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Care Ratings-Paints Industry Analysis-2017
Care Ratings-Paints Industry Analysis-2017
Care Ratings-Paints Industry Analysis-2017
Rating Upside
HOLD (■) (7.5) %
Asian Paints surpassed expectations by delivering 26% domestic growth in Q3, indicative Change in Estimates
of 20%+ volume growth. Growth was partially supported by a delayed festive season and EPS Chg FY19E/FY20E (%) 1/5
soft comparables, but it also signals demand pick-up and market share gains. Target Price change (%) 8.3
Despite the strong sales performance, earnings grew only 15%, due to higher input Target Period (Months) 12
inflation, overhead expenses toward the new plants, and higher ad spends and one-off Previous Reco HOLD
staff expenses. Though input inflation has eased, we expect higher fixed costs relating to Emkay vs Consensus
new plants to result in lower benefit at the earnings level. EPS Estimates
Management commentary was cautiously optimistic and provides visibility of double-digit FY19E FY20E
volume growth going ahead. However, despite a 4-5% increase in FY20-21 estimates, Emkay 23.4 28.3
factoring in higher volumes and lower input inflation, valuations at 50x FY20E EPS restrict Consensus 23.6 28.3
upsides. Maintain Hold with a revised TP of Rs1,300 (Rs1,200 earlier), after rolling forward
Mean Consensus TP (12M) Rs 1,366
to Dec-20E EPS.
Stock Details
Bloomberg Code APNT IN
Strong beat on volumes; indicating volume growth of 20%+: Domestic sales growth
was 26%, which came in 10% above expectations on robust volume growth of the Face Value (Rs) 1
decorative business, indicating volume growth of 20%+. Although soft comparables and Shares outstanding (mn) 959
the delayed festive season were expected to benefit Q3 performance, overall growth still 52 Week H/L 1,491 / 1,082
surprised positively, indicating that the company has gained market share. The automotive M Cap (Rs bn/USD bn) 1,348 / 18.87
business remained muted, whereas the Industrial business and Home improvement saw Daily Avg Volume (nos.) 1,633,066
good growth, resulting in overall sales growth of 24%. Despite the strong performance, Daily Avg Turnover (US$ mn) 30.0
management remains cautiously optimistic on demand due to the possible impact from the
Shareholding Pattern Dec '18
upcoming elections and volatile crude and currency movements.
Promoters 52.8%
Margins improve sequentially; non-operational overheads limit earnings: Against the FIIs 15.7%
weak margins in 2Q, gross margins improved sequentially by 120bps (but down 110bps
DIIs 10.4%
yoy) with a ~4% price hike in the quarter and soft crude prices. With crude prices being
Public and Others 21.2%
lower from the previous quarters and the full benefit of price hikes to be seen, margins are
likely to show further improvement, in our view. EBITDA grew 17% as overhead expenses Price Performance
increased by 24%, likely due to the commissioning of new plants that resulted in a 120bps (%) 1M 3M 6M 12M
decline in operating margins. As per management, although high overheads due to Absolute 1 17 1 19
greenfield expansion would be offset by lower distribution costs, higher depreciation could Rel. to Nifty - 10 1 20
impact EBIT margins.
Relative price chart
Await better entry point; Maintain Hold: We increase FY20-21 estimates by 4-5%, 1475 Rs % 30
factoring in the strong beat and margin improvement from the recent softening in crude 1400 22
prices. After a sharp 20%+ run-up since last quarter results, valuations at 50x FY20E EPS 1325 14
already reflect most positives and offer limited upsides. We maintain our Hold rating, with
1250 6
a revised TP of Rs1,300.
1175 -2
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last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
Distribution
The company has a total dealer network of 60,000-65,000, and adds 3,000 dealers per
annum.
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last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
Balance Sheet
Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E
Equity share capital 959 959 959 959 959
Reserves & surplus 75,064 83,143 92,439 104,101 117,139
Net worth 76,023 84,102 93,398 105,061 118,098
Minority Interest 3,755 3,277 3,933 4,622 5,345
Loan Funds 5,527 5,208 5,208 5,208 5,208
Net deferred tax liability 3,592 4,247 4,247 4,247 4,247
Total Liabilities 88,896 96,833 106,785 119,137 132,898
Net block 33,022 37,322 43,127 44,358 45,147
Investment 26,520 21,407 21,407 21,407 21,407
Current Assets 62,081 64,171 74,861 93,148 114,479
Cash & bank balance 8,012 4,047 6,238 14,605 23,738
Other Current Assets 8,212 15,228 17,692 19,790 22,864
Current liabilities & Provision 35,301 40,119 46,661 53,827 62,186
Net current assets 26,780 24,053 28,200 39,321 52,293
Misc. exp 0 0 0 0 0
Total Assets 88,896 96,833 106,785 119,137 132,898
Cash Flow
Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E
PBT (Ex-Other income) (NI+Dep) 26,216 28,021 31,799 38,849 45,836
Other Non-Cash items 0 0 0 0 0
Chg in working cap (9,540) (584) (1,955) (2,754) (3,838)
Operating Cashflow 15,273 21,179 25,270 29,747 33,967
Capital expenditure (3,715) (19,381) (10,000) (6,000) (6,000)
Free Cash Flow 11,558 1,798 15,270 23,747 27,967
Investments 601 5,113 0 0 0
Other Investing Cash Flow (6,071) (3,931) (2,206) (2,537) (2,918)
Investing Cashflow (6,561) (15,993) (10,000) (6,000) (6,000)
Equity Capital Raised 0 0 0 0 0
Loans Taken / (Repaid) 2,384 (320) 0 0 0
Dividend paid (incl tax) (9,473) (12,178) (12,661) (14,964) (18,417)
Other Financing Cash Flow (175) (944) 0 0 0
Financing Cashflow (7,564) (13,791) (13,078) (15,380) (18,833)
Net chg in cash 1,148 (8,605) 2,192 8,367 9,133
Opening cash position 4,242 8,012 4,047 6,238 14,605
Closing cash position 16,675 8,502 6,238 14,605 23,738
Source: Company, Emkay Research
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
Key Ratios
Profitability (%) FY17 FY18 FY19E FY20E FY21E
EBITDA Margin 19.8 19.0 18.6 19.5 19.7
EBIT Margin 17.6 16.9 16.5 17.4 17.7
Effective Tax Rate 32.7 34.4 33.5 34.0 34.0
Net Margin 12.9 11.8 11.6 12.1 12.3
ROCE 35.5 32.9 33.8 37.0 39.0
ROE 27.1 24.6 25.3 27.3 28.7
RoIC 56.1 52.0 52.6 58.5 64.8
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
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23-Jul-16
20-Jul-17
17-Jul-18
24-Jan-16
20-Jan-17
17-Jan-18
14-Jan-19
24-Jan-17 973 1,035 12m Hold Amit Purohit
25-Oct-16 1,140 1,135 12m Hold Amit Purohit
28-Jul-16 1,128 965 12m Hold Amit Purohit Source: Bloomberg, Company, Emkay Research
15-Jul-16 1,026 950 12m Buy Amit Purohit
12-May-16 929 950 12m Buy Prashant Kutty
Source: Company, Emkay Research
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Sources for all charts and tables are Emkay Research unless otherwise specified.
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last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore