1QFY2012 Result Update | FMCG

July 26, 2011

Asian Paints
Performance Highlights
(` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
1QFY11 1,830.2 347.1 19.0 233.1 % yoy 23.5 13.0 (162bp) 16.5 Angel est. 2,127.5 389.3 18.3 258.6 % Diff 6.2 0.7 (95bp) 5.0

`3,140 -

1QFY12 2,260.4 392.2 17.3 271.6

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

FMCG 14,232 0.4 3,366/2,266 31,637 10 16,585 5,680 ASPN.BO APNT@

For 1QFY2012, Asian Paints posted a good set of numbers on the top-line and the earnings front. The top line grew by 23.5% yoy to `2,260.4cr (`1,830.2cr), marginally above our estimates. Earnings grew by 16.5% yoy to `271.6cr (`233.1cr), also marginally above our estimates, on account of good top-line growth, higher other income and a 45bp yoy decline in tax rate. The companys operating profit declined by 162bp yoy to `392.2cr (`347.1cr) on account of

high raw-material costs, staff costs (up by 74bp yoy) and other expenses (up 37bp yoy). We maintain our Neutral view on the stock.
Outlook and valuation: Post 1QFY2012 results, we maintain our previous estimates, as we had factored in relative sluggishness in demand in the companys international business. Also, we do not expect any positive surprises in the standalone business in terms of volume growth or better gross margins and operating margins. The company has taken price hikes of ~8% from April 2011 till date and did not rule out further price hikes in the event of any hike in key raw-material prices. Until now, volume growth has not taken any hit, but it may eventually drop in lieu of any price increase. We remain cautious as no significant growth has been witnessed in the international business. At `3,140, the stock is trading at 24.9x FY2013E revised EPS of `126.3. We believe the stock is richly valued and offers limited upside from the CMP. Hence, we maintain our Neutral view on the stock. 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

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 52.7 14.9 19.0 13.5

Abs. (%) Sensex Asian Paints

3m (5.3) 18.0

1yr 2.8

3yr 29.1

24.6 181.9

FY2010 6,681 22.3 834.5 107.9 18.4 87.0 36.1 17.6 57.4 54.7 4.4 24.1

FY2011 7,706 15.3 843.2 1.0 17.0 87.9 35.7 13.8 43.3 45.8 3.8 22.3

FY2012E 9,092 18.0 983.2 16.6 17.0 102.5 30.6 10.8 39.6 44.7 3.2 19.0

FY2013E 10,608 16.7 1,211.1 23.2 17.6 126.3 24.9 8.5 38.3 44.5 2.7 15.4

Sreekanth P.V.S
022 3935 7800 Ext: 6841

sreekanth.s@angelbroking.com

Please refer to important disclosures at the end of this report

Asian Paints | 1QFY2012 Result Update

Exhibit 1: Quarterly performance

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

1QFY12 2,260.4 1,353.7 59.9 130.1 5.8 384.5 17.0 1,868.2 392.2 17.3 6.5 29.1 30.5 387.1 17.1 115.5 29.8 7.9 271.6 263.7 11.7 9.6 27.5

1QFY11 1,830.2 1,048.7 57.3 118.9 6.5 315.5 17.2 1,483.1 347.1 19.0 4.2 26.9 18.4 334.4 18.3 101.3 30.3 10.9 233.1 222.2 12.1 9.6 23.2

% chg 23.5 29.1 9.4 21.9 26.0 13.0 54.3 8.1 65.8 15.8 14.0

FY2011 7,706.2 4,474.6 58.1 454.0 5.9 1,464.7 19.0 6,393.3 1,313.0 17.0 22.2 113.1 82.6 1,260.2 16.4 378.9 30.1 38.1

FY2010 % chg 6,680.9 3,758.0 56.2 436.3 6.5 1,259.3 18.8 5,453.5 1,227.4 18.4 28.5 (21.9) 83.6 1,255.9 18.8 373.1 29.7 48.3 882.8 (1.2) 835.6 12.5 9.6 87.1 0.9 0.9 (0.2) 1.5 0.3 35.4 140.5 (41.2) 17.2 7.0 16.3 4.1 15.3 19.1

16.5

881.4 -

18.7

843.2 10.9 9.6

18.7

87.9

Good top-line growth, marginally higher than expectations

APL reported good growth of 23.5% yoy in its consolidated top line to `2,260.4cr (`1,830.2cr), above our estimates. Overseas subsidiaries, however, showed a marginal decline in top line (down by 0.25%) to `338.2cr (`339.1cr). Standalone paint sales registered robust growth of 28.9% yoy. However, there has been a very dismal performance from the industrial and international businesses. Bahrain did not do well as political uncertainties have been surmounting the country for quite some time now. Regions that did well are Oman, Sri Lanka and Nepal.

July 26, 2011

Asian Paints | 1QFY2012 Result Update

Exhibit 2: Steady top-line growth driven by the standalone business...

2,500 2,000 1,500 1,000 500 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12
Top-line (LHS) yoy growth (RHS)

35.0 30.0 25.0

(` cr)

20.0 15.0 10.0 5.0 -

Source: Company, Angel research

Earnings grow owning to strong top line, low tax rate

In terms of recurring earnings, APL reported an increase of 18.7% yoy to `263.7cr (`222.2cr), primarily due to steady top line. Moreover, lower tax rate (down by 45bp yoy) and higher other income (up by 65.8% yoy) to `30.5cr fuelled the companys earnings growth.

Persistent gross margin pressure; GM and OPM contract yoy

During the quarter, APL registered a 162bp yoy contraction in OPM, impacted by higher input cost as gross margin contracted by 258bp yoy. Also, increased other expense (up 23bp yoy) and staff cost (up 74bp yoy) dragged the companys OPM. For the quarter, the price index for the company stood at 114 vs. 100 in 1QFY2011. Price pressure remains intact on the TiO2 front, which has run up a lot and is not showing any signs of softening. TiO2 constitutes ~20% of the companys total raw-material cost.

Exhibit 3: PAT growth robust due to strong top line...

310 260 210 250.0 200.0 150.0 100.0 50.0 (50.0)

Exhibit 4: GM and OPM contraction continues...

50.0 40.0 43.9 43.2 43.7 44.2 42.7 43.7 40.3 41.4 40.1

(yoy %)

(`cr)

160 110 60 10

30.0

(%)

20.0 10.0 -

18.9 18.7 19.6 16.6 19.0 18.3 16.4 17.3 14.7

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

PAT (LHS)

yoy growth (RHS)

1Q12

OPM

Gross margin

Source: Company, Angel research

Source: Company, Angel research

July 26, 2011

1Q12

(yoy %)

Asian Paints | 1QFY2012 Result Update

Investment arguments
Uncertainty over demand conditions hover: Although the company has not witnessed any slowdown in the demand of paints, we do not expect it to be very robust considering the price hikes. Also, the uncertainty on the macroeconomic front lingers, and we expect the demand for paints to remain sluggish. Margin pressure to continue: We expect APL to sustain its OPM at ~17% levels and do not expect it to witness any improvement in gross margin and operating margin. The company has been facing raw-material cost pressure for many quarters. Management maintains that TiO2 is very high and is not expected to witness a fall so soon. 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 on many countries in which the company operates.

Outlook and valuation

Post 1QFY2012 results, we maintain our previous estimates, as we had factored in relative sluggishness in demand in the companys international business. Also, we do not expect any positive surprises in the standalone business in terms of volume growth or better gross margins and operating margins. The company has taken price hikes of ~8% from April 2011 till date and did not rule out further price hikes in the event of any hike in key raw-material prices. Until now, volume growth has not taken any hit, but it may eventually drop in lieu of any price increase. We remain cautious as no significant growth has been witnessed in the international business. At `3,140, the stock is trading at 24.9x FY2013E revised EPS of `126.3. We believe the stock is richly valued and offers limited upside from the CMP. Hence, we maintain our Neutral view on the stock. Key risks to our investment argument 1) Higher-than-anticipated demand in paints and strong volume growth witnessed 2) No negative impact on demand for paints despite further price hikes 3) Raw-material prices softening significantly and leading to better margins

July 26, 2011

Asian Paints | 1QFY2012 Result Update

Exhibit 5: Peer valuation

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

Reco
Neutral
Neutral Reduce Accumulate Reduce Accumulate Neutral Neutral Reduce Reduce

Mcap (` cr)
30,118
5,663 13,301 19,191 9,963 14,153 71,451 155,458 9,612 41,007

CMP (`)
3,140 474 978 110 2,369 437 328 201 156 4,253

TP (R`)
869 119 2,163 478 147 3,483

Upside (%)
(11) 8 (9) 9 (6) (18)

P/E (x) FY12E FY13E

30.6 30.7 30.3 26.0 28.6 24.2 28.1 26.8 31.9 42.1 24.9 21.1 25.9 22.2 24.1 21.0 24.6 22.6 25.8 35.4

EV/Sales (x) FY12E FY13E

3.2 1.1 5.0 3.7 3.3 3.7 3.1 6.0 3.0 5.6 2.7 1.0 4.3 3.2 2.8 3.2 2.7 5.0 2.6 4.8

RoE (%) FY12E FY13E

39.6 37.8 111.7 46.7 32.6 38.7 74.8 32.7 29.6 91.1 38.3 46.1 108.0 43.3 31.8 28.0 74.6 31.5 27.9 72.9

CAGR # Sales EPS

17.3 17.3 14.9 21.6 17.3 13.4 12.5 17.6 12.0 16.1 19.8 36.0 12.9 21.3 17.5 18.2 17.1 17.4 25.3 18.9

Source: Company, Angel research

Exhibit 6: Angel vs. Consensus

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

FY2012E 9,092 9,272 (1.9)

FY2013E 10,608 10,932 (3.0)

EPS (`) Angel estimates Consensus Diff (%)

FY2012E 102.5 106.1 (3.4)

FY2013E 126.3 129.0 (2.1)

Exhibit 7: Return of Asian Paints vs. Sensex

200% 180% Sensex Asian Paints

Exhibit 8: One-year forward P/E band

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 15x 18x 21x 24x

140% 120% 100% 80%

Oct-10 Sep-10 Nov-10 Feb-11 May-11 Dec-10 Aug-10 Jan-11 Mar-11 Apr-11 Jun-11 Jul-10

Share Price (`)

160%

Dec-05

Dec-07

Aug-06

Aug-08

Dec-09

Aug-10

Apr-05

Apr-07

Apr-09

Source: Company, Angel research

Source: Company, Angel research

Exhibit 9: One-year forward P/E

35.0 30.0 25.0 20.0 15.0 10.0 5.0 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Jul-05

Exhibit 10: One-year forward Premium vs. Sensex

120% 100% 80% 60% 40% 20% 0% -20% -40% -60%
Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11
Source: Company, Angel research

Source: Company, Angel research

July 26, 2011

Apr-11

Asian Paints | 1QFY2012 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 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 4,939 531 4,407 4,407 20.1 3,747 2,578 566 307 296 661 38.2 15.0 59 601 44.3 13.6 21 60 9.3 640 47.0 8 631 203 31.8 436 19 418 409 45.4 9.3 43.5 43.5 45.9 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) 4 617 197 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) 1,257 373 29.7 883 48 834 836 110.0 12.5 87.0 87.0 107.9 8,361 655 7,706 7,706 15.3 6,393 4,475 981 454 484 1,313 7.0 17.0 113 1,200 4.9 15.6 22 83 6.6 1,260 0.3 0 1,260 379 30.1 881 38 843 843 0.9 10.9 87.9 87.9 1.0 9,824 732 9,092 9,092 18.0 7,550 5,364 1,127 540 518 1,542 17.5 17.0 127 1,415 17.9 15.6 22 93 6.3 1,486 17.9 0 1,486 453 30.5 1,033 49 983 983 16.6 10.8 102.5 102.5 16.6 11,473 865 10,608 10,608 16.7 8,743 6,271 1,273 615 583 1,865 20.9 17.6 141 1,723 21.8 16.2 16 107 5.9 1,815 22.2 0 1,815 554 30.5 1,261 50 1,211 1,211 23.2 11.4 126.3 126.3 23.2

July 26, 2011

Asian Paints | 1QFY2012 Result Update

Balance sheet (consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 1,211 634 578 114 44 277 1,494 111 209 1,174 1,152 341 1,354 1,461 648 813 92 51 78 1,799 210 247 1,341 1,192 607 1,641 1,500 628 873 407 37 624 1,844 106 239 1,498 1,695 149 2,090 1,988 715 1,273 43 37 922 2,319 133 295 1,891 1,977 342 2,617 2,152 842 1,310 323 37 922 2,741 114 341 2,286 2,168 572 3,164 2,357 984 1,374 354 37 922 3,625 570 414 2,642 2,440 1,186 3,872 96 886 982 57 275 39 1,354 96 1,107 1,203 76 309 53 1,641 96 1,614 1,710 94 229 56 2,090 96 2,092 2,187 110 235 85 2,617 96 2,682 2,778 121 180 85 3,164 96 3,444 3,540 122 125 85 3,872 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

July 26, 2011

Asian Paints | 1QFY2012 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 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 647 59 4 (8) 203 (23) 476 (282) (84) (366) 0 (16) 97 (8) (105) 5 105 111 622 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) 0 (79) 236 (5) (310) (105) 210 106 1,260 113 (303) (24) 379 109 776 (123) (298) (421) 0 5 357 (24) (328) 27 106 133 1,486 127 (184) (18) 453 (104) 855 (444) 0 (444) 0 (55) 393 (18) (430) (19) 133 114 1,815 141 (208) (31) 554 1 1,164 (236) 0 (236) 0 (55) 449 (31) (472) 456 114 570

July 26, 2011

Asian Paints | 1QFY2012 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) 3.6 59 38 82 19 3.7 51 38 68 26 4.5 52 30 75 2 3.9 62 28 78 10 4.2 56 36 72 18 4.5 56 35 69 21 47.6 44.6 46.5 39.8 35.0 36.4 61.3 59.3 57.4 51.0 57.4 43.3 49.0 53.3 39.6 49.0 53.1 38.3 43.5 43.5 48.8 17.0 102.4 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 32.0 228.0 102.5 102.5 115.8 35.0 289.6 126.3 126.3 141.0 40.0 369.1 72.1 64.3 30.7 0.5 6.8 45.4 22.2 75.0 63.8 25.0 0.6 5.5 45.0 18.4 36.1 32.8 17.6 0.9 4.4 24.1 14.2 35.7 31.5 13.8 1.0 3.8 22.3 11.2 30.6 27.1 10.8 1.1 3.2 19.0 9.2 24.9 22.3 8.5 1.3 2.7 15.4 7.4 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

July 26, 2011

Asian Paints | 1QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

July 26, 2011

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