Asian Paints

Accumulate

Growth momentum continues! CMP Rs 2,556

 APL’s Q4FY21 revenues came ahead of our estimate but EBITDA and Target / Upside Rs 2,781 / 9%
APAT was in line. RM inflation restricted growth in profitability during NIFTY 14,697
the quarter.
 Domestic business posted 46.2% net sales growth on the back of 48% Scrip Details
volume growth. Premium range exhibited robust growth. IB posted 22% Equity / FV Rs 959mn / Rs 1
growth as Asia, ME and Africa posted strong double digit growth. Market Cap Rs 2,452bn
 Lockdowns and RM inflation would restrict growth in the near term.
Consequently, we have downward revised our EPS estimates for FY22E USD 33bn
at Rs 36.5 (-7.0%) but maintained FY23E EPS at Rs 46.4. Valuing the stock 52-week High/Low Rs 2,873/ 1,483
at 60x, we have arrived at a TP of Rs 2,781. Maintain Accumulate. Buy Avg. Volume (no) 1,929,260
on dips.
 We believe that the decorative business would witness pressure in the Bloom Code APNT IN
near term due to lockdowns and increasing spread of pandemic. Price Performance 1M 3M 12M
However, ongoing government investments in rural infrastructure, and Absolute (%) (2) 3 68
house construction in rural areas should support painting activities.
Further, we remain optimistic about the unorganised to organised shift Rel to NIFTY (%) (3) 8 13
in the paint industry, in the long run. APL, being a leader in the category,
Result Update

is likely to benefit the most from the shift. Shareholding Pattern

Revenues ahead; profitability in line Sep'20 Dec'20 Mar'21
Net Sales jumped 43.5% YoY to ` 66.5bn, aided by strong rural and urban Promoters 52.8 52.8 52.8
demand. Performance was better than Kansai Nerolac (35% sales growth).
Gross margin contracted by 270bps to 43.2%. However, 100/290bps MF/Banks/FIs 8.2 7.1 7.4
decline in employee costs/ other expenses resulted in 130bps expansion in FIIs 19.8 21.1 20.4
EBITDA margin to 19.8%. EBITDA grew 53.4% YoY to ` 13.2bn. APAT
increased 84.5% YoY to Rs 8.5bn. Public / Others 19.2 19.0 19.5
Long term growth levers in place Valuation (x)
APL’s volume growth benefited from improved wedding season,
resurgence in project business, revival in urban areas and metros, and FY21A FY22E FY23E
strong performance in premium and luxury portfolios. Though in the near P/E 78.1 70.0 55.1
term the industry is likely to witness headwinds related to high RM and EV/EBITDA 49.8 44.9 36.1
lock downs; reducing painting cycle and changing consumer behavior
should augur well. With the strong product portfolio, the company is likely ROE (%) 27.4 25.9 29.3
to post mid-teens volume growth in the domestic decorative paints RoACE (%) 25.8 24.6 28.0
industry over 5-7 years. Further, the company continues to expand its
categories from paints to overall home decoration segments would help it
to create new growth levers for future growth. Estimates (Rs mn)
Q4FY21 Result (Rs Mn) FY21A FY22E FY23E
Particulars Q4FY21 Q4FY20 YoY (%) Q3FY21 QoQ (%) Revenue 217,127 240,053 297,251
Revenue 66,514 46,356 43.5 67,885 (2.0) EBITDA 48,555 53,483 66,071
Total Expense 53,332 37,760 41.2 50,006 6.7 PAT 31,392 35,038 44,467
EBITDA 13,183 8,596 53.4 17,879 (26.3) EPS (Rs.) 32.7 36.5 46.4
Depreciation 2,134 1,945 9.7 1,932 10.4
EBIT 11,049 6,651 66.1 15,947 (30.7)
Other Income 754 558 35.1 979 (23.0)
Interest 299 257 16.4 211 41.3
VP - Research: Sachin Bobade
EBT 11,505 6,953 65.5 16,715 (31.2) Tel: +91 22 40969731
Tax 2,864 2,190 30.8 4,314 (33.6) E-mail: sachinb@dolatcapital.com
RPAT 8,521 4,619 84.5 12,383 (31.2)
APAT 8,521 4,619 84.5 12,383 (31.2)
(bps) (bps)
Associate: Nikhat Koor
Tel: +91 22 40969764
Gross Margin (%) 43.2 45.8 (266) 45.1 (190)
E-mail: nikhatk@dolatcapital.com
EBITDA Margin (%) 19.8 18.5 128 26.3 (652)
NPM (%) 12.8 10.0 285 18.2 (543)
Tax Rate (%) 24.9 31.5 (660) 25.8 (91)
EBIT Margin (%) 16.6 14.3 226 23.5 (688)

May 12, 2021

 Q4FY21 Actual V/s DART Estimates
Particulars (Rs mn) Actual Estimates Variance (%) Comments
Revenue 66,514 58,730 13.3 Better than expected demand in rural and urban
EBITDA 13,183 12,867 2.5
EBITDA margin % 19.8 21.9 (210) RM costs were higher than estimated
APAT 8,521 8,556 (0.4)
Source: Company, DART

Change in estimates
FY22E FY23E
Particulars (Rs mn)
New Old Chg (%) New Old Chg (%)
Revenue (Rs mn) 240,053 254,157 (5.5) 297,251 297,891 (0.2)
EBITDA (Rs mn) 53,483 56,829 (5.9) 66,071 65,951 0.2
EBITDA margin (%) 22.3 22.4 -10 bps 22.2 22.1 10 bps
PAT (Rs mn) 35,038 37,696 (7.1) 44,467 44,340 0.3
EPS (Rs) 36.5 39.3 (7.1) 46.4 46.2 0.3
Source: Company, DART

We have decreased our FY22E revenue estimates to factor in lockdowns and store
closures across majority of states. Further we have revised EBITDA estimates to
factor in RM inflation. However, we have maintained FY23E EPS estimates as we
believe that the demand would normalize once the markets re-open.

Key concall highlights

 During FY21, APL registered 8% value growth on the back of 13% volume growth.
 Growth in Tier 1 and Metros continued to scale up in Q4. Rural also
demonstrated strong performance. The company witnessed strong growth in
projects and large institutional sales in Q3 and Q4FY21. Construction constitutes
20-30% of the business, will grow depending on uptick in real estate activities.
 RM inflation is rising significantly since Dec’20. However, APL did not take price
revisions in Q4FY21. It implemented one price increase effective 1st May’21 of
2.8% at portfolio level.
 In Auto segment, it registered growth of 39% YoY in Q4 while in Industrial paint
and powder segment it grew 63% YoY.
 Kitchen and Bath business grew 84%/84% YoY on favourable base. PBT losses of
both the businesses narrowed in FY21 compared to last year due to improving
scale and cost optimization.
 IB business grew 22% in Q4FY21. Asia/ME/ Africa grew 35%/17%/11%
respectively led by double digit volume growth.
 The management indicated that it gained share from unorganized players. In
some markets like Tamil Nadu, it even gained share from organized players.
 Waterproofing and Premium/luxury emulsions are gaining traction. The
company has launched a number of value for money variants for Tier3/4 regions.
Painters are being given training and made aware of the benefits of undercoat.
This has led to increase in undercoat penetration.
 Safe painting activities are introduced across markets and are gaining traction.
+55,000 sites are serviced under Safe painting Service.
 The difference in Value-volume growth was only ~2-3% in Q4. This was due to
change in product mix as metros/Tier1/ Tier 2 exhibited increased traction in Q4.
 Management believes that per capita consumption of paint in India is still very
low compared to other developed countries implying huge scope for further
penetration and growth.
May 12, 2021 2 Asian Paints
 100
120
140
160
180
220
200
20
40
60

(60)
(40)
(20)
20
40
60

(60)
(40)
(20)
Jun-16
Sep-16 Q4FY18 10.0 4.5 Q4FY18 14.7
Dec-16 Q1FY19 13 3.0 Q1FY19 15.1
Mar-17

May 12, 2021

Jun-17 Q2FY19 -2.0 10.5 Q2FY19 8.2
Sep-17

Source: Company, DART

Source: Company, DART
Source: Company, DART
Q3FY19 22.0 5.5 Q3FY19 24.3
Dec-17
Mar-18 Q4FY19 10.0 2.0 Q4FY19 11.3
Jun-18

Volume Growth
Q1FY20 17.0 1.0 Q1FY20 16.3


Sep-18
Dec-18 Q2FY20 -5.0 15.0 Q2FY20 9.4
Mar-19 Q3FY20 -6.9 10.0 Q3FY20 3.0
Trend in Sales Growth (%)

Jun-19
Q4FY20 -9.21.0 Q4FY20 -7.1
Sep-19
Dec-19 Q1FY21 -9.8 -38.0 Q1FY21
Mar-20 -42.8
Q2FY21 -4.6 11.0 Q2FY21 5.9

Price/mix change
Jun-20
Sep-20 Q3FY21 -5.2 33.0 Q3FY21 25.2

Trend in Domestic Volume Growth (%)

Dec-20

Trend in Titanium Dioxide Price (INR/KG)

Q4FY21 -1.6 48.0 Q4FY21 43.5
Mar-21

3
20
40
50
60
80
90

30
70
25
30

10
15
38
39
40
41
45
46
47

42
43
44

Mar-15
Jul-15 Q4FY18 Q4FY18 43.2

20 18.7
Nov-15 Q1FY19 Q1FY19 43.2

21.2
Mar-16
Q2FY19 Q2FY19 39.9

18.3
Jul-16
Covid cases is a key risk to APL in short term.

Nov-16 Q3FY19 Q3FY19 41.0

Source: Company, DART

Source: Company, DART
Source: Company, DART

Mar-17
Q4FY19 19.7 Q4FY19 41.6
Jul-17 17.8
Nov-17 Q1FY20 Q1FY20 43.6
22.7

Mar-18 Q2FY20 Q2FY20 42.4

18.9

Jul-18
Q3FY20 Q3FY20 43.0
Nov-18
21.9
Trend in Gross Margin (%)

Trend in Brent Price (USD)

Mar-19 Q4FY20 Q4FY20 45.8
18.5
Trend in EBITDA margins (%)

Jul-19
Q1FY21 Q1FY21 44.7
16.6

Nov-19
Mar-20 Q2FY21 Q2FY21 44.4
23.6

Jul-20 Q3FY21 45.1

Q3FY21
26.3

Nov-20
Q4FY21 43.2

Asian Paints
Mar-21 Q4FY21
19.8
Management is well equipped to tackle the second Covid wave. However,
uncertainty in India as well as some of International markets due to the rise in
 Profit and Loss Account
(Rs Mn) FY20A FY21A FY22E FY23E
Revenue 202,112 217,127 240,053 297,251
Total Expense 160,495 168,572 186,570 231,180
COGS 113,835 120,972 134,613 164,870
Employees Cost 13,662 15,408 16,024 20,328
Other expenses 32,998 32,192 35,933 45,982
EBIDTA 41,617 48,555 53,483 66,071
Depreciation 7,805 7,913 8,504 9,042
EBIT 33,812 40,642 44,979 57,029
Interest 1,023 916 1,002 1,110
Other Income 3,043 3,031 3,514 4,151
Exc. / E.O. items (50) 0 0 0
EBT 35,783 42,757 47,492 60,070
Tax 8,549 10,976 12,274 15,395
RPAT 27,052 31,392 35,038 44,467
Minority Interest 183 389 181 208
Profit/Loss share of associates 0 0 0 0
APAT 27,101 31,392 35,038 44,467

Balance Sheet
(Rs Mn) FY20A FY21A FY22E FY23E
Sources of Funds
Equity Capital 959 959 959 959
Minority Interest 4,030 4,229 4,410 4,618
Reserves & Surplus 100,340 127,104 141,492 159,683
Net Worth 101,299 128,063 142,451 160,642
Total Debt 3,401 3,402 3,401 3,401
Net Deferred Tax Liability 4,430 4,150 4,260 4,260
Total Capital Employed 113,160 139,844 154,522 172,921

Applications of Funds
Net Block 62,699 58,576 57,772 56,230
CWIP 1,400 1,820 1,820 1,820
Investments 15,050 14,680 14,680 14,680
Current Assets, Loans & Advances 82,240 122,908 132,789 165,552
Inventories 33,890 37,980 37,663 46,653
Receivables 17,950 26,020 19,320 23,526
Cash and Bank Balances 7,830 6,110 21,353 37,129
Loans and Advances 14,607 14,755 16,186 19,743
Other Current Assets 2,843 5,372 5,595 5,829

Less: Current Liabilities & Provisions 48,229 58,140 52,539 65,361

Payables 21,350 33,790 37,358 46,259
Other Current Liabilities 26,879 24,350 15,181 19,102
sub total
Net Current Assets 34,012 64,768 80,250 100,191
Total Assets 113,160 139,844 154,522 172,921
E – Estimates

May 12, 2021 4 Asian Paints

 Important Ratios
Particulars FY20A FY21A FY22E FY23E
(A) Margins (%)
Gross Profit Margin 43.7 44.3 43.9 44.5
EBIDTA Margin 20.6 22.4 22.3 22.2
EBIT Margin 16.7 18.7 18.7 19.2
Tax rate 23.9 25.7 25.8 25.6
Net Profit Margin 13.4 14.5 14.6 15.0
(B) As Percentage of Net Sales (%)
COGS 56.3 55.7 56.1 55.5
Employee 6.8 7.1 6.7 6.8
Other 16.3 14.8 15.0 15.5
(C) Measure of Financial Status
Gross Debt / Equity 0.0 0.0 0.0 0.0
Interest Coverage 33.0 44.4 44.9 51.4
Inventory days 61 64 57 57
Debtors days 32 44 29 29
Average Cost of Debt 21.4 26.9 29.4 32.6
Payable days 39 57 57 57
Working Capital days 61 109 122 123
FA T/O 3.2 3.7 4.2 5.3
(D) Measures of Investment
AEPS (Rs) 28.3 32.7 36.5 46.4
CEPS (Rs) 36.4 41.0 45.4 55.8
DPS (Rs) 22.1 5.2 21.5 27.4
Dividend Payout (%) 78.3 15.9 58.9 59.1
BVPS (Rs) 105.6 133.5 148.5 167.5
RoANW (%) 27.6 27.4 25.9 29.3
RoACE (%) 25.4 25.8 24.6 28.0
RoAIC (%) 32.1 34.0 33.7 42.4
(E) Valuation Ratios
CMP (Rs) 2556 2556 2556 2556
P/E 90.5 78.1 70.0 55.1
Mcap (Rs Mn) 2,451,901 2,451,901 2,451,901 2,451,901
MCap/ Sales 12.1 11.3 10.2 8.2
EV 2,442,352 2,416,522 2,401,278 2,385,503
EV/Sales 12.1 11.1 10.0 8.0
EV/EBITDA 58.7 49.8 44.9 36.1
P/BV 24.2 19.1 17.2 15.3
Dividend Yield (%) 0.9 0.2 0.8 1.1
(F) Growth Rate (%)
Revenue 5.0 7.4 10.6 23.8
EBITDA 10.5 16.7 10.1 23.5
EBIT 7.6 20.2 10.7 26.8
PBT 9.6 19.5 11.1 26.5
APAT 25.4 15.8 11.6 26.9
EPS 25.4 15.8 11.6 26.9

Cash Flow
(Rs Mn) FY20A FY21A FY22E FY23E
CFO 31,253 37,736 44,596 50,661
CFI (2,690) (1,210) (7,700) (7,500)
CFF (25,173) (38,246) (21,652) (27,386)
FCFF 27,483 35,196 36,896 43,161
Opening Cash 4,440 7,830 6,110 21,353
Closing Cash 7,830 6,110 21,353 37,129
E – Estimates

May 12, 2021 5 Asian Paints

 DART RATING MATRIX
Total Return Expectation (12 Months)
Buy > 20%
Accumulate 10 to 20%
Reduce 0 to 10%
Sell < 0%

Rating and Target Price History

Month Rating TP (Rs.) Price (Rs.)

(Rs) APNT Target Price Jun-20 Reduce 1,740 1,684
2,870 Jul-20 Reduce 1,740 1,688
2,580 Jul-20 Reduce 1,840 1,712
Oct-20 Accumulate 2,348 2,100
2,290 Jan-21 Accumulate 2,774 2,716
Feb-21 Accumulate 2,774 2,486
2,000

1,710

1,420
May-20

Jun-20

Jan-21
Oct-20

Nov-20

Dec-20

Apr-21

May-21
Jul-20

Aug-20

Sep-20

Feb-21

Mar-21

*Price as on recommendation date

DART Team
Purvag Shah Managing Director purvag@dolatcapital.com +9122 4096 9747

Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745

CONTACT DETAILS
Equity Sales Designation E-mail Direct Lines
Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 4096 9709
Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 4096 9735
Yomika Agarwal VP - Equity Sales yomika@dolatcapital.com +9122 4096 9772
Jubbin Shah VP - Equity Sales jubbins@dolatcapital.com +9122 4096 9779
Ashwani Kandoi AVP - Equity Sales ashwanik@dolatcapital.com +9122 4096 9725
Lekha Nahar AVP - Equity Sales lekhan@dolatcapital.com +9122 4096 9740
Equity Trading Designation E-mail
P. Sridhar SVP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728
Chandrakant Ware VP - Sales Trading chandrakant@dolatcapital.com +9122 4096 9707
Shirish Thakkar VP - Head Domestic Derivatives Sales Trading shirisht@dolatcapital.com +9122 4096 9702
Kartik Mehta Asia Head Derivatives kartikm@dolatcapital.com +9122 4096 9715
Dinesh Mehta Co- Head Asia Derivatives dinesh.mehta@dolatcapital.com +9122 4096 9765
Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 4096 9705

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