RESULT UPDATE
ASIAN PAINTS
13% volume growth; gross margin zooms
India Equity Research| Consumer Goods
Asian Paints’ (APL) Q4FY16 consol sales, EBITDA, PAT growth at 12%, 26%
and 19% YoY, respectively, were in line with our estimates along with
commendable domestic decorative volume growth at ~13% YoY on base
of 4% (14% YoY in Q3FY16 on base of 2%), despite no festive benefit.
Gross margin catapulted 390bps YoY (highest at least since Q1FY04) and
led to EBITDA margin expansion, despite jump in staff costs and other
expenses (new launches and higher rebates in B2B). Management’s body
language was stronger than before, with bigger plans in home decor.
‘BUY’ on dips.
EDELWEISS 4D RATINGS
Absolute Rating
BUY
Rating Relative to Sector
Outperform
Risk Rating Relative to Sector
Medium
Sector Relative to Market
Underweight
MARKET DATA (R: ASPN.BO, B: APNT IN)
CMP
: INR 908
Target Price
: INR 1,003
Strong performance on all fronts
52-week range (INR)
: 927 / 693
Share in issue (mn)
: 959.2
Standalone sales grew 11.5% YoY with 410bps YoY expansion in gross margin and
192bps YoY jump in EBITDA margin, despite staff expenses rising 22% YoY (% of sales
highest in past 7 quarters, due to high incentives to drive volumes). Home
improvement (Sleek and Ess Ess) sales grew 21% YoY with loss at INR148mn (versus
INR131mn in Q4FY15). Industrial business reported good growth – industrial liquid
paints and powder coating saw decent growth and auto OEMs witnessed good demand
pick up. International business also did well following growth in the key markets of the
Middle East and Bangladesh.
M cap (INR bn/USD mn)
: 871 / 13,073
Q4FY16 analyst meet: Key takeaways
APL saw improvement in demand, especially in H2FY16, though sustainability needs to
be tracked. Rural is growing much faster than urban. The company wants to be a total
décor provider through AP Homes. APL wants to compete with best-in-class brands in
the home improvement space. The company has launched Bathsense sanitary ware
range in West Bengal. It targets to open 50-75 new Colour Idea stores per year. Loctite
(adhesive) has been launched in select Western markets as there is immense
distribution synergy (~40k dealers account for ~30% of demand). Currently, 15-20k
distributors sell water proofing products (~3k some years back).
Avg. Daily Vol.BSE/NSE(‘000) : 1,257.7
SHARE HOLDING PATTERN (%)
Current
Q3FY16
Q2FY16
Promoters *
52.8
52.8
52.8
MF's, FI's & BK’s
9.1
9.3
9.5
FII's
18.0
17.8
17.4
Others
20.1
20.2
20.3
:
* Promoters pledged shares
(% of share in issue)
13.2
PRICE PERFORMANCE (%)
Stock
Nifty
EW Consumer
Goods Index
1 month
5.6
2.3
0.7
3 months
6.1
12.5
9.2
12 months
17.7
(5.7)
(0.2)
Outlook and valuations: Lustrous growth; ‘BUY’ on dips
APL remains key beneficiary of recovery in urban demand and GDP revival. In our view,
decorative volume growth is likely to be in double digits in FY17. We expect 21% EPS
CAGR over FY16-18. The stock is trading at 40.5x FY17E and 33.5x FY18E EPS. We
maintain ‘BUY/Sector Outperformer’ with a target price of INR1,003.
Financials
Year to March
(INR mn)
Q4FY16 Q4FY15 % change Q3FY16 % change
12.3
41,600
FY16
FY17E
FY18E
175,971
205,108
39,713
EBITDA
7,037
5,592
25.8
8,006
(12.1)
28,086
34,079
40,873
Adjusted Profit
4,088
3,434
19.0
5,157
(20.7)
17,787
21,495
26,006
4.3
3.6
19.0
5.4
(20.7)
18.5
22.4
27.1
Dilu. EPS (INR)
35,353
(4.5) 155,341
Net rev.
Dilu.P/E (x)
49.0
40.5
33.5
EV/EBITDA (x)
30.6
25.1
20.8
ROAE (%)
33.5
34.1
34.6
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Abneesh Roy
+91 22 6620 3141
abneesh.roy@edelweissfin.com
Pooja Lath
+91 22 6620 3075
pooja.lath@edelweissfin.com
Tanmay Sharma
+91 22 4040 7586
tanmay.sharma@edelweissfin.com
May 11, 2016
Edelweiss Securities Limited
Consumer Goods
Table 1: Trends at a glance
Domestic decorative volume growth (% YoY)
Consolidated sales growth (% YoY)
Consolidated gross margin (%)
Consolidated staff costs (% of revenue)
Consolidated other expenses (% of revenue)
Consolidated EBITDA growth (% YoY)
Consolidated EBITDA margin (%)
Standalone sales growth (% YoY)
Standalone gross margin (%)
Standalone EBITDA growth (% YoY)
Standalone EBITDA margin (%)
Ess Ess revenue (INR mn)
Ess Ess EBIT (INR mn)
Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16
10.0
12.0
8.0
14.0
11.0
10.0
2.0
4.0
10.0
7.0
14.0
13.0
11.6
18.3
13.1
21.1
18.3
16.6
5.8
6.9
7.8
4.0
13.9
12.3
43.2
43.3
41.0
41.9
42.6
43.7
43.8
45.1
46.3
46.2
47.1
49.0
7.1
6.0
5.7
5.3
6.7
6.4
6.3
6.1
6.8
6.5
5.9
7.0
19.8
20.9
19.7
21.9
19.3
22.4
21.5
23.1
20.6
23.3
21.9
24.3
4.0
33.8
5.2
23.4
19.8
5.0
8.6
15.3
22.8
15.2
37.2
25.8
16.4
16.4
15.6
14.7
16.6
14.8
16.0
15.8
18.9
16.4
19.2
17.7
12.9
18.2
12.2
22.2
18.2
18.3
6.4
6.0
7.2
2.3
13.2
11.5
44.2
44.4
41.4
42.3
43.2
44.8
44.8
46.0
47.5
47.4
48.3
50.1
3.6
35.3
5.8
19.8
16.8
5.4
13.1
18.1
25.1
11.4
31.9
23.9
18.1
18.0
16.8
15.6
17.9
16.1
17.9
17.3
20.6
17.6
20.9
19.3
NA
NA
NA
NA
31
259
241
288
237
224
284
326
NA
NA
NA
NA
(13)
(1)
(52)
(33)
(53)
(102)
(74)
(73)
*Ess Ess revenue in Q1FY15 are only for one month
Table 2: Segmental performance – standalone
Segment revenue (INR mn)
Paints
Home Improvement (only Ess Ess)
Total
Segment PBIT (INR mn)
Paints
Home Improvement (only Ess Ess)
Total
PBIT margins (%)
Paints
Home Improvement
Total
Q4FY16
32,052
326
32,378
Q4FY15
28,765
288
29,052
YoY growth
11.4
13.4
11.4
6,653
(73)
6,581
5,248
(33)
5,215
26.8
NM
26.2
20.8
(22.2)
20.3
18.2
(11.3)
18.0
251
NM
237
Table 3: Segmental performance – consolidated
Segment revenue (INR mn)
Q4FY16
Paints
39,114
720
Home Improvement (both Sleek and Ess Ess
Total
39,834
Segment PBIT (INR mn)
Paints
7,095
(148)
Home Improvement (both Sleek and Ess Ess
Total
6,947
PBIT margins (%)
Paints
18.1
Home Improvement
(20.5)
Total
17.4
Q4FY15
35,065
593
35,658
YoY growth
11.5
21.4
11.7
5,726
(131)
5,594
23.9
NM
24.2
16.3
(22.2)
15.7
181
NM
175
Source: Company, Edelweiss research
Table 4: Segmental performance – consolidated
FY16 (INR mn)
Sleek
Ess Ess
Revenue
1,347
1,062
EBIT
(190)
(302)
Source: Company, Edelweiss research
2
Edelweiss Securities Limited
Asian Paints
Q4FY16 concall | Key takeaways
Demand, volume growth and competition
•
Rural is growing much faster than urban – however, in certain geographies urban is
doing good. Smaller towns (pakka houses) are witnessing faster urbanisation than
larger towns.
•
Rural-urban split is close to 50:50 (however, lot of urban sells in rural households, so
the break up is difficult).
•
Growth in southern India is lower than other parts of the country (the company is a
large player in Kerala – Kansai Nerolac is not big there).
•
Standalone revenue trend was much better in Q3FY16 and Q4FY16.
•
Decorative business logged double-digit volume growth for FY16 and Q4FY16. Good
growth was aided by strong growth in secondary demand.
•
Improvement in demand seen, especially in H2FY16 but sustainability needs to be
seen. Management will wait for couple of quarters to call out revival in demand.
•
Lower end continues to grow reasonably faster, but it is witnessing higher competition
from unorganised players.
•
Repainting constitutes 80% of total demand. The best repainting cycle is in tenanted
houses. Repainting occurs due to maintenance, occasion and décor led. Maintenance
led demand is key contributor to repainting. Repainting happens across all segments,
right from lower to mass segments.
•
Kansai Nerolac has not gained market share in FY16
Pricing
•
Price cut of 2% was effective from February 26, 2012. Lower end has seen more price
cuts.
•
Cumulative price fell by 2% in FY16, which recorded 0.39% YoY growth in FY15.
•
Cost of labour constitutes 60-70% of total paint costs.
•
Pricing is not the only metric of getting new business.
Adhesives - Loctite
3
•
Introduced adhesives in certain Western market.
•
The product is a distribution arrangement with Henkel Adhesives Technologies,
Germany, one of the largest adhesive players in the world. Will sell Loctite brand of
adhesives under a co-branding initiative.
•
Co-branding certain products which are being developed by partner, Henkel.
•
As of now, it is only a distribution arrangement as Henkel is not comfortable in the
retail market. APL purchases the product and sells the same. Advertisement expense
for this is borne by the company.
•
Currently, the company is test marketing the product.
•
Has exclusive rights to price the product in the retail market.
Edelweiss Securities Limited
Consumer Goods
•
Believes that there is immense distribution synergy with adhesives (has ~40,000 paint
dealers). The demand in adhesives is distributor led. For industry, 30% of adhesive
sales happens through dealer network of APL (which is close to ~40,000).
•
Most of the cyanoacrylate products in market dry up very fast and stick to the skin.
APL has corrected the same in its product.
•
Products that are launched by the company are consumer friendly with innovative
packaging in the form of syringe – though the product is largely the same as sold by
other players.
AP Homes
•
AP Homes is an integrated décor store across categories of paints, wall papers,
kitchen, bath fittings, sanitary ware, furnishings, light fittings, etc.
•
Tied up with other players like D Décor, Somany, Pepper Fry and Philips for segments
like lighting, furnishing, tiles and furniture. Independent retailers are bringing together
the other players.
•
There is no rental from these players for the company
•
Targets to be a total décor provider to housewife. Wants to provide all products
directly or indirectly through AP Homes so that the target consumer doesn’t go to other
stores.
•
AP Homes may have another store in FY17. But, will like to get more feedback. As of
now, it is at experimentation phase. Targets 50 to 100 AP Homes.
•
Believes the current model is not the perfect one which can see some changes.
•
Covers an area of 7,000 sq ft.
•
Cannot put restrictions on dealers to keep other products – eg., the company doesn’t
offer a complete range of bath fittings so keeps Hindware.
•
Expenses towards digital and other technology are incurred by APL, which is a part of
other expenses.
Sleek
•
Total sales stood at INR1,347mn in FY16 with loss of INR190mn.
•
Launched “Smart kitchen range” for easy installation and design.
•
Bulk of modular kitchen demand goes to new construction, which remains weak.
•
Write off has been taken only in Sleek and no other investment was done in Ess Ess.
ESS ESS
4
•
Saw total sales of INR1,062mn in FY16, with loss of INR302mn.
•
Launched sanitary ware range under the brand name, ‘Bathsense’ in West Bengal.
•
Response to premium range of bath fittings ‘Royale’ was good.
Edelweiss Securities Limited
Asian Paints
Bathsense – Entry into sanitary ware
•
No plans to get into tiles as far as bathrooms are concerned.
•
Completed the entire range with launch of this product (in sanitary ware).
•
Umbrella brand remains Asian Paints.
•
Current plan for each of the home improvement products is that they will compete
with best-in-class in categories beyond AP Homes. It is more of consumer strategy for
AP Homes.
Smartcare - Waterproofing
•
Continues to grow extremely well. The product is present through 15,000 – 20,000
distributors rising from 3,000 few years back.
•
The most important aspect in water proofing is diagnosing the problem, which is not
easy. Applicator needs to be educated, for which the company is taking steps.
Colour Idea
•
Over 300 colour ideas.
•
Requires area of 300-1,000 sq ft. Thus, not all Color Idea stores can upgrade to AP
Homes, though some have the potential to upgrade.
•
Targets 50-75 new stores per year.
Gross margins
•
Raw material prices have bottomed out in monomers, solvents and Ti02.
•
Rupee depreciation is also a factor that can impact overall raw material prices.
Staff costs
•
Advantages of modernisation leads to better flexibility, reliability of production, etc.
Saving in employee cost is a small proportion of the cost of these plants.
•
Staff costs is also high due to one offs. It is higher due to high incentives given on
volumes, senior manager performance pay and small component of operator salary.
Other expenses
•
Rebating increased from competition, which also made APL follow suit, since margins
were high for industry.
•
This was largely in the B2B segment, especially in the project business.
•
Some expenses were also high due to increased new launches.
International
5
•
Performed well in challenging market.
•
Growth in Egypt, despite sluggish economic environment.
•
Markets in the Middle East – Oman, Bahrain and UAE, as well as Trinidad saw subdued
economic conditions due to the drop in oil prices.
Edelweiss Securities Limited
Consumer Goods
•
Bangladesh and Sri Lanka experienced stable political environment supporting the
business conditions.
•
New manufacturing facility commissioned in Sohar in Oman with annual capacity of
21,000KL.
•
New green-field plant is being set up in Indonesia, though the process is slow due to
delays in regulatory approvals.
Industrial
•
PPG – AP sales grew 3.8% YoY to INR10.6bn with PBIT of INR931mn in FY16.
•
AP – PPG sales grew 11.6% YoY to INR3.23bn with PBIT of INR71mn in FY16.
•
Consolidated result however only includes 50% of business (being joint venture - JV).
Capacity addition and plant
•
The subsidy income of Khandala plant was INR1,342mn (INR1,090mn in FY15;
INR656mn in FY14).
•
Expanded total capacity of Rohtak plant from 0.2mn KL per annum to 0.4mn KL per
annum.
•
Modernisation program for Ankleshwar (Gujarat) and Kasna (UP) plants completed.
•
Land acquired for the plants in n Andhra Pradesh and Karnataka.
•
Proposes to set up 0.4mn KL plant at Visakhapatnam in Andhra Pradesh with an
investment of ~INR17.50bn.
•
Proposes to set up 0.6mn KL plant at Mysuru in Karnataka with an investment of
~INR23bn.
•
Capex of INR3.5bn in FY16 and INR7bn in FY17.
Ban on lead in paints
•
APL doesn’t use lead in paints and has stopped using the same since past 8 years.
•
Most of the lead is in solvent-based category, which is very small for industry.
•
Ban can have some impact on costs for the unorgansied segment, but it is difficult to
regulate the unorganised segment.
Express Paints
6
•
The company is present in the faster painting service in home solution, but at a higher
price.
•
Doesn’t look at it as a money-making service – it is more of a learning experience for
customers.
•
Looking at different models – Paint Total, which is more economical and has
implemented in 100 Colour Stores.
Edelweiss Securities Limited
Asian Paints
Q3FY16 concall | Key takeaways
Demand: Clocked double digit volume growth aided by festive cheer. Demand in Tamil
Nadu, coastal Andhra Pradesh and some other regions in South were adversely impacted.
Festival season demand of Pongal was missed, though some demand may return, but the
timing is uncertain. Smaller towns continue to grow significantly better than bigger
counterparts. Domestic environment improved modestly, but industrial environment
continues to remain challenging.
Growth: There was no pricing change in Q3FY16. 9mFY16 volume growth has been higher
than value growth on account of some price reduction taken in initial part of the year.
Competition: Working on pushing sales in emulsions and growth is higher in this segment.
Market continues to be competitive, both in the organized and unorganized space across
segments which remains at similar levels as in past (no increase in intensity).
Faster painting: Worked well in a few markets. 10-15% customers are ready to pay a
premium for faster painting service. APL has not launched any sub-brand to support this
service, unlike competitors.
Adhesive: Small part of the business. Currently present only in tile and wallpaper adhesives;
looking to expand into a few more categories in Q4FY16.
Industrial business: Industrial coatings JV (AP-PPG) registered good growth in industrial
liquid paints and powder coatings segment. In the automotive coatings business JV’s (PPGAP) growth in auto OEM improved due to growth in four-wheeler segment. However, twowheeler and tractor segments’ growth was tardy. Refinish business segment registered
decent growth. Joint ventures clocked margin expansion in Q3FY16. Some price cut taken in
this business.
International business: Double digit growth led by contribution from Middle East,
Bangladesh and Ethiopia. Nepal and Egypt sustained growth needed to ensure good
international growth. Demand is challenging in Egypt and Ethiopia (due to lower exports
from these countries). No specific disruption from China imports currently.
Home improvement: Sleek business impacted by subdued demand (real estate market and
South which is a major market for Sleek) prevailing over the past few years. APL has
continued to operate profitable Sleek stores which it had required. APL is working on
improving the distribution channel—servicing existing dealers, roping in new kitchen dealers
and selling products through APL’s paint distributors. However, given the adverse business
conditions since acquisition and slower growth than anticipated, APL provided for INR525mn
as impairment loss for the time being which may be revised if demand improves.
Ess Ess saw good growth, though it was slightly impacted by adverse rainfall in South.
Currently, business growth is on track and APL will review progress only later.
Raw material: Costs continue to remain benign, though may be impacted by declining INR
going forward. It is unlikely to sustain the current high gross margin; APL intends to remain
competitive in the market. Big global suppliers have shut ~150,000mT line (in China) which
impacts cost for TiO2 (not solely linked to crude oil prices).
7
Edelweiss Securities Limited
Consumer Goods
Staff costs: Stagnant interest rates have led to lower growth in staff costs due to lower
retiral benefits.
Capex: INR7bn for FY16 in standalone. Expansion of Rohtak plant from 200,000 klpa to
400,000 klpa is on schedule to complete by FY16 end. Depreciation will be impacted once
expansion comes on stream. Design of Indonesia plant to be completed soon and
construction to start in Q1FY17.
Peer performance - Kansai Nerolac
8
•
Sales increased 10.3% YoY in Q4FY16 and 8.1% YoY in FY16.
•
Gross Profit increased by 708bps YoY and 188bps QoQ in Q4FY16; compared to 529 bps
YoY expansion in FY16.
•
Other expenditure shot up by 35% YoY (likely ad spends were much higher) possibly
due to sharp expansion in gross margins
•
EBITDA increased 34% YoY in Q4FY16 and 28% YoY in FY16 leading to 265 bps
expansion in Q4FY16 YoY.
•
Net Profit jumped 923% in Q4FY16 YoY due to onetime exceptional item. Exceptional
Item: Sold Perungudi Fixed Assets on 30th March 2016 for a consideration of
INR5378.6mn out of which profit of INR5353.4mn is shown as exceptional in P&L.
•
Tax Rate increased 250bps YoY in Q4FY16 to 34.2%.
•
Dividend of 305% including special dividend of 125% (INR 3.05 per share) compared to
140% (INR1.40 per share) last year.
Edelweiss Securities Limited
Asian Paints
Table 5: Q4FY16 Financial performance - Strong show
Year to March
Q4FY16 Q4FY15 % change
Net Sales
8,882
8,049
10.3
Other operating income
29
29
(1.0)
Total Income
8,911
8,078
10.3
Cost of goods sold
5,256
5,337
(1.5)
Gross profit
3,655
2,741
33.3
Staff costs
458
368
24.4
Other expenditure
1,868
1,382
35.2
Total expenditure
2,326
1,750
32.9
EBITDA
1,329
991
34.1
Depreciation
171
168
1.8
EBIT
1,158
823
40.7
Other income
64
58
10.0
Interest and financial charges
0
NM
PBT
1,222
881
38.7
Provision for taxation
418
279
49.6
Core Profit
804
602
33.6
Exceptional
5,353
NM
Minority interest
NM
Reported PAT
6,158
602
923.0
Paid up Capital (Re 1 each)
539
539
EPS
11.4
1.1
923.0
as % of net sales
COGS
59.0
66.1
(708)
Staff costs
8.7
6.9
181
Other expenditure
35.5
25.9
965
EBITDA
14.9
12.3
265
EBIT
13.0
10.2
281
PBT
13.7
10.9
281
Net profit
69.1
7.5
6,165
Tax rate
34.2
31.7
250
Q3FY16 % change
9,648
(7.9)
32
(11.4)
9,681
(8.0)
5,892
(10.8)
3,788
(3.5)
453
1.1
1,971
(5.2)
2,424
(4.0)
1,365
(2.6)
169
1.1
1,196
(3.2)
59
8.1
1,255
(2.6)
411
1.7
844
(4.7)
NM
NM
844
629.4
539
1.6
629.4
60.9
7.7
33.4
14.1
12.4
13.0
8.7
32.7
(188)
102
210
82
64
75
6,038
145
Source: Edelweiss research
Quaterly no are Standalone while Yearly are Consolidated
Key developments
‘AP homes’ - a multi-category home improvement store from Asian Paints
9
•
Asian Paints has piloted ‘AP homes’ in Coimbatore – a multi-category home
improvement store
•
The store offers a wide array of products ranging from paints, wall papers, wood
finishes, decorative lights, bath fittings, sanitary wares, curtains and upholstery,
furniture, tiles and modular kitchen.
•
The store is also likely to offer digital visualisation to enable customers envision the
desired look of their homes.
•
This concept is in line with company’s strategy to become one-stop solution for all
home improvement needs
•
In our view pilot in South India is a good strategy as media there is more focused and
localised thus need lesser media spends which will be more effective.
Edelweiss Securities Limited
Consumer Goods
•
We are positive on the company as it is focusing on allied categories (recently entered
the adhesives space with the launch of Loctite in partnership with Henkel) to drive
future growth while continue to perform well in its core category –paints.
Asian Paints launches branded adhesives in select cities
•
APL has for the first time forayed into branded adhesives in select cities in India.
•
The company has launched 3 types of adhesives based on usage: Loctite Quick, Loctite
Rapid And Loctite Tough for which print ads have already started.
•
Currently APL can easily tap into its existing distribution of Paint dealers (~36,000).
However lot of the adhesives are also sold via the kirana shops (Mom and Pop shops)
which will be a key challenge for Asian Paints and will be needed to be built by APL.
Pidilite which currently dominates with a 70% plus market share in adhesives has a
strong distribution in kirana shops. However in our view, this is likely to be one of the
most potent threat to Pidilite in adhesives till now. Till now Pidilite has been quite
successful to ward of competition from global biggies and local players due to superior
distribution and brand – both of which may not be a big issue for APL especially brand.
However diversification to non-paints has not been easy till now for APL with both
Sleek and Ess Ess facing growth challenges.
•
Asian Paints Loctite Quick is an ultra-high viscosity instant adhesive which instantly
locks together a wide range of materials. Its viscosity lends it a controlled flow, making
it a non-messy, spill-free adhesive that can even be applied to challenging vertical
surfaces, hard-to-get-between contours and in gaps. Key features:
o
Controlled viscosity: Its high viscosity makes it a non-messy, easy-to-use adhesive
without wastage.
o
Easy application: It can be applied to the trickiest surfaces such as contours and
won't get absorbed in porous substrates.
o
Precise application: As a controlled adhesive, this doesn't drip and hence, is a
suitable choice for vertical surfaces.
o
Longer shelf-life : It can be stored for long periods of time and reused as and when
needed without hassle. 12 months from date of manufacture
o
Open time: It gives 15 seconds of open time to reposition joining surfaces.
Woodteach Studio
10
•
Woodtech Studio is a one stop shop for everything related to wood. This initiative by
Asian Paints provides entire range of products for wood solution.
•
It is a guide to what and how to select furniture.
•
This provides help not only in terms of products that are offered by Asian Paints but
also help in furniture selection and wood selection.
•
This site has a mascot named Mr. A.P. Woodkar which makes this site interactive and
easy to use.
•
Further the company introduces a range of products to be used for wooden furniture –
interior, exterior and premium.
•
It also shows how to apply the product.
Edelweiss Securities Limited
Asian Paints
•
The company provides product range under the brand Woodtech providing solution for
interior, exterior and premium furniture.
Asian Paints takes price cut
•
Asian Paints took a price cut of ~2% weighted average across portfolio.
•
This price cut has been effective from 19th March 2016.
•
Price cut is less in the water based paints while more in the thinner based paints (lower
priced).
•
The last price cut was taken by the company in March 2015 when the effective price cut
was close to 1.9% (initiated 2.5% price cut on ~80% of the portfolio). Thus this price cut
is coming after a year.
•
Last price cut also was more in the lower end and less in the higher end which ensured
company gets back to higher single digit to double digit volume growth.
•
Post the price cut in March 2015 Asian paints saw pick up in the volume growth as
volume growth increased from 4% in Q4FY15 to 10% in Q1FY16. Volume growth in
Q2FY16 and Q3FY16 was 7% YoY and 14% YoY.
•
This pricing action was expected as average crude prices for FY16 (crude has dipped
further post Q3FY16) is at a decade low while gross margins are at all times high
(highest in atleast 11 years).
Rohtak factory closure
•
Asian Paints shut down its Rohtak factory with effect from February 19, 2016 due to
agitation at IMT, Rohtak.
•
This factory was reopened from 3rd March 2016.
•
Supply will not be an issue as alternative supply from Kasna plant in UP.
•
Cost might see some increase in other expenses (other expenses had seen a jump in
Q1FY16 when there was a strike in Sriperumbudur factory).
Other developments
The company launched Books of Colours 2016 for consumers. It is a collection of new design
ideas, colours, visuals and tips to suit one’s décor needs especially for Indian homes.
As per its plan to consolidate investments in the overseas subsidiaries Asian Paints
(International) Ltd (APIL), Mauritius, a wholly-owned subsidiary of the company had
transferred its entire holding of 60% held in the subsidiary company, Asian Paints (Vanuatu)
Ltd to Berger International Private Ltd, Singapore.
Company took home the Advertiser of the Year award in the third edition of the
exchange4media Prime Time Awards.
11
Edelweiss Securities Limited
Consumer Goods
Outlook and valuations: Lustrous growth; ‘BUY’ on dips
Paint industry exhibits strong pricing power reflected by frequent price hikes in inflationary
raw material scenario but lagged price cuts in a deflationary environment. With urban
recovery on the cards, discretionary spending and GDP growth are bound to increase. Paint
industry volume growth exhibits a strong correlation with GDP growth (1.5-2.0x), which will
be further bolstered by market share gains, innovations and strong re-painting demand
(90% of total demand). Also considering the low penetration levels in the paint industry (as
per our calculations ~43%) the growth potential remains humungous; even if the sector
clocks 12% CAGR over the coming decade, we expect penetration levels to reach only ~64%.
Asian Paints has taken price cut of ~2% YoY in February 2016 in a benign commodity
environment which will helps volume further (Asian paints has shown consecutive two
quarters of double digit growth). Also the increased focus towards other allied segments like
waterproofing (running strong TV campaign for its waterproofing products) and entry into
adhesives with bigger plans for home décor (color ideas, AP homes) are additional growth
triggers. We believe that even if inflationary pressures come back, Asian paints has sufficient
pricing power to counter the same and the growth will also increase further because of the
comeback of pricing (deflation in FY16). Industrial segment growth is showing some signs of
recovery and we believe is likely to pick up, especially in the automotive space in the coming
quarters. We expect distribution synergies between home décor segments and existing
paint distribution network to aid the company’s operating leverage. We assign target
multiple of 37x FY18E earnings to arrive at target price of INR1,003. We recommend ‘BUY’
on dips and maintain ‘Sector Outperformer’ rating.
Chart 1: Asian Paints - P/E band
1,100
45x
40x
900
(INR)
35x
30x
700
25x
500
20x
300
May-16
Nov-15
May-15
Nov-14
May-14
Nov-13
May-13
Nov-12
May-12
Nov-11
May-11
100
Source: Company, Edelweiss research
12
Edelweiss Securities Limited
13
Edelweiss Securities Limited
May-16
Nov-15
May-15
Nov-14
May-14
Nov-13
May-13
Nov-12
May-12
Nov-11
May-11
(TiO2 - INR/kg)
0.0
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q3FY16
Q4FY16
Q3FY16
Q4FY16
Q2FY16
3.0
Q2FY16
6.0
Q1FY16
9.0
Q1FY16
12.0
Q4FY15
Chart 3: Domestic decorative volume growth commendable
15.0
Q4FY15
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
(%)
(%)
Asian Paints
Chart 2: Consolidated sales growth robust
25.0
20.0
15.0
10.0
5.0
0.0
Chart 4: Titanium dioxide price
300.0
265.0
230.0
195.0
160.0
125.0
Source: Company, Edelweiss research
Consumer Goods
Chart 5: Consolidated EBITDA margin
24.0
20.0
(%)
16.0
12.0
8.0
4.0
Q4FY16
Q3FY16
Q2FY16
Q1FY16
Q4FY15
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
0.0
Source: Company, Edelweiss research
Table 6: Standalone snapshot
Year to March
Q4FY16
Net sales
32,191
COGS
16,075
Staff costs
1,786
Other expenditure
8,127
Total expenditure
25,989
EBITDA
6,202
Depreciation
623
EBIT
5,579
Interest
103
Other income
436
PBT
5,912
Exceptional item
1
Tax expenses
2,042
Net profit
3,870
As % of net revenues
COGS
49.9
Staff expenses
5.5
Others
25.2
EBITDA
19.3
PAT
12.0
Tax rate
34.5
Q4FY15 % Change
28,870
11.5
15,600
3.0
1,455
22.7
6,807
19.4
23,862
8.9
5,007
23.9
555
12.2
4,452
25.3
86
19.8
494
(11.7)
4,860
21.6
(116)
NA
1,578
29.4
3,398
13.9
54.0
5.0
23.6
17.3
11.8
32.5
(410)
51
167
192
25
207
Q3FY16
34,240
17,693
1,604
7,796
27,094
7,146
601
6,545
58
472
6,959
653
2,124
4,182
(INR mn)
% Change
(6.0)
(9.1)
11.3
4.2
(4.1)
(13.2)
3.6
(14.8)
77.9
(7.6)
(15.0)
NA
(3.8)
(7.5)
51.7
4.7
22.8
20.9
12.2
30.5
(174)
86
248
(160)
(19)
402
Source: Company, Edelweiss research
14
Edelweiss Securities Limited
Asian Paints
Table 7: Pricing summary
Date
Mar-16
Mar-15
Jun-14
May-14
Feb-14
Sep-13
Aug-13
May-13
Jan-13
May-12
Mar-12
Mar-12
Dec-11
Jul-11
Jun-11
May-11
Q4FY11
Dec-10
Aug-10
Jul-10
May-10
Price hike
(2.0)
(1.9)
1.2
1.0
2.1
1.8
1.0
1.2
(0.2)
3.2
2.1
1.4
2.2
1.3
2.5
4.4
1.0
3.0
1.2
2.6
4.2
Source: Company, Edelweiss research
15
Edelweiss Securities Limited
Consumer Goods
Table 8: Consolidated balance sheet
INR mn
Sources of funds
Share capital
Reserves and surplus
Shreholders fund
Minority Interest
Long term borrowings
Deffered tax liability (net)
Other long term liabilities
Long term provisions
Non-current liabilities
Short term borrowings
Trade payables
Other current liabilities
Short term provisions
Current liabilities
Total sources of funds
Uses of funds
Fixed assets
Goodwill on consolidation
Non-current investments
Long term loans & advances
Deferred tax assets (net)
Other non current asset
Total non-current assets
Current investments
Inventories
Trade recievables
Cash and cash equivalents
Short term loans and advances
Other current assets
Total current assets
Total uses of funds
31-Mar-16
31-Mar-15
959
959
55,093
46,464
56,053
47,424
2,942
2,637
749
783
2,176
1,801
106
111
1,244
1,197
4,274
3,892
2,311
3,316
15,901
15,488
12,320
9,975
7,633
6,394
38,164
35,172
101,433
89,125
33,162
26,102
1,977
2,458
5,393
3,859
1,793
2,785
5
2
498
367
42,827
35,573
15,589
12,019
20,640
22,585
12,483
11,799
4,204
2,044
2,890
2,620
2,800
2,486
58,606
53,552
101,433
89,125
Source: Company, Edelweiss research
16
Edelweiss Securities Limited
Asian Paints
Financial snapshot
Year to March
Net revenues
Raw material costs
Employee expenses
Other expenses
EBITDA
Depreciation
EBIT
Other income
Interest
Add: Prior period items
Add: Exceptional items
Profit before tax
Provision for taxes
Minority interest
Reported net profit
Adjusted Profit
Diluted shares (mn)
Adjusted Diluted EPS
As % of net revenues
COGS
Employee cost
Other expenses
EBITDA
EBIT
PBT
Adjusted net profit
Tax rate
(INR mn)
Q4FY16
39,713
20,270
2,766
9,640
7,037
753
6,284
340
148
6,476
2,254
135
4,088
4,088
959
4.3
Q4FY15
35,353
19,422
2,164
8,175
5,592
672
4,920
424
102
(24)
5,218
1,698
110
3,410
3,434
959
3.6
51.0
7.0
24.3
17.7
15.8
16.3
10.6
34.8
54.9
6.1
23.1
15.8
13.9
14.8
10.0
32.5
17
% change
12.3
4.4
27.8
17.9
25.8
12.1
27.7
(19.8)
44.9
NM
24.1
32.7
22.7
19.9
19.0
Q3FY16
41,600
22,004
2,470
9,121
8,006
725
7,281
358
76
(525)
7,038
2,288
117
4,633
5,157
959
5.4
52.9
5.9
21.9
19.2
17.5
16.9
12.7
32.5
% change
(4.5)
(7.9)
12.0
5.7
(12.1)
3.8
(13.7)
(5.1)
94.1
NM
(8.0)
(1.5)
15.6
(11.8)
(20.7)
FY16
155,341
82,056
10,178
35,021
28,086
2,880
25,207
2,007
405
(525)
26,284
8,491
531
17,262
17,787
959
18.5
FY17E
175,971
91,541
11,374
38,977
34,079
3,649
30,430
2,024
339
32,115
9,956
665
21,495
21,495
959
22.4
FY18E
205,108
105,893
13,226
45,115
40,873
4,193
36,680
2,492
317
38,855
12,045
804
26,006
26,006
959
27.1
52.8
6.6
22.5
18.1
16.2
16.9
11.8
32.3
52.0
6.5
22.1
19.4
17.3
18.3
12.6
31.0
51.6
6.4
22.0
19.9
17.9
18.9
13.1
31.0
Edelweiss Securities Limited
Consumer Goods
Company Description
Asian Paints is the largest paints company in India and figures among the top 10 players in
the world. The company has 25 manufacturing plants in 17 countries, serving consumers in
65 countries globally. The decorative segment accounts for almost 70% of the overall paints
market. Paints sales in domestic and international markets contributed 81% and 13%,
respectively, to the company’s consolidated revenue; chemical sales accounted for the
balance. Among Asian Paints’ international businesses, while the Middle East contributes
the lion’s share at 51% to revenue, the Caribbean contributes 14%. Asia and South Pacific
contribute 27% and 8%, respectively.
Investment Theme
The paints industry is expected to post robust volume growth led by strong repainting
demand and from construction. Growth in the repainting segment, accounting for about
90% of decorative demand, is on account of good demand in rural and small towns. Further,
expected growth in construction activity over the next five years creates opportunity for
fresh painting. Though Asian Paints is expected to grow ahead of the market on account of
its pricing strategy at the lower end, higher growth in premium products, brand equity and
distribution strength, moderation in real estate and auto segments can act as barrier.
Key Risks
A slowdown in the economy is the biggest risk for the paints industry, as about 75% of
demand for decorative paints arises from repainting, which, in turn, depends heavily on the
country’s economic condition.
A rise in crude oil price and rupee depreciation could hurt the company’s margin as crude
derivatives account for majority of Asian Paints’ input costs.
18
Edelweiss Securities Limited
Asian Paints
Financial Statements
Key Assumptions
Year to March
Income statement
FY15
FY16
FY17E
FY18E
Macro
(INR mn)
Year to March
FY15
FY16
FY17E
FY18E
Net revenue
Materials costs
141,828
79,715
155,341
82,056
175,971
91,541
205,108
105,893
GDP(Y-o-Y %)
Inflation (Avg)
7.2
5.9
7.4
4.8
7.9
5.0
8.3
5.2
Employee costs
9,071
10,178
11,374
13,226
Repo rate (exit rate)
7.5
6.8
6.0
6.0
Other Expenses
23,250
26,974
29,927
34,565
61.1
65.0
67.5
67.0
Ad. & sales costs
7,439
8,047
9,050
10,550
22,354
28,086
34,079
40,873
2,659
2,880
3,649
4,193
19,695
25,207
30,430
36,680
1,697
2,007
2,024
2,492
348
405
339
317
21,044
26,809
32,115
38,855
Less: Provision for Tax
6,495
8,491
9,956
12,045
Less: Minority Interest
322
531
665
804
13,952
17,262
21,495
26,006
USD/INR (Avg)
Company
EBITDA
Sales assumptions
Depreciation
Sales growth-paints std
11.1
8.0
13.0
17.0
EBIT
Sales growth-chemicals
29.5
30.0
10.0
15.0
Add: Other income
Volume growth-standalone
7.1
10.0
13.0
15.0
Less: Interest Expense
Price change-standalone
4.0
(2.0)
-
2.0
Subsidiary sales growth
10.4
24.2
15.2
15.3
Cost assumptions
Excise (% grs sale stn)
Excise (subs % of gross)
10.7
10.7
10.7
10.7
Profit Before Tax
Reported Profit
2.9
2.8
2.8
2.8
TiO2 (as % of COGS)
29.3
23.7
23.6
25.3
Exceptional Items
Adjusted Profit
(276)
(525)
-
-
14,227
17,787
21,495
26,006
Crude RM (as % of COGS)
18.4
19.0
18.9
19.2
Shares o /s (mn)
959
959
959
959
Pack Mat (as % of COGS)
16.1
16.5
15.7
14.3
Adjusted Basic EPS
14.8
18.5
22.4
27.1
COGS as % of sales (Con)
56.2
52.8
52.0
51.6
Diluted shares o/s (mn)
959
959
959
959
COGS as % of sales (std)
55.3
51.6
50.4
49.7
Adjusted Diluted EPS
14.8
18.5
22.4
27.1
Staff cost (% of sales)
6.4
6.6
6.5
6.4
Adjusted Cash EPS
17.6
21.5
26.2
31.5
Std Staff cost (% sales)
5.1
5.2
5.2
5.2
Dividend per share (DPS)
6.1
7.6
9.4
11.4
Con A&P (% of sales)
5.2
5.2
5.1
5.1
Dividend Payout Ratio(%)
50.2
50.1
50.1
50.1
Dom A&P (% of sales)
5.1
5.2
5.2
5.2
Tax rate (Consol)
30.9
31.7
31.0
31.0
Year to March
FY15
FY16
FY17E
FY18E
Capex (INR mn)
3,287
11,000
8,000
8,000
Debtor days
29
29
30
30
Materials costs
Staff costs
56.2
6.4
52.8
6.6
52.0
6.5
51.6
6.4
Inventory days
99
92
90
90
Ad. & sales costs
5.2
5.2
5.1
5.1
Payable days
75
71
71
71
Other expenses
16.4
17.4
17.0
16.9
Common size metrics
Financial assumptions
Cash conversion cycle
53
50
49
49
EBITDA margins
15.8
18.1
19.4
19.9
Dep. (% gross block)
7.1
6.5
6.8
6.8
EBIT margins
13.9
16.2
17.3
17.9
Net Profit margins
10.3
11.8
12.6
13.1
Year to March
FY15
FY16
FY17E
FY18E
Revenues
EBITDA
11.5
11.9
9.5
25.6
13.3
21.3
16.6
19.9
PBT
14.1
27.4
19.8
21.0
Adjusted Profit
15.8
25.0
20.8
21.0
EPS
15.8
25.0
20.8
21.0
Growth ratios (%)
19
Edelweiss Securities Limited
Consumer Goods
Balance sheet
(INR mn)
As on 31st March
Cash flow metrics
FY15
FY16
FY17E
FY18E
FY15
FY16
FY17E
FY18E
Share capital
Reserves & Surplus
959
46,464
959
55,081
959
65,811
959
78,792
Year to March
Operating cash flow
Investing cash flow
13,004
(1,645)
23,435
(10,540)
23,982
(8,000)
28,178
(8,000)
Shareholders' funds
Financing cash flow
(4,961)
(10,575)
(11,304)
(13,541)
6,398
2,320
4,678
6,637
47,424
56,040
66,770
79,751
Minority Interest
2,637
3,167
3,832
4,636
Net cash Flow
Total Borrowings
4,182
3,182
2,982
2,782
Capex
(3,287)
(11,000)
(8,000)
(8,000)
Long Term Liabilities
1,308
1,308
1,308
1,308
Dividend paid
(6,999)
(8,645)
(10,765)
(13,024)
Def. Tax Liability (net)
1,799
1,799
1,799
1,799
Sources of funds
57,349
65,497
76,691
90,277
Profitability and efficiency ratios
Gross Block
Net Block
38,664
22,902
49,664
31,022
57,664
35,373
65,664
39,180
Year to March
FY15
FY16
FY17E
FY18E
1,960
1,500
1,500
1,500
ROAE (%)
ROACE (%)
31.3
43.0
33.5
46.7
34.1
47.7
34.6
48.7
Capital work in progress
Intangible Assets
3,699
3,699
3,699
3,699
Inventory Days
99
92
90
90
Total Fixed Assets
28,560
36,221
40,572
44,378
Debtors Days
29
29
30
30
3,859
3,859
3,859
3,859
Payable Days
75
71
71
71
Cash and Equivalents
14,063
16,383
21,061
27,698
Cash Conversion Cycle
53
50
49
49
Inventories
22,585
20,683
22,572
26,111
Current Ratio
1.8
1.8
1.9
2.1
Sundry Debtors
11,799
12,342
14,463
16,858
Gross Debt/EBITDA
0.2
0.1
0.1
0.1
5,404
5,404
5,404
5,404
Net Debt/Equity
(0.2)
(0.2)
(0.3)
(0.3)
Interest Coverage Ratio
56.7
62.2
89.8
115.7
Non current investments
Loans & Advances
Other Current Assets
2,853
2,853
2,853
2,853
Current Assets (ex cash)
42,641
41,282
45,292
51,226
Trade payable
15,488
15,962
17,807
20,598
Operating ratios
Other Current Liab
16,286
16,286
16,286
16,286
Year to March
FY15
FY16
FY17E
FY18E
Total Current Liab
31,773
32,247
34,092
36,884
Net Curr Assets-ex cash
10,868
9,035
11,200
14,342
Total Asset Turnover
Fixed Asset Turnover
2.7
5.4
2.5
5.1
2.5
4.8
2.5
5.0
Uses of funds
57,349
65,497
76,691
90,277
Equity Turnover
3.1
2.8
2.7
2.6
49.4
58.4
69.6
83.1
Year to March
FY15
FY16
FY17E
FY18E
Adj. Diluted EPS (INR)
Y-o-Y growth (%)
14.8
15.8
18.5
25.0
22.4
20.8
27.1
21.0
BVPS (INR)
Valuation parameters
Free cash flow
(INR mn)
Year to March
FY15
FY16
FY17E
FY18E
13,952
2,659
17,262
2,880
21,495
3,649
26,006
4,193
Adjusted Cash EPS (INR)
17.6
21.5
26.2
31.5
Interest (Net of Tax)
240
277
234
219
Diluted P/E (x)
61.2
49.0
40.5
33.5
Others
705
1,183
770
903
P/B (x)
18.4
15.5
13.0
10.9
Less: Changes in WC
4,552
(1,833)
2,165
3,142
6.1
5.5
4.9
4.1
Operating cash flow
13,004
23,435
23,982
28,178
38.6
0.7
30.6
0.8
25.1
1.0
20.8
1.3
Reported Profit
Add: Depreciation
Less: Capex
3,287
11,000
8,000
8,000
Free Cash Flow
9,717
12,435
15,982
20,178
EV / Sales (x)
EV / EBITDA (x)
Dividend Yield (%)
Peer comparison valuation
Market cap
Name
Diluted P/E (X)
EV / EBITDA (X)
ROAE (%)
(USD mn)
FY17E
FY18E
FY17E
FY18E
FY17E
FY18E
13,073
40.5
33.5
25.1
20.8
34.1
34.6
864
23.4
19.9
18.0
15.3
47.6
49.8
Berger Paints
2,824
41.4
33.6
24.3
20.1
29.4
31.3
Colgate
3,413
31.8
27.8
20.0
17.4
67.2
62.8
GlaxoSmithKline Consumer Healthcare
3,759
31.6
27.7
22.3
19.1
29.3
28.7
28,022
39.6
35.3
26.7
23.8
119.4
136.3
4,630
35.0
29.5
21.9
18.6
29.1
28.7
-
33.4
28.6
21.7
18.6
48.1
50.0
Asian Paints
Bajaj Corp
Hindustan Unilever
Pidilite Industries
AVERAGE
Source: Edelweiss research
20
Edelweiss Securities Limited
Asian Paints
Additional Data
Directors Data
Ashwin Choksi
Ms. Amrita Vakil
Mahendra Choksi
Malav Dani
Dipankar Basu
R. A. Shah
Mahendra Shah
M. K. Sharma
Non-executive Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Non-Executive Independent Director
Non-Executive Independent Director
Non-Executive Independent Director
Non-Executive Independent Director
Ashwin Dani
K.B.S. Anand
Amar Vakil
Ms. Vibha Paul Rishi
Deepak Satwalekar
S. Sivaram
S. Ramadorai
Non-executive Vice Chairman
MD & CEO
Non-executive Director
Non-Executive Independent Director
Non-Executive Independent Director
Non-Executive Independent Director
Non-Executive Independent Director
Auditors - Shah & Co- Chareted Accountants, B S R & Associates - Charted Accountants
*as per last annual report
Top 10 holdings
Perc. Holding
Life Insurance Corp Of India
5.4
Perc. Holding
Blackrock Fund Advisors
1.0
Vanguard Group Inc
0.9
Aberdeen Investment Services Sa
0.8
Jp Morgan Chase & Co
0.6
Oppenheimer Funds Inc
0.5
Bnp Paribas Luxembourg
0.4
Fidelity Management & Research
0.4
Franklin Templeton Investments
0.4
Idfc Mutual Fund
0.3
*as per last available data
Bulk Deals
Data
Acquired / Seller
B/S
Qty Traded
Price
No Data Available
*in last one year
Insider Trades
Reporting Data
20 Aug 2015
20 Aug 2015
12 Aug 2015
11 Aug 2015
11 Aug 2015
Acquired / Seller
Anay Rupen Choksi
Nysha Rupen Choksi
Rupen Ashwin Choksi
Rupen Investments Pvt. Limited
Sudhanva Investments & Trading Company Pvt. Ltd
B/S
Sell
Sell
Sell
Buy
Sell
Qty Traded
52750.00
52750.00
105500.00
25000.00
25000.00
*in last one year
21
Edelweiss Securities Limited
RATING & INTERPRETATION
Company
Absolute
Relative
Relative
reco
reco
risk
Company
Absolute
Relative
Relative
reco
reco
Asian Paints
BUY
SO
M
Bajaj Corp
Risk
HOLD
SP
Berger Paints
BUY
SO
L
H
Britannia Industries
BUY
SO
Colgate
HOLD
SP
L
M
Dabur
BUY
SO
M
Emami
BUY
SO
H
GlaxoSmithKline Consumer
HOLD
SP
M
Healthcare
Godrej Consumer
ITC
Nestle Ltd
United Spirits
BUY
SO
H
Hindustan Unilever
HOLD
SP
L
HOLD
SU
M
Marico
BUY
SO
M
Pidilite Industries
BUY
SO
M
REDUCE
SU
L
BUY
SO
H
ABSOLUTE RATING
Ratings
Expected absolute returns over 12 months
Buy
More than 15%
Hold
Between 15% and - 5%
Reduce
Less than -5%
RELATIVE RETURNS RATING
Ratings
Criteria
Sector Outperformer (SO)
Stock return > 1.25 x Sector return
Sector Performer (SP)
Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU)
Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING
Ratings
Criteria
Low (L)
Bottom 1/3rd percentile in the sector
Medium (M)
Middle 1/3rd percentile in the sector
High (H)
Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings
Criteria
Overweight (OW)
Sector return > 1.25 x Nifty return
Equalweight (EW)
Sector return > 0.75 x Nifty return
Underweight (UW)
Sector return < 0.75 x Nifty return
Sector return < 1.25 x Nifty return
22
Edelweiss Securities Limited
Asian Paints
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com
Nirav Sheth
Head Research
nirav.sheth@edelweissfin.com
Coverage group(s) of stocks by primary analyst(s): Consumer Goods
Asian Paints, Bajaj Corp, Berger Paints, Britannia Industries, Colgate, Dabur, Godrej Consumer , Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd,
Pidilite Industries, GlaxoSmithKline Consumer Healthcare, United Spirits
Recent Research
Date
Company
Title
09-May-16
Hindustan
Unilever
05-May-16
Emami
02-May-16
Godrej
Consumer
Products
Price (INR)
Recos
Inline volumes; margins
expand across segments;
Result Update
846
Hold
Volume trajectory improves;
margins zoom; Result Update
978
Buy
1,366
Buy
In line quarter;
Result Update
Distribution of Ratings / Market Cap
Rating Interpretation
Edelweiss Research Coverage Universe
Rating Distribution*
* - stocks under review
> 50bn
Hold
156
60
Reduce
Rating
Total
12
228
Between 10bn and 50 bn
< 10bn
158
62
8
Expected to
Buy
appreciate more than 15% over a 12-month period
Hold
appreciate up to 15% over a 12-month period
Reduce
depreciate more than 5% over a 12-month period
One year price chart
1,000
900
800
700
Apr-16
Mar-16
Feb-16
Jan-16
Nov-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
500
Dec-15
600
May-15
(INR)
Market Cap (INR)
Buy
Asian Paints
23
Edelweiss Securities Limited
Consumer Goods
DISCLAIMER
Edelweiss Securities Limited (“ESL” or “Research Entity”) is regulated by the Securities and Exchange Board of India (“SEBI”) and is
licensed to carry on the business of broking, depository services and related activities. The business of ESL and its Associates (list
available on www.edelweissfin.com) are organized around five broad business groups – Credit including Housing and SME
Finance, Commodities, Financial Markets, Asset Management and Life Insurance.
This Report has been prepared by Edelweiss Securities Limited in the capacity of a Research Analyst having SEBI Registration
No.INH200000121 and distributed as per SEBI (Research Analysts) Regulations 2014. This report does not constitute an offer or
solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Securities as
defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 includes Financial Instruments and Currency
Derivatives. The information contained herein is from publicly available data or other sources believed to be reliable. This report is
provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The
user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it
deems necessary to arrive at an independent evaluation of an investment in Securities referred to in this document (including the
merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The
investment discussed or views expressed may not be suitable for all investors.
This information is strictly confidential and is being furnished to you solely for your information. This information should not be
reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in
part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or
resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use
would be contrary to law, regulation or which would subject ESL and associates / group companies to any registration or licensing
requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons
in whose possession this report comes, should observe, any such restrictions. The information given in this report is as of the date
of this report and there can be no assurance that future results or events will be consistent with this information. This information
is subject to change without any prior notice. ESL reserves the right to make modifications and alterations to this statement as
may be required from time to time. ESL or any of its associates / 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. ESL is committed
to providing independent and transparent recommendation to its clients. Neither ESL nor any of its associates, group companies,
directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential
including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary
trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed
herein. Past performance is not necessarily a guide to future performance .The disclosures of interest statements incorporated in
this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in
the report. The information provided in these reports remains, unless otherwise stated, the copyright of ESL. All layout, design,
original artwork, concepts and other Intellectual Properties, remains the property and copyright of ESL and may not be used in
any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.
ESL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including
network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown,
maintenance shutdown, breakdown of communication services or inability of the ESL to present the data. In no event shall ESL be
liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or
expenses arising in connection with the data presented by the ESL through this report.
We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers
simultaneously, not all customers may receive this report at the same time. We will not treat recipients as customers by virtue of
their receiving this report.
ESL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to
time, have long or short positions in, and buy or sell the Securities, mentioned herein or (b) be engaged in any other transaction
involving such Securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other
potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of
publication of research report or at the time of public appearance. ESL may have proprietary long/short position in the above
mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not
consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional
advice before investing. This should not be construed as invitation or solicitation to do business with ESL.
24
Edelweiss Securities Limited
Asian Paints
ESL or its associates may have received compensation from the subject company in the past 12 months. ESL or its associates may
have managed or co-managed public offering of securities for the subject company in the past 12 months. ESL or its associates
may have received compensation for investment banking or merchant banking or brokerage services from the subject company in
the past 12 months. ESL or its associates may have received any compensation for products or services other than investment
banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates have
not received any compensation or other benefits from the Subject Company or third party in connection with the research report.
Research analyst or his/her relative or ESL’s associates may have financial interest in the subject company. ESL and/or its Group
Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the
Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her
relative may have other potential/material conflict of interest with respect to any recommendation and related information and
opinions at the time of publication of research report or at the time of public appearance.
Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange
rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market
factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in
interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the
value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of
an underlying security, effectively assume currency risk.
Research analyst has served as an officer, director or employee of subject Company: No
ESL has financial interest in the subject companies: No
ESL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month
immediately preceding the date of publication of research report.
Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of
the month immediately preceding the date of publication of research report: No
ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately
preceding the date of publication of research report: No
Subject company may have been client during twelve months preceding the date of distribution of the research report.
There were no instances of non-compliance by ESL on any matter related to the capital markets, resulting in significant and
material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and
Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to
their charges of non registration as a broker dealer.
A graph of daily closing prices of the securities is also available at www.nseindia.com
Analyst Certification:
The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about
the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or
indirectly related to specific recommendations or views expressed in this report.
Additional Disclaimers
Disclaimer for U.S. Persons
This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has
prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States
(U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to
supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required
to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public
appearances and trading securities held by a research analyst account.
This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule
15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and
Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as
specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied,
duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.
25
Edelweiss Securities Limited
Consumer Goods
In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC
in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an
agreement with a U.S. registered broker-dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in
this research report should be effected through Edelweiss Financial Services Inc.
Disclaimer for U.K. Persons
The contents of this research report have not been approved by an authorised person within the meaning of the Financial
Services and Markets Act 2000 ("FSMA").
In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional
experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the
“Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated
associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being
referred to as “relevant persons”).
This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment
activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant
persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This
research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other
person.
Disclaimer for Canadian Persons
This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have
prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not
associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by
a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario
Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of
Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research
analysts' business or relationship with a subject company or trading of securities by a research analyst.
This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31-103 ("NI 31-103"))
who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an
Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to
the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person.
ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31-103 available to certain
international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in
securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or
principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv)
there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for
service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada.
Disclaimer for Singapore Persons
In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No.
201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to
persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures
Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"),
sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any
financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact
EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for
private investors.
Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved
Access the entire repository of Edelweiss Research on www.edelresearch.com
26
Edelweiss Securities Limited