4QFY2012 Result Update | FMCG

May 11, 2012

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

NEUTRAL
CMP Target Price
4QFY11 1,966 289 14.7 186 % yoy 29.2 30.1 11bp 40 Angel est. 2,406 330 13.7 223 % Diff 5.5 14.1 113bp 16.9

`3,619 -

4QFY12 2,539 377 14.8 261

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 34,709 0.3 3744/2551 9,597 10 16,293 4,929 ASPN.BO APNT@IN

For 4QFY2012, Asian Paints (APL) posted an impressive performance, beating our top-line and bottom-line estimates. The companys top line grew by 29.2% yoy to `2,539cr. OPM increased marginally by 11bp yoy to 14.8%. Net profit grew by 40% yoy to `261cr. We maintain our Neutral view on the stock. Key highlights of the quarter: For 4QFY2012, APL registered good top-line growth as well as impressive bottom-line growth. Growth was led by higher volumes and increased realization on account of price hikes taken by the company during the year. We estimate domestic volume growth to be ~16% yoy. The cumulative price increase for FY2012 stood at 12.28%. The company has taken further price hikes of 2% and 3.2% w.e.f. from March 29, 2012 and May 1, 2012, respectively. On the international front, South Asian business showed healthy 31% growth in FY2012, while Middle East grew by lower 12.1%, impacted by the continuing political turmoil in the region. Outlook and valuation: APL is currently impacted by dual problems of demand slowdown and high crude oil prices. However, the company has managed to maintain its growth due to price hikes. Going ahead, we believe it would be challenging for the company to carry out further price hikes without compromising on volume growth. At the CMP, the stock is trading richly at 24.4x FY2014E. 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 52.8 8.8 19.4 18.9

Abs. (%) Sensex APNT

3m 16.7

1yr

3yr 39.5

(8.2) (12.3)

34.9 295.9

FY2011 7,706 15.3 843 1.0 17.0 87.9 41.2 15.9 43.3 45.8 4.4 25.8

FY2012E 9,598 24.6 989 17.3 15.4 103.1 35.1 12.5 39.8 43.0 3.6 23.1

FY2013E 11,423 19.0 1,202 21.5 16.3 125.3 28.9 9.8 38.0 44.2 2.9 18.1

FY2014E 13,309 16.5 1,424 18.5 16.3 148.4 24.4 7.7 35.4 41.6 2.5 15.4
Amit Patil 022-39357800 Ext: 6503 amit.patil@angelbroking.com

V Srinivasan
022-39357800 Ext: 6831 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Asian Paints | 4QFY2012 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 Depreciation & 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

4QFY12 2,539 1,520 59.9 135 5.3 507 20.0 2,162 377 14.8 17 31 47 376 14.8 110 29.2 5 266 261 10.3 10 27.2

4QFY11 1,966 1,153 58.6 115 5.8 409 20.8 1,676 289 14.7 8 29 20 273 13.9 82 30.0 5 191 186 9.5 10 19.4

% chg 29.2 31.9 17.8 24.0 29.0 30.1 118.4 7.6 135.5 37.7 34.1

FY2012 9,598 5,777 60.2 526 5.5 1,821 19.0 8,123 1,475 15.4 41 121 141 1,454 15.1 434 29.8 32

FY2011 % chg 7,706 4,475 58.2 454 5.9 1,464 19.1 6,394 1,313 16.9 23 113 83 1,260 16.4 378 30.0 38 881 843 11.0 10 87.9 17.2 17.2 15.8 14.6 15.4 76.5 7.2 69.8 27.0 13.7 24.2 15.9 24.6 29.1

39.3

1,020 -

40.1

989 10.3 10

40.1

103.0

Good top-line growth, aided by price hikes

APL reported healthy growth of 29.2% yoy in its consolidated top line to `2,539cr. The company achieved yoy higher realization on account of 12.28% cumulative price hikes taken in FY2012. The company has taken further price hikes of 2% and 3.2% w.e.f. from March 29, 2012 and May 1, 2012, respectively. On the international front, South Asian business showed healthy 31% growth in FY2012, while Middle East grew by lower 12.1%, impacted by the continuing political turmoil in the region. Growth in Caribbean and Singapore businesses was affected by subdued economic conditions. The Caribbean business grew by 9.6% yoy to `172cr during the quarter.

May 11, 2012

Asian Paints | 4QFY2012 Result Update

Exhibit 2: Top-line growth driven by value

3,000 2,500 2,000 (` cr) 1,500 1,000 500 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 35.0 30.0 25.0 20.0 15.0 10.0 5.0 (yoy %)
(yoy %)

Top-line (LHS) Source: Company, Angel Research

yoy growth (RHS)

Gross margin down 124bp yoy, OPM ends flat

During the quarter, APLs gross margin contracted by 124bp yoy due to higher input costs. However, OPM registered a marginal increase of 11bp yoy to 14.8% on account of higher prices and reduction in staff cost by 52bp yoy.

Net profit grows by 40% yoy

In terms of net profit, on a consolidated basis, APL reported 40% yoy growth to `261cr, driven by better operating performance and higher other income.

Exhibit 3: OPM flat on a yoy basis

50.0 40.0 30.0 (%) 20.0 10.0 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
OPM Gross margin

Exhibit 4: PAT up by 40% yoy

310 100.0 80.0 60.0 40.0 20.0 (20.0) 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
PAT (LHS) yoy growth (RHS)

44.2

42.7

43.7

40.3

41.4

40.1

40.0

39.4

40.1

260 210 (` cr)

16.6

19.0

18.3

16.4

14.7

17.3

160 110 60 10

14.3

15.5

14.8

Source: Company, Angel Research

Source: Company, Angel Research

May 11, 2012

Asian Paints | 4QFY2012 Result Update

Key highlights of the analyst meet

Management indicated challenging demand conditions in the auto and non-auto industrial segments growth due to slowdown in the manufacturing industry and subdued investments, but it was confident of good growth in the decorative segment. INR depreciation has negated any effect of input cost cooling. The company undertook price hike of 1.38% during the quarter. Management indicated capex of `400cr and `500cr in FY2013 and FY2014, respectively, towards scaling capacity in Rohtak plant and building the Khandala plant.

Investment arguments
Uncertainty over demand conditions hover: APL has started to witness slowdown in demand for paints. Going ahead, we do not expect demand to be robust, considering the uncertainty on the macroeconomic front. Margin pressure to continue: We expect APL to post an improvement in its OPM, but do not expect it to report much improvement in gross margin going ahead. The company has been facing raw-material cost pressure since many quarters. Management maintains that input cost is still high and rupee depreciation has just added to its woes. 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 in many countries in which the company operates.

Outlook and valuation

APL is currently impacted by dual problems of demand slowdown and high crude oil prices. However, the company has managed to maintain its growth due to price hikes. Going ahead, we believe it would be challenging for the company to carry out further price hikes without compromising on volume growth. At the CMP, the stock is trading richly at 24.4x FY2014E. Hence, we maintain our Neutral view on the stock.

May 11, 2012

Asian Paints | 4QFY2012 Result Update

Exhibit 5: Peer valuation

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

Reco
Neutral Buy Neutral Neutral Neutral Neutral Neutral Accumulate Neutral Neutral Buy

Mcap (` cr)
34,709 6,444 16,087 18,239 17,646 11,661 95,438 182,794 10,958 43,818 6,697

CMP (`)
3,619 540 1,183 105 527 2,773 431 234 178 4,545 108

TP (R`)
650 252 136

Upside (%)
20 8 26

P/E (x) FY13E FY14E

28.9 25.6 28.8 25.4 22.9 26.9 30.8 27.2 26.9 38.2 18.5 24.4 20.2 25.5 21.5 19.2 22.5 26.5 23.7 22.0 30.8 15.4

EV/Sales (x) FY13E FY14E

2.9 1.1 4.8 3.2 3.0 3.4 3.6 6.4 2.5 5.0 0.9 2.5 1.0 4.2 2.8 2.5 2.8 3.0 5.5 2.1 4.1 0.8

RoE (%) FY13E FY14E

38.0 45.2 129.4 39.3 31.2 34.0 82.7 34.8 30.0 73.0 8.9 35.4 44.1 120.1 42.0 38.4 32.8 76.2 33.1 28.8 61.6 10.2

CAGR # Sales EPS

17.8 17.0 14.3 13.4 20.1 16.8 16.1 16.8 16.5 18.6 8.7 20.0 34.3 13.8 15.1 26.7 20.8 17.3 16.0 25.1 18.3 8.8

Source: Company, Angel research; Note: # Denotes CAGR over FY2012-14E, *December Year Ending.

Exhibit 6: Angel vs. Consensus

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

FY2013E 11423 11263

FY2014E 13309 13234

EPS (`) Angel estimates Consensus Diff (%)

FY2013E 125.28 123.2

FY2014E 148.41 149.2 (0.5)

1.4

0.6

1.7

Exhibit 7: One year forward PE

35.0 30.0 25.0 20.0 (x) 15.0 10.0 5.0 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Sep-07 Sep-08 Sep-09 Sep-10 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Sep-11 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Dec-11

Source: Company, Angel Research

May 11, 2012

Asian Paints | 4QFY2012 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 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 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) 3.5 617 197 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 (1.2) 1,257 373 29.7 883 48 834 836 110.0 12.5 87.0 87.0 107.9 8,361 10,421 655 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 1,260 379 30.1 881 38 843 843 0.9 10.9 87.9 87.9 1.0 770 9,651 9,651 25.2 8,123 5,777 1,232 526 589 1,528 16.3 15.8 121 1,406 17.2 14.6 41 141 9.4 1,507 19.6 1,507 434 28.8 1,073 32 1,041 1,041 23.5 10.8 103.1 103.1 17.3 12,369 946 11,423 11,423 18.4 9,561 6,900 1,371 663 628 1,862 21.9 16.3 152 1,710 21.6 15.0 16 107 5.9 1,801 19.5 1,801 549 30.5 1,252 50 1,202 1,202 15.4 10.5 125.3 125.3 21.5 14,422 1,113 13,309 13,309 16.5 11,140 8,039 1,597 772 732 2,169 16.5 16.3 177 1,992 16.5 15.0 9 107 5.1 2,090 16.1 2,090 617 29.5 1,474 1 50 1,424 1,424 18.5 10.7 148.4 148.4 18.5

May 11, 2012

Asian Paints | 4QFY2012 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 Misc. Exp. not written off Total Assets 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 2,272 836 1,436 341 37 622 2,965 192 360 2,413 2,249 716 3,152 2,539 989 1,550 381 37 622 3,832 542 446 2,845 2,554 1,278 3,868 2,958 1,166 1,792 444 37 622 4,669 834 519 3,315 2,775 1,893 4,789 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 2,687 2,783 104 180 85 3,152 96 3,440 3,536 122 125 85 3,868 96 1 4,415 4,512 122 70 85 4,789 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

May 11, 2012

Asian Paints | 4QFY2012 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 FY2009 FY2010 FY2011 FY2012E FY2013E FY2014E 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) (79) 236 (5) (310) (105) 210 106 1,260 113 (303) (24) 379 109 776 (123) (298) (421) 5 357 (24) (328) 27 106 133 1,454 121 (250) 1 434 (104) 789 (581) 300 (281) (55) 393 1 (449) 59 133 192 1,801 152 (262) (31) 549 18 1,129 (307) (307) (55) 449 (31) (472) 350 192 542 2,090 177 (322) (38) 617 (50) 1,240 (482) (482) (55) 449 (38) (466) 293 542 834

May 11, 2012

Asian Paints | 4QFY2012 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) 3.7 51 38 68 26 4.5 52 30 75 2 3.9 62 28 78 10 4.2 56 36 71 20 4.5 56 35 68 24 4.5 56 35 64 29 39.8 35.0 36.4 61.3 59.3 57.4 51.0 57.4 43.3 46.9 51.7 39.8 48.7 47.1 38.0 46.0 46.5 35.4 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 32.0 228.0 103.1 103.1 115.7 35.0 290.2 125.3 125.3 141.2 40.0 368.7 148.4 148.4 166.9 40.0 470.3 86.5 73.5 28.8 0.5 6.4 51.8 21.2 41.6 37.8 20.3 0.7 5.1 27.9 16.4 41.2 36.3 15.9 0.9 4.4 25.8 12.9 35.1 31.3 12.5 1.0 3.6 23.1 10.8 28.9 25.6 9.8 1.1 2.9 18.1 8.7 24.4 21.7 7.7 1.1 2.5 15.4 7.0 FY2009 FY2010 FY2011 FY2012E FY2013E FY2014E

May 11, 2012

Asian Paints | 4QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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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%)

May 11, 2012

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