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11 May 2016

4QFY16 Results Update | Sector: Consumer

Asian Paints

BSE SENSEX S&P CNX CMP: INR907 TP: INR860 (-5%) Neutral 25,773 7,888 Bloomberg APNT IN Equity Shares (m) 959.2 M.Cap.(INR b)/(USD b) 870 / 13.1

52-Week Range (INR) 925/693 1, 6, 12 Rel. Per (%) 3/14/24 Avg Val, (INR m) 1,053 Free float (%) 47.2 Financials & Valuations (INR b) Y/E Mar 2016 2017E 2018E Net Sales 153.3 174.6 204.3 EBITDA 26.1 29.9 33.3 PAT 17.8 20.6 22.9 EPS (INR) 18.5 21.5 23.9 Gr. (%) 25.0 15.8 11.3 BV/Sh (INR) 58.4 68.9 79.3 RoE (%) 34.4 33.7 32.3 RoCE (%) 30.8 30.8 29.7 P/E (x) 48.9 42.2 38.0 P/BV (x) 15.5 13.2 11.4

Estimate change +1-2%

TP change +1% Rating change

Decorative paint volume grows in double-digits for 2nd consecutive quarter Asian Paints’ (APNT) cons. sales for 4QFY16 grew by 12.3% YoY to INR39b (vs.

our est. of INR38.4b), with volume of the domestic decorative paints business up by an estimated 13% YoY, aided by a low base (volume growth of 4% in 4QFY15). Cons. EBITDA/adj. PAT grew 26.5%/19.9% YoY to INR6.5b (vs. our est. of INR6.5b) and INR4.1b (vs. our est. of INR4.4b), respectively.

Domestic decorative paints posted an estimated 13% volume growth in 4QFY16, aided by a low base (4% volume growth in 4QFY15). The business’ volume growth for FY16 is estimated to be 12%, led by good growth in 2HFY16 on account of the festive season.

Gross margin expanded by 390bp YoY to an all time high of 48.3% (vs. our estimate of 46.8%), driven by benign input costs. It must be noted that APNT had taken a weighted average price cut of 2%, effective Feb-26, 2016. The price cut was broad-based, being slightly higher in Enamels (solvent-based paints) in comparison to Emulsions (water-based paints). Higher other expenses (up 120bp YoY) and employee expenses (up 90bp YoY) restricted EBITDA margin expansion to 190bp YoY to 16.6% (vs. our estimate of 16.9%). Thus, the EBITDA growth of 26.5% YoY to INR6.5b was exactly in line with our estimate of INR6.5b. Lower other income and higher tax rate led to PAT increasing by 19.9% YoY to INR4.1b (vs. our estimate of INR4.4b). Imputed sub. sales, EBITDA and adjusted PAT grew by 16.1%, 43.6% and 190%, respectively.

FY16 sales, EBITDA and adj. PAT grew 9.5%, 26.6% and 24.7% YoY, respectively. Analyst Meet takeaways: (a) Volume growth was led by both low base of

4QFY15 as well as recovery in demand in 2HFY16, (b) Rural is growing at a faster pace in paints, mainly due to faster conversion to permanent dwellings, (c) Implementation of pay commission and OROP will lead to healthy demand.

Valuation and view: We are raising our estimates marginally due to a possible pick-up in demand off a low base on account of the pay commission/OROP implementation. APNT enjoys a strong position in the decorative paints industry, backed by its unparalleled supply chain. However, at 42.2x FY17E and 38x FY18E, we find the stock’s valuations expensive. Maintain Neutral with a target price of INR860 (36x FY18 EPS).

Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Krishnan Sambamoorthy ([email protected]); +91 22 3982 5428 Vishal Punmiya ([email protected]); +91 22 3980 4261

Asian Paints

11 May 2016 2

Key quarterly charts

Exhibit 1: Consol. Sales up 12.3% YoY

Source: Company, MOSL

Exhibit 2: Weighted average price cut of ~2% initiated during 4QFY16


Exhibit 3: Domestic Decorative Paints volume grew ~14%


Exhibit 4: Consol. gross margin expanded 390bp YoY..


Exhibit 5: ..driving 190bp YoY EBITDA margin expansion


26.9 28.2 30.8 34.1 32.7 33.3 35.9 36.0 34.9 35.8 37.3

41.0 39.2

6.0 11.1

18.1 12.5

21.4 18.0 16.3

5.6 6.9 7.6 4.0

13.9 12.3 4Q

FY13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Sales (INR b) Sales Growth (%)

2.6

1.2

2.9

1.0

4.4

2.5 1.3

0.4

2.2 1.2

2.0 3.2

(0.3)

1.2 1.0 1.8 2.1

1.0 1.2

(2.0) (2.0)

Jul'1

0

Dec'

10

May

'11

Jul'1

1

Dec'

11

Apr'1

2

Jan'

13

Aug'

13

Feb'

14

Jun'

14

Mar

'16

Price Increase/Decrease(%)

3

10 12

7

12 11 10

3 4

12

7

15 13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Volume Growth (%)

40.1

41.5

39.9

40.3

42.8

42.7

42.7

40.3

41.1

41.9

42.9

43.1

44.4

45.6

45.5

46.4

48.3

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Gross Margin (%)

14.8

17.3

13.8

16.3

15.3

15.7

15.6

14.6

13.6

15.5

13.7

14.9

14.8

17.8

15.3

18.1

16.6

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

EBITDA Margin (%)

Asian Paints

11 May 2016 3

Exhibit 6: Consol. employee expenses up 90bp YoY


Exhibit 7: Other expenses were up 120bp YoY


Exhibit 8: Consol PAT up 20.7% YoY


Exhibit 9: Quarterly Performance (Standalone) Y/E March FY15 FY16

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Net Sales 27,069 29,535 29,791 28,462 28,963 30,201 33,711 31,711 Change (%) 17.6 17.9 6.1 5.9 7.0 2.3 13.2 11.4 Raw Material/PM 15,563 16,539 16,697 15,600 15,411 16,116 17,693 16,075 Gross Profit 11,506 12,996 13,094 12,862 13,552 14,086 16,018 15,636 Gross Margin (%) 42.5 44.0 44.0 45.2 46.8 46.6 47.5 49.3 Operating Expenses 7,000 8,607 8,140 8,262 7,912 9,142 9,401 9,913 % of Sales 25.9 29.1 27.3 29.0 27.3 30.3 27.9 31.3 EBITDA 4,506 4,389 4,954 4,600 5,641 4,944 6,617 5,722 Margin (%) 16.6 14.9 16.6 16.2 19.5 16.4 19.6 18.0 Change (%) 12.5 2.2 12.0 19.0 25.2 12.7 33.6 24.4 Interest 43 64 78 86 28 45 58 103 Depreciation 547 564 565 555 576 584 601 623 Other Income 879 927 818 902 1,180 1,028 1,001 916 PBT 4,795 4,688 5,128 4,860 6,217 5,343 6,959 5,912 Tax 1,455 1,431 1,598 1,578 1,939 1,698 2,124 2,042 Effective Tax Rate (%) 30.3 30.5 31.2 32.5 31.2 31.8 30.5 34.5 Adjusted PAT 3,340 3,257 3,531 3,282 4,278 3,645 4,835 3,870 Change (%) 17.6 4.9 14.8 18.5 28.1 11.9 36.9 17.9


5.3

6.2

5.8

5.0

5.9

7.1

6.0

5.8

5.4

6.8

6.5

6.4

6.2

6.9

6.6

6.0

7.1

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Employee expenses (%)

20.0

18.0

20.2

18.9

22.8

19.9

21.1

19.9

22.1

19.7

22.7

21.8

23.4

20.9

23.6

22.2

24.6

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Other expenses (%)

2.5 2.8

3.3 3.3 3.0 3.6 3.5 3.7 3.4 4.6 4.0 5.2 4.1

-3.2 -4.6

36.7

-1.8

18.4

32.2

6.3 11.8 13.8

25.1 14.9

40.1

20.7

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

PAT (INR b) PAT growth (%)

Asian Paints

11 May 2016 4

Exhibit 10: Standalone (S/L) sales grew 11.4% led by ~13% decorative volume growth


Exhibit 11: S/L Gross margin expanded 410bp YoY..


Exhibit 12: ..while EBITDA margin expanded 190bp YoY


Exhibit 13: S/L employee expenses were up 50bp YoY


Exhibit 14: S/L other expenses were up 170bp YoY


22.

1

23.

0

25.

0

28.

1

26.

9

27.

1

29.

5

29.

8

28.

5

29.

0

30.

2

33.

7

31.

7

7.1

12.6

17.6

11.4

21.3 17.6 17.9

6.1 5.9 7.0

2.3

13.2 11.4

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Sales (INR b) Sales Growth (%)

43.5

43.7

43.8

40.7

41.5

42.5

44.0

44.0

45.2

46.8

46.6

47.5

49.3

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16Gross Margin (%)

15.3

17.4

17.1

15.8

14.4

16.6

14.9

16.6

16.2

19.5

16.4

19.6

18.0

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

EBITDA Margin (%)

4.7

5.9

4.8 4.5 3.8

5.6 5.3 5.2 5.1 5.7

5.3 4.8

5.6

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Employee expenses (%)

23.5

20.4 21.9

20.4

23.3

20.3

23.8 22.2

23.9

21.6

25.0 23.1

25.6

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

Other expenses (%)

Asian Paints

11 May 2016 5

Exhibit 15: Standalone PAT registered 17.9% YoY growth


Exhibit 16: Subsidiary Quarterly Performance [Imputed] INR m 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 Sales 5,798 6,186 6,333 6,237 6,442 6,816 7,104 7,319 7,481 EBITDA 580 640 512 396 546 740 776 818 794 EBITDA margin (%) 10.0 10.3 8.1 6.3 8.5 10.9 10.9 11.2 10.6 PAT 204 299 216 151 11 274 345 451 218


Exhibit 17: Segmental Performance INR m 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 Segment Revenue Paints 30,150 28,765 29,366 30,688 34,196 32,052 Home Improvement 241 290 237 224 284 326 Total 30,390 29,055 29,603 30,912 34,480 32,378 EBIT Paints 5,584 5,327 6,305 5,760 7,597 6,653 Home Improvement (52) (32) (53) (102) (74) (73)Total 5,532 5,295 6,252 5,657 7,523 6,581 Capital Employed Paints 28,229 29,823 28,654 30,986 31,055 31,937 Home Improvement 672 655 576 566 481 570 Total 28,901 30,477 29,230 31,552 31,535 32,507 EBIT Margin (%) Paints 18.5% 18.5% 21.5% 18.8% 22.2% 20.8% Home Improvement -21.7% -11.2% -22.5% -45.7% -26.2% -22.2%Total 18.2% 18.2% 21.1% 18.3% 21.8% 20.3%


2.4 2.8 3.1

3.1 2.8 3.3 3.3 3.5 3.3 4.3 3.6 4.8 3.9

-2.13.4

38.8

-1.5

15.6 17.6

4.9

14.8 18.5 28.1

11.9

36.9

17.9

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

PAT (INR b) PAT Growth (%)

Asian Paints

11 May 2016 6

Analyst Meet Takeaways 4QFY16 as well as FY16 witnessed double digit volume growth in decorative

paints. This was led by both low base in 4QFY15 but also by recovery in demandin 2HFY16. The management would want to wait for a couple more quartersbefore calling out a recovery in the sector

There was a price deflation of 2% taken in Feb 2016. Management reckonedthat prices of RMs have definitely bottomed out. On the other hand, rupee hasalso been stable in last few months

Rural still growing faster than urban. Rural is around half of total sales.Geographically South is a little slower. Rural is growing faster mainly asconversion to permanent dwelling is stronger in the hinterland, thus resulting inpaint demand

Implementation of Pay Commission and OROP will lead to healthy demand Post-earthquake redevelopment work in Nepal is an opportunity There could however be currency shortage issues in a couple of African

countries in FY17 New regulations banning lead in paints above 90 ppm may affect unorganized

sector but implementation will be difficult

Financial highlights Annual International PAT over INR 2 b over 50% growth Asian PPG Sales were up 12% to INR 3.22 b with PBIT of INR 71 m Sleek revenues INR 1.35 b and loss of INR 190 m at PBIT level Ess Ess revenues were INR 1.06 b but PBIT loss was INR 300m

Financial Highlights quarter Increase in employee costs due to incentives due to great volume growth,

performance pay for senior managers Other expenses high due to rebates by competition which the company

followed Diminution in value of investments in 3QFY16 of INR 653m was on the Sleek

business as revenues have not scaled up to expectations and vis-à-vis the pricepaid for the business

Segments and products 60-70% cost of painting is labour costs so customers are preferring better

quality paints due to lower salience in overall costs New construction growth is still slow. Repainting is 80% of paint sales Repainting is done for 3 reasons (a) maintenance (b) occasion led (c) décor led.

For the latter 2 quality does not make a difference Now have over 300 ‘Colour Idea’ stores. Will add 50-75 stores every year Colour idea store 300-1000 sq ft Customer involvement is increasing and thus Colour Ideas is succeeding. Did not

disclose percentage 'Loctite' in retail market is a co-branding tie up with Henkel. in industrial market

Henkel distributes themselves. What is in it for them? Distribution synergies at40,000 outlets. Better products than existing products. For eg Sino acrylic less

Asian Paints

11 May 2016 7

sticky and slower in drying. Henkel is not comfortable entering adhesives retail market. Products will be sold along with outlets selling paints

Smart Care waterproofing is doing well Waterproofing was earlier available in top 3000 of the 40000 paint outlets now

15000-20000 dealers. Diagnosing is the problem and its employees are trainedfor identification

Sleek growth was weaker than paints growth as modular kitchen componentsmainly go to new construction or large revamp. Paints more frequent andmainly to repainting, which is 80% of paints demand

In most areas of Home improvement APNT will not get into manufacturing In their AP Homes business (one stop shop that they have for al building

materials, currently just 1 store in Coimbatore) the furnishing partners areD"Décor, Furniture partners are Pepper Fry, and Philips for lighting

Planning more AP Homes in the current year AP homes current one is over 7000 sq feet. Will be happy with 50-100 AP Homes

in the near term. Franchise led. Need to provide value to consumer and theretailer to succeed

Digital platform is incurred by APNT. Part of marketing expenditure

Plants, Capex, investment FY16- invested INR 1.43bn in APIL Mauritius Expanded capacity at Rohtak plant from 200,000 kl to 400,000 kl in FY16 Ankleshwar and Kasna modernization completed in FY16 AP plant being set up at a capex of INR 17.5 bn, Mysore plant being set up at a

cost of INR 23 b Setting up greenfield plant in Indonesia FY17 Consol Capex INR 3.5 b in FY17 and starting FY18 INR b

Valuation and view We upgrade estimates by 1-2% due to possible pick-up in demand off a low base

due to pay commission/ OROP implementation. APNT enjoys strong position in the Decorative Paints industry, backed by

unparalleled supply chain leadership. However, we find valuations expensive at 42.2x FY17E and 38x FY18E. Maintain

Neutral with a target price of INR860 (36x FY18 EPS).

Exhibit 18: Revised estimates by 1-2% New Old Change

INR m FY17E FY18E FY17E FY18E FY17E FY18E Sales 174,566 204,349 172,930 202,029 0.9% 1.1% EBITDA 29,910 33,302 29,752 32,532 0.5% 2.4% PAT 20,604 22,926 20,476 22,391 0.6% 2.4%


Asian Paints

11 May 2016 8

Exhibit 19: APNT trading at significant premium to historical average P/E


Exhibit 20: APNT P/E premium vs. Sensex


Exhibit 21: Valuation Matrix of coverage universe

Company Reco Price Mkt Cap

(USD M) EPS Growth YoY (%) P/E (x) EV/EBITDA (x) ROE (%) Div. (%)

(INR) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY16 Consumer Asian Paints Neutral 907 13,068 25.0 15.8 11.3 48.9 42.2 38.0 32.6 28.2 25.1 34.4 1.1 Britannia Buy 2,852 5,135 49.9 17.5 13.9 39.7 33.8 29.7 27.7 22.9 19.6 57.8 0.9 Colgate Neutral 836 3,415 6.4 11.6 13.6 38.2 34.3 30.2 23.4 21.3 19.1 72.1 1.8 Dabur* Neutral 292 7,720 17.5 15.5 13.8 41.0 35.5 31.2 33.1 28.4 25.1 33.6 0.8 Emami* Buy 1,116 3,802 16.7 15.5 19.5 44.7 38.7 32.4 37.6 30.9 25.9 39.9 0.7 Godrej Consumer Neutral 1,389 7,099 26.1 22.3 15.1 41.3 33.8 29.3 31.8 25.4 22.7 23.9 0.7 GSK Consumer Buy 6,000 3,788 20.0 13.0 10.7 36.0 31.9 28.8 25.5 22.4 19.5 30.5 1.1 Hind. Unilever Neutral 863 28,022 6.1 11.7 13.9 45.8 41.0 36.0 31.8 28.5 25.1 112.5 1.9 ITC Buy 318 38,370 2.7 13.1 14.0 25.8 22.8 20.0 16.9 15.0 13.3 30.4 2.5 Jyothy Labs Buy 318 865 26.4 -8.7 12.6 35.8 39.3 34.9 29.4 24.9 22.0 19.6 1.3 Marico* Neutral 255 4,937 23.7 14.6 16.6 46.4 40.5 34.7 30.7 27.2 23.2 36.2 1.3 Nestle Neutral 5,597 8,102 -7.3 -10.7 18.4 46.7 52.3 44.2 32.7 29.6 24.6 40.9 0.9 Page Industries Buy 13,063 2,188 21.0 25.0 31.3 61.4 49.1 37.4 38.4 31.1 24.1 46.9 0.7 Pidilite Inds. Buy 600 4,619 48.5 10.2 15.1 40.3 36.6 31.8 25.3 22.2 19.2 29.8 0.7 P&G Hygiene Buy 6,433 3,135 19.8 12.0 19.7 50.4 45.0 37.6 33.7 29.0 23.4 31.2 1.0 Radico Khaitan Buy 92 183 -2.6 14.7 21.0 14.2 12.4 10.2 10.0 8.7 7.4 9.3 1.1 United Spirits Buy 2,694 5,879 LP 76.9 46.6 93.8 53.0 36.2 43.4 31.4 23.5 48.1 0.0 Retail Jubilant Foodworks Buy 1,166 1,148 6.8 48.0 41.2 64.5 43.5 30.8 26.0 18.7 13.8 16.1 0.3 Shopper's Stop Neutral 366 452 20.3 54.3 45.4 62.3 40.4 27.8 14.6 12.1 9.5 6.2 0.4 Titan Company Neutral 370 4,928 -11.7 17.0 15.3 45.2 38.6 33.5 36.3 28.3 24.4 21.8 0.7

Note: For Nestle FY16 means CY15 Source: Company, MOSL

40.4

47.1

28.0

9.0 5.0

15.0

25.0

35.0

45.0

55.0

Apr-

06

Jul-0

7

Oct

-08

Jan-

10

Apr-

11

Jul-1

2

Oct

-13

Jan-

15

Apr-

16

PE (x) Peak(x) Avg(x) Min(x)

145.7

67.2

-80

0

80

160

240

Apr-

06

Jul-0

7

Oct

-08

Jan-

10

Apr-

11

Jul-1

2

Oct

-13

Jan-

15

Apr-

16

Asian Paints PE Relative to Sensex PE (%) LPA (%)

Asian Paints

11 May 2016 9

Story in charts

Exhibit 22: Revenues to post 15.5% CAGR over FY16-18


Exhibit 23: Back to double digit volume growth in FY16


Exhibit 24: Gross margin expected to contract 140bp over FY16-18


Exhibit 25: ..while EBITDA margin to contract 70bp over FY16-18


Exhibit 26: PAT to post 13.5% CAGR over FY16-FY18


Exhibit 27: Return Ratios (x)


77.

2

96.

0

108

.7

125

.8

140

.1

153

.3

174

.6

204

.3

15.6

24.3

13.3 15.7

11.3 9.5

13.9 17.1

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

Sales (INR b) Sales growth (%)

17.9 15.8 15.0

4.8

10.3

7.0

11.8

FY10 FY11 FY12 FY13 FY14 FY15 FY16

Volume growth (%)

42.1

39.8 41.0 41.7

43.1

46.5 46.2 45.1


Gross Margin (%)

17.2

15.4 15.3 14.8 14.7

17.0 17.1 16.3


EBITDA Margin (%)

8.4

9.9

11.

1

12.

3

14.

2

17.

8

20.

6

22.

9

1.0

17.3 12.7 10.3

15.8

25.0

15.8

11.3


PAT (INR b) PAT growth (%) 43.3

40.1

36.3

33.1 32.4 34.4 33.7

32.3


RoE (%)

Asian Paints

11 May 2016 10

Financials and Valuations

Income Statement

(INR Million) Y/E March FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Net Sales 77,223 95,983 108,744 125,816 140,053 153,307 174,566 204,349 Change (%) 15.6 24.3 13.3 15.7 11.3 9.5 13.9 17.1 Raw Materials 44,746 57,770 64,130 73,407 79,715 82,056 93,908 112,193 Gross Profit 32,477 38,213 44,614 52,409 60,339 71,251 80,658 92,156 Margin (%) 42.1 39.8 41.0 41.7 43.1 46.5 46.2 45.1 Operating Expenses 19,196 23,465 27,936 33,762 39,759 45,199 50,748 58,854 EBITDA 13,281 14,749 16,677 18,647 20,579 26,052 29,910 33,302 Change (%) 8.2 11.1 13.1 11.8 10.4 26.6 14.8 11.3 Margin (%) 17.2 15.4 15.3 14.8 14.7 17.0 17.1 16.3 Depreciation 1,131 1,211 1,546 2,457 2,659 2,880 3,243 3,476 Int. and Fin. Charges 232 410 367 422 348 405 414 428 Other Income 680 1,413 1,788 2,674 3,472 4,041 4,380 4,663 Profit before Taxes 12,597 14,541 16,552 18,442 21,045 26,809 30,633 34,061 Change (%) 0.3 15.4 13.8 11.4 14.1 27.4 14.3 11.2 Margin (%) 16.3 15.1 15.2 14.7 15.0 17.5 17.5 16.7 Tax 3,502 4,274 4,364 5,378 6,576 8,491 9,037 10,048 Tax Rate (%) 30.0 29.8 29.9 31.0 30.9 31.7 31.0 31.0 PBT Before Minority 8,813 10,206 11,595 12,727 14,549 18,317 21,137 23,502 Minority Interest 381 319 456 440 322 531 533 576 Adjusted PAT 8,432 9,887 11,139 12,288 14,227 17,787 20,604 22,926 Change (%) 1.0 17.3 12.7 10.3 15.8 25.0 15.8 11.3 Margin (%) 10.9 10.3 10.2 9.8 10.2 11.6 11.8 11.2 Exceptional/Prior Period inc 0 0 0 -100 -276 -525 0 0 Reported PAT 8,432 9,887 11,139 12,188 13,952 17,262 20,604 22,926

Balance Sheet

(INR Million) Y/E March FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Share Capital 959 959 959 959 959 959 959 959 Reserves 20,915 26,526 32,884 39,433 46,465 55,093 65,110 75,130 Net Worth 21,874 27,485 33,843 40,392 47,424 56,053 66,070 76,090 Loans 2,334 3,411 2,510 2,492 4,182 3,140 2,590 2,040 Other Liability 979 1,063 1,638 1,970 1,911 2,282 2,757 3,286 Minority Interest 1,099 1,367 1,608 2,460 2,637 2,942 3,475 4,051 Capital Employed 26,287 33,326 39,598 47,314 56,153 64,416 74,892 85,467

Gross Block 19,878 21,043 33,851 36,621 38,664 48,670 52,670 57,670 Less: Accum. Depn. 7,151 8,453 9,884 12,419 14,522 17,470 20,713 24,188 Net Fixed Assets 12,727 12,590 23,967 24,202 24,142 31,201 31,958 33,482 Capital WIP 433 6,171 592 716 1,960 1,960 1,960 1,960 Investments 4,290 3,547 2,957 14,236 15,878 21,000 21,000 21,000 Curr. Assets, L&A 28,284 34,398 39,887 40,187 44,685 45,052 59,813 73,672 Inventory 13,054 15,989 18,303 20,699 22,585 21,071 26,305 30,792 Account Receivables 5,731 7,813 9,809 11,103 11,799 12,711 14,348 16,796 Cash and Bank Balance 6,262 6,243 7,367 2,290 2,044 3,056 9,200 14,288 Others 3,237 4,354 4,408 6,095 8,257 8,215 9,960 11,796 Curr. Liab. and Prov. 19,819 23,796 28,247 33,441 32,970 36,774 41,816 46,624 Account Payables 10,874 12,625 14,416 17,457 15,488 15,995 17,752 20,902 Other Liabilities 5,277 6,722 8,438 9,298 9,892 12,439 14,111 14,139 Provisions 3,668 4,449 5,394 6,686 7,591 8,339 9,952 11,583 Net Current Assets 8,465 10,602 11,639 6,746 11,714 8,279 17,997 27,048 Godwill on Cons. 372 415 442 1,414 2,458 1,977 1,977 1,977 Application of Funds 26,287 33,326 39,598 47,313 56,153 64,416 74,891 85,467 E: MOSL Estimates

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Financials and Valuations

Ratios

Y/E March FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Basic (INR)

EPS 8.8 10.3 11.6 12.8 14.8 18.5 21.5 23.9 Cash EPS 10.0 11.6 13.2 15.4 17.6 21.5 24.9 27.5 BV/Share 22.8 28.7 35.3 42.1 49.4 58.4 68.9 79.3 DPS 3.7 4.6 5.4 6.2 7.3 9.9 11.7 13.5 Payout % 36.4 38.8 39.6 41.4 41.1 41.9 46.6 48.1

Valuation (x)

P/E 103.2 88.0 78.1 70.8 61.2 48.9 42.2 38.0 Cash P/E 91.0 78.4 68.6 59.0 51.5 42.1 36.5 33.0 EV/Sales 11.2 9.0 7.9 6.8 6.1 5.5 4.8 4.1 EV/EBITDA 64.9 58.6 51.7 45.9 41.6 32.6 28.2 25.1 P/BV 39.8 31.7 25.7 21.5 18.4 15.5 13.2 11.4 Dividend Yield (%) 0.4 0.5 0.6 0.7 0.8 1.1 1.3 1.5

Return Ratios (%)

RoE 43.3 40.1 36.3 33.1 32.4 34.4 33.7 32.3 RoCE 38.0 35.2 32.5 30.0 28.6 30.8 30.8 29.7 RoIC 48.1 46.9 40.3 29.4 25.7 28.4 29.9 31.0 Working Capital Ratios

Debtor (Days) 27 30 33 32 31 30 30 30 Asset Turnover (x) 2.9 2.9 2.7 2.7 2.5 2.4 2.3 2.4

Leverage Ratio

Debt/Equity (x) 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0

Cash Flow Statement

(INR Million) Y/E March FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E OP/(loss) before Tax 12,597 14,541 16,552 18,442 21,045 26,809 30,633 34,061 Depreciation 1,131 1,211 1,546 2,457 2,659 2,880 3,243 3,476 Net interest -448 -1,004 -1,421 -2,252 -3,124 -3,636 -3,966 -4,235 Direct Taxes Paid -3,502 -4,274 -4,364 -5,378 -6,576 -8,491 -9,037 -10,048 (Incr)/Decr in WC -1,771 -2,156 87 -184 -5,215 4,448 -3,574 -3,963 CF from Operations 8,007 8,318 12,400 13,086 8,789 22,009 17,299 19,290

Incr in FA -1,235 -6,903 -7,230 -2,894 -3,287 -10,006 -4,000 -5,000 Pur of Investments 1,951 742 591 -11,279 -1,642 -5,122 0 0 CF from Invest. 717 -6,161 -6,639 -14,173 -4,930 -15,128 -4,000 -5,000

Incr in Debt 42 1,077 -902 -18 1,690 -1,042 -550 -550 Dividend Paid -3,571 -4,459 -5,155 -5,904 -6,981 -9,539 -11,223 -12,906 Int./Div. Received 680 1,413 1,788 2,674 3,472 4,041 4,380 4,663 Interest Paid -232 -410 -367 -422 -348 -405 -414 -428 Others -440 202 -2 -320 -1,940 1,077 652 18 CF from Fin. Activity -3,521 -2,177 -4,638 -3,990 -4,106 -5,868 -7,155 -9,203

Incr/Decr of Cash 5,204 -19 1,123 -5,077 -247 1,013 6,144 5,087 Add: Opening Balance 1,058 6,262 6,243 7,367 2,290 2,044 3,056 9,200 Closing Balance 6,262 6,243 7,367 2,290 2,043 3,056 9,201 14,288 E: MOSL Estimates

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11 May 2016 12

Corporate profile Exhibit 1: Sensex rebased

Source: MOSL/Bloomberg

Exhibit 2: Shareholding pattern (%)

Mar-16 Dec-15 Mar-15

Promoter 52.8 52.8 52.8

DII 9.1 9.3 8.8

FII 18.0 17.8 18.1

Others 20.1 20.2 20.3

Note: FII Includes depository receipts Source: Capitaline

Exhibit 3: Top holders Holder Name % Holding

LIC of India 5.4

Ojasvi Trading Pvt Ltd 4.9

Source: Capitaline

Exhibit 4: Top management

Name Designation

Ashwin Choksi Chairman

Ashwin Dani Vice Chairman

K B S Anand Managing Director & CEO

Jayesh Merchant CFO & Company Secretary

Source: Capitaline

Exhibit 5: Directors Name Name

Ashwin Choksi Mahendra Shah*

Ashwin Dani Deepak Satwalekar*

K B S Anand Malav Dani

Mahendra Choksi Amrita Vakil

S Sivaram* M K Sharma*

S Ramadorai* Abhay Vakil

Dipankar Basu* Vibha Paul Rishi*

*Independent

Exhibit 6: Auditors Name Type

BSR & Co LLP Statutory

K R Chandratre Secretarial Audit

RA & Co Cost Auditor

Shah & Co Statutory

Source: Capitaline

Exhibit 7: MOSL forecast v/s consensus EPS

(INR) MOSL

forecast Consensus

forecast Variation

(%)

FY17 21.5 22.3 -3.4

FY18 23.9 25.9 -7.6

Source: Bloomberg

Company description Asian Paints is India's leading paint manufacturer and marketer, with a dominant share in the decorative segment. AONT has operations in 19 countries with 26 paint manufacturing facilities, servicing consumers in over 65 countries. APNT has also forayed into the Home Improvement and Décor space in India with the acquisition of Sleek group and Ess Ess Bathroom Products.

Asian Paints

Asian Paints

Asian Paints

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