILITY (%)
GPM
EBITDA Margin
APAT Margin
RoE
RoIC
RoCE
EFFICIENCY
Tax Rate (%)
Fixed Asset Turnover (x)
Inventory (days)
Debtors (days)
Other Current Assets (days)
Payables (days)
Other Current Liabilities &
Provisions(days)
Cash Conversion Cycle (days)
Debt/EBITDA (x)
Net D/E
Interest Coverage
PER SHARE DATA
EPS (Rs/sh)
CEPS (Rs/sh)
DPS (Rs/sh)
BV (Rs/sh)
VALUATION
P/E
P/BV
EV/EBITDA
OCF/EV (%)
FCF/EV (%)
FCFE/mkt cap (%)
Dividend Yield (%)

FY14

FY15

FY16E

FY17E

FY18E

42.3
15.9
9.5
32.7
28.0
28.6

43.8
15.7
9.8
31.7
25.9
27.4

46.5
18.1
11.5
33.8
28.1
29.3

46.2
18.0
11.4
31.2
26.4
27.6

45.9
17.7
11.3
29.6
25.4
26.5

31.2
2.9
59.4
31.9
13.8
50.7

31.3
2.7
58.1
30.4
13.1
41.2

31.5
2.5
54.7
28.6
12.9
41.2

30.8
2.4
54.7
28.6
11.5
41.2

30.7
2.3
54.7
28.5
10.2
41.2

42.9

40.8

33.0

31.1

29.5

11.5
0.1
0.0
41.9

19.6
0.2
0.0
56.3

21.9
0.2
(0.0)
67.9

22.5
0.1
(0.2)
69.8

22.7
0.1
(0.3)
72.2

12.6
10.5
5.0
41.6

14.5
11.9
7.2
49.0

18.6
14.8
8.0
60.4

21.1
16.9
8.7
73.8

24.2
19.4
9.6
89.2

67.3
20.4
40.5
0.7
0.5
0.5
0.6

58.6
17.4
36.8
1.1
0.5
0.6
0.9

45.7
14.1
29.0
2.4
1.5
1.5
0.9

40.3
11.5
25.3
2.8
2.1
2.1
1.0

35.1
9.5
21.8
3.3
2.8
2.7
1.1

Source: Company, HDFC sec Inst Research

Page | 7

ASIAN PAINTS : RESULTS REVIEW 3QFY16

RECOMMENDATION HISTORY
Asian Paints

1,000

Date
30-Jan-15
18-May-15
27-Jul-15
26-Oct-15
6-Jan-16
19-Jan-16

TP

950
900
850
800
750

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

BUY

Mar-15

650

Feb-15

Rating Definitions
Jan-15

700

CMP
858
767
849
859
901
850

Reco
BUY
BUY
BUY
NEU
NEU
BUY

Target
945
840
925
825
844
937

: Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL

: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 8

ASIAN PAINTS : RESULTS REVIEW 3QFY16

Disclosure:
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view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
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Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
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Page | 9