Company Information

Asian Paints is India’s largest paint manufacturer and marketer with a dominant share in the decorative paints segment. For industrial and automobile paints, the company has a JV with PPG of the US. Asian Paints acquired Berger International of Singapore to expand its operations in other markets in Asia, the Middle East and the Caribbean.

Recent Developements

• Asian Paints’ 3QFY11 results were below estimates as consolidated EBITDA margin contracted 320bp YoY to 16.4%. Net sales grew well by 29.6% due to strong growth (up 37%) in the standalone business. Adjusted PAT grew 11% to RsRs2.2b.
• Asian Paints increased prices by 2.9% from 1 December 2010, taking the total price increase YTD to 11.4%. Asian Paints entered into a new JV with PPG to capture the non-automobile industrial paint opportunity.

Key investment arguments

• Expansion in housing and construction will drive demand for decorative paints over 3-5 years.

• International operations, which have turned around, will contribute to the company’s earnings.

Volume growth story intact; margins to stabilize at lower levels:
We believe the volume growth story in the domestic decorative paints segment is intact due to shorter re-painting cycles, increased residential construction and higher growth in tier-II and tier-III cities. Besides, the sales mix will improve, led by rising consumerism. We expect gross margins to revive in the coming quarters and settle at FY08 levels of ~42.5 (44.6% in FY10). We maintain BUY.

CMP (Rs.) 2,518
MBP (Rs.) 2,600
Face Value  10
Equity Shares (Mn) 95.9
52-Week Range (H/L) 3,027 /1,965
M.Cap. (Rs b) 241.5