2QFY2012 Result Update | FMCG

October 21, 2011

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

NEUTRAL
CMP Target Price
2QFY11 1,811 331 18.3 215 % yoy 24.3 (2.6) (396)bp (3) Angel est. 2,255 375 16.6 243 % Diff (0.2) (13.9) (228)bp (14.1)

`3,015 -

2QFY12 2,251 323 14.3 209

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 28,922 0.4 3,366/2,395 12,834 10 16,786 5,050 ASPN.BO APNT@IN

For 2QFY2012, Asian Paints (APL) posted a good performance on the top-line front but a weak performance on the earnings front. The companys top line grew by 24.3% yoy to `2,251cr (`1,811cr), in-line with our estimates. Earnings declined by 3% yoy to `209cr (`215cr), below our estimates. Operating profit dipped by 396bp yoy to `323cr (`331cr) due to high raw-material costs and other expenses (up 55bp yoy). We maintain our Neutral view on the stock. Key highlights of the quarter: For 2QFY2012, APL registered steady top-line growth at the consolidated level as well as at the standalone level. Growth was led by the full effect of prices hikes taken earlier. APL did not take any price hikes in 2QFY2012. On the international front, Asian and South Pacific markets showed good growth. Political scenario in the Middle East still hovers and affects APLs growth prospects negatively. The Carribean region showed good growth during the quarter. Outlook and valuation: Post 2QFY2012 results, we maintain our previous revenue and earnings estimates. At `3,015, the stock is trading at 23.9x 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. Our fair value for the stock is `3,030 based on 24x FY2013E EPS. 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 52.8 14.5 19.3 13.4

Abs. (%) Sensex Asian Paints

3m (9.0) (3.1)

1yr (17.2) 14.7

3yr 57.1 193.2

FY2010 6,681 22.3 834.5 107.9 18.4 87.0 34.7 16.9 57.4 54.7 4.3 23.2

FY2011 7,706 15.3 843.2 1.0 17.0 87.9 34.3 13.2 43.3 45.8 3.6 21.4

FY2012E 9,092 18.0 983.2 16.6 17.0 102.5 29.4 10.4 39.6 44.7 3.1 18.2

FY2013E 10,608 16.7 1,211.1 23.2 17.6 126.3 23.9 8.2 38.3 44.5 2.6 14.8

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 | 2QFY2012 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

2QFY12 2,251 1,351 60.0 129 5.7 448 19.9 1,928 323 14 9 30 29 313 13.9 95 30.5 9 218 209 9.3 10 21.8

2QFY11 1,811 1,020 56.3 109 6.0 351 19.4 1,479 331 18 5 28 25 323 17.9 98 30.4 10 225 215 11.9 10 22.4

% chg 1HFY2011 1HFY2010 % chg 24.3 32.5 18.5 27.8 30.3 (2.6) 93.6 5.5 17.4 (3.1) (3.0) 4,511 2,704 59.9 259 5.7 833 18.5 3,796 715 16 15 59 60 700 15.5 211 30.1 17 (3.2) 489 (2.8) 472 10.5 10 (2.8) 49.2 3,641 2,068 56.8 228 6.2 666 18.3 2,962 679 19 9 55 43 658 18.1 200 30.4 21 458 437 12.0 10 45.5 8.1 8.1 6.8 5.6 6.5 74.7 6.8 38.0 28.1 5.4 25.0 13.7 23.9 30.7

Good top-line growth, in-line with expectations

APL reported good growth of 24.3% yoy in its consolidated top line to `2,251cr (`1,811cr), in-line with our estimates. Overseas subsidiaries showed modest top-line growth of 19% to `407cr (`341cr). Standalone paint sales registered robust growth of 19% yoy during the quarter. However, there has been a very dismal performance from the industrial and international businesses. Growth came in largely due to price hikes taken earlier. Volume growth for the quarter came in at ~12%.

October 21, 2011

Asian Paints | 2QFY2012 Result Update

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

2,500 2,000 35.0 30.0 25.0

1,000 500 -

15.0 10.0 5.0 -

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

Top-line (LHS)

yoy growth (RHS)

Source: Company, Angel research

Earnings decline by 2.8% yoy

In terms of recurring earnings, on a consolidated basis, APL reported a decline of 2.8% yoy to `209cr (`215cr), primarily due to lower operating margin. On a standalone basis, earnings for the quarter grew by 8.5% yoy.

Unrelenting gross margin pressure; GM and OPM contract yoy

During the quarter, APL registered a 396bp yoy contraction in OPM, impacted by higher input cost as the companys gross margin contracted by 370bp 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 116 vs. 100 in 2QFY2011. Price pressure remained intact on the TiO2 front, which has run up a lot and is not showing any signs of softening.

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 43.2 43.7 44.2 42.7 43.7 40.3 41.4 40.1 40.0

(yoy %)

(`cr)

160 110 60 10

30.0

(%)

20.0 10.0 -

18.7 19.6 16.6 19.0 18.3 16.4 17.3 19.0 14.7

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

2Q12

1Q12

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

PAT (LHS)

yoy growth (RHS)

2Q12

OPM

Gross margin

Source: Company, Angel research

Source: Company, Angel research

October 21, 2011

2Q12

(yoy %)

(` cr)

1,500

20.0

Asian Paints | 2QFY2012 Result Update

Key highlights of analyst meet

Management indicated that demand during the quarter was impacted by extended monsoons. Also, bandhs in Andhra Pradesh marginally impacted demand. Demand was evenly spread across regions and remained healthy during the quarter. An expense of `15cr was booked in overheads as a result of INR depreciation. The company did not take any price hikes during the quarter. New products in wood finishes have done well. Also, Royale Play continued to grow well. The international business showed growth in Asia and South Pacific region, while Caribbean and Middle East are still under pressure due to weak economic growth and uncertain political environment, respectively.

October 21, 2011

Asian Paints | 2QFY2012 Result Update

Investment arguments
Uncertainty over demand conditions hover: Although APL has not witnessed any slowdown in demand for paints, we do not expect it to be robust considering the price hikes. Also, the uncertainty on the macroeconomic front lingers, and we expect demand for paints to remain sluggish. Margin pressure to continue: We expect APL to sustain its OPM at ~17% and do not expect it to witness any improvement in gross margin and operating margin. The company has been facing raw-material cost pressure since many quarters. Management maintains that TiO2 is very high and is not expected to witness a decline 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 2QFY2012 results, we maintain our previous revenue and earnings estimates. At `3,015, the stock is trading at 23.9x 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. Our fair value for the stock is `3,030, based on 24x FY2013E EPS.

Key risks to our investment arguments

1) Higher-than-anticipated demand in paints and strong volume growth witnessed No negative impact on demand for paints despite further price hikes Raw-material prices softening significantly and leading to better margins

2) 3)

October 21, 2011

Asian Paints | 2QFY2012 Result Update

Exhibit 5: Peer valuation

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

Reco
Neutral Accumulate Neutral Buy Neutral Accumulate Neutral Neutral Neutral Reduce

Mcap (` cr)
28,922 5,297 13,477 17,860 9,926 13,069 71,145 157,586 9,339 41,464

CMP (`)
3,015 443 991 103 404 326 204 152 4,300

TP (R`)
495 115 457 -

Upside (%)
12 12 13 -

P/E (x) FY12E FY13E

29.4 28.8 30.7 25.5 28.5 24.4 27.9 27.2 30.0 42.6 23.9 19.7 26.2 22.2 24.0 18.8 24.5 22.9 24.1 35.8

EV/Sales (x) FY12E FY13E

3.1 1.0 5.1 3.5 3.3 3.2 3.1 6.1 2.7 5.7 2.6 0.9 4.4 3.1 2.8 2.6 2.7 5.1 2.4 4.9

RoE (%) FY12E FY13E

39.6 37.8 111.7 44.9 32.6 36.6 87.5 32.7 30.4 91.1 38.3 46.0 108.0 41.6 31.8 29.4 85.3 31.5 28.6 72.9

CAGR # Sales EPS

17.3 17.3 14.9 20.5 17.3 22.9 12.7 17.6 15.7 16.1 19.8 36.0 12.9 18.8 17.5 20.2 17.1 17.4 27.6 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 9,359 (2.9)

FY2013E 10,608 11,063 (4.1)

EPS (`) Angel estimates Consensus Diff (%)

FY2012E 102.5 105.4 (2.7)

FY2013E 126.3 128.7 (1.9)

Exhibit 7: Return of Asian Paints vs. Sensex

140% 130% 120% 110% 100% 90% 80% 70% 60%
Sensex Asian Apaints

Exhibit 8: One-year forward P/E band

5,000 4,000
15x 20x 25x 30x

Share Price (`)

3,000 2,000 1,000 -

Dec-05

Dec-07

Dec-09

Apr-05

Apr-07

Apr-09

Aug-06

Aug-08

Nov-10

May-11

Dec-10

Apr-11

Mar-11

Aug-11

Oct-10

Feb-11

Source: Company, Angel research

Sep-11

Oct-11

Jan-11

Jun-11

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 -

Exhibit 10: One-year forward Premium vs. Sensex

140% 120% 100% 80% 60% 40% 20% 0% -20% -40% -60%

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

Feb-07

Feb-08

Feb-09

Feb-10

Feb-11

Oct-11

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Aug-06

Aug-07

Aug-08

Aug-09

Aug-10

Apr-11

Aug-10

Source: Company, Angel research

Source: Company, Angel research

October 21, 2011

Aug-11

Apr-11

Jul-11

Asian Paints | 2QFY2012 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

October 21, 2011

Asian Paints | 2QFY2012 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

October 21, 2011

Asian Paints | 2QFY2012 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

October 21, 2011

Asian Paints | 2QFY2012 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

October 21, 2011

10

Asian Paints | 2QFY2012 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%)

October 21, 2011

11