ASIAN PAINTS - Business StandardConsumer Goods 2 Edelweiss Securities Limited Asian Paints’ Q1FY15 concall | Key Takeaways . Demand: Demand continues to be good for Tier 2 and Tier

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Edelweiss Securities Limited

Asian Paints’ (APL) Q1FY15 consolidated revenue and PAT were marginally above our expectations. Key positives included: (i) strong volume growth of 11-12% YoY on a base of 10% YoY in the domestic decorative business (volume growth of 14% YoY in Q4FY14 was on a low base of 3% YoY); and (ii) good volume growth in industrial coatings business as compared to a decline in Q1FY14. Key negative was dip in gross margins by 63bps YoY, though improved by 71bps QoQ. Diversification into water proofing, modular kitchens and bath fittings places APL in a sweet spot to corner higher wallet share (Masco Corp in US has done this successfully). With metamorphosis into a home décor company and one of the best plays on urban recovery, we expect valuations to remain rich. Reiterate ‘BUY’ with target price of INR720. International, industrial businesses showing revival signs International business (ex-Egypt) continued to report strong growth and management remains confident of margin improvement. Both industrial joint ventures have done well; though demand in automotive segment was subdued, refinish segment demand was robust. Sleek business benefited from dealer openings.

Key takeaways from Q1FY15 concall Demand was better in Tier 2 and 3 cities along with some metro cities reviving (India has once again become no. 1 country in Nielsen Consumer Confidence Survey). Sleek will fund its capex from internal accruals. Management expects home improvement to be a sizeable part of overall business in the long term. In Ess Ess, APL clocked sales of INR31mn over 13 days and has long-term sourcing contracts with the earlier owner (may look to own sourcing later). The company is evaluating options of opening another green-field manufacturing facility for paint, which in our view shows confidence of strong demand.

Outlook and valuations: Lustrous growth; maintain ‘BUY’ As highlighted in our Braveheart report, The growth palette, dated June 3, 2014, domestic decorative volume growth is likely to improve and we are positive on the home improvement business. At 31x FY17E EPS, our target price is pegged at INR720. Reiterate ‘BUY’ and rate it ‘Sector Outperformer’

RESULT UPDATE

ASIAN PAINTS Line by line beat

EDELWEISS 4D RATINGS

Absolute Rating BUY

Rating Relative to Sector Outperformer

Risk Rating Relative to Sector Medium

Sector Relative to Market Underweight

MARKET DATA (R: ASPN.BO, B: APNT IN)

CMP : INR 604

Target Price : INR 720

52-week range (INR) : 611 / 373

Share in issue (mn) : 959.2

M cap (INR bn/USD mn) : 579 / 9,606

Avg. Daily Vol.BSE/NSE(‘000) : 1,143.6

SHARE HOLDING PATTERN (%)

Current Q4FY14 Q3FY14

Promoters *

52.8 52.8 52.8

MF's, FI's & BK’s 9.4 9.4 7.9

FII's 18.0 18.0 19.5

Others 19.9 19.9 19.9 * Promoters pledged shares (% of share in issue)

: 10.6

PRICE PERFORMANCE (%)

Stock Nifty

EW Consumer Goods Index

1 month 15.6 4.7 1.1

3 months 10.9 15.8 (0.7)

12 months 28.9 32.8 0.4

Abneesh Roy +91 22 6620 3141 [email protected] Pooja Lath +91 22 6620 3075 [email protected] Tanmay Sharma +91 22 4040 7586 [email protected] Alankar Garude +91 22 6623 3301 [email protected]

India Equity Research| Consumer Goods

July 22, 2014

Financials (INR mn)

Year to March Q1FY15 Q1FY14 % change Q4FY14 % change FY14 FY15E FY16E

Net rev. 33,622 28,411 18.3 33,071 1.7 127,148 150,298 178,617

EBITDA 5,565 4,647 19.8 4,851 14.7 19,979 24,039 28,843

Net profit 3,387 2,752 23.1 2,874 17.8 12,089 14,914 18,140

Dilu. EPS (INR) 3.5 2.9 23.1 3.0 17.8 12.6 15.5 18.9

Dilu.P/E (x) 47.9 38.8 31.9

EV/EBITDA (x) 23.7 23.5 19.5

ROAE (%) 32.8 34.4 34.4

https://www.edelresearch.com/showreportpdf-26172/BRAVEHEART_SERIES_-_ASIAN_PAINTS_-_THE_GROWTH_PALETTE-EDEL

Consumer Goods

2 Edelweiss Securities Limited

Asian Paints’ Q1FY15 concall | Key Takeaways Demand: Demand continues to be good for Tier 2 and Tier 3 cities. Also after many quarters demand has revived in metro cities in Q1FY15. Price hikes: APL took 2.2% cumulative price increase in Q1FY15 (1% on 1st May and 1.2% on 1st June). In the nine months prior to Q1FY15, APL had taken 4.9% price hike. Gross margins: The company has been trying to maintain gross margins within a certain range by taking price hikes. If cost of raw materials reduces, prices will be reduced. Economy: Global macro environment improved in Q1FY15. Domestic economy showed mixed signals. INR was stable, but inflation remains at higher end of comfort zone. Going ahead, economic outlook is expected to improve. However, poor monsoon can potentially play spoilsport. Monsoon: It is too early to talk about the impact of low monsoon. The impact of less monsoon is on the demand of next year. Industrials segment: In Q1FY15, both industrial JVs have done considerably better than last year. Growth in Industrials space in FY15 would definitely be better than FY14. Auto-OEM: APL largely operates in the non-Japanese auto-OEM segment. International: On constant currency basis, growth in international subsidiaries was 6% YoY in Q1FY15. There has been good improvement in last 2-3 years in profitability of international business. Margins have improved to 6-7% vis-à-vis 4-5% a few years back. Current level of margins can be sustained for next 2-3 years. Topline growth is dependent on situation in Egypt. Middle East: The company has been investing in Oman, where the revenue growth has been good. Sleek: 70-100 Sleek dealers were added in Q1FY15. Currently, Sleek has few hundred dealers. Combination of existing paints dealers and new dealers have been added in Sleek. Majority are hardware dealers, while some are involved in design of kitchen (higher space requirement for these dealers). The company will try to ensure uniform presence across the country. Asian Paints wants to become a full spectrum kitchen player. Ess Ess: Revenue of INR30.8mn (reported in standalone) was recognized for Ess Ess Bathroom Products in month of June. These numbers are just for 13 days of operations. Ess Ess gross revenues are recognized and then cost is netted off. APL has a longer term manufacturing contract with the earlier owner. As per the management, there is sufficient room to meet immediate growth requirements. Consideration paid for Ess Ess by APL was mainly towards intangible assets and includes sales force, distribution network, brand and know how. APL took over liability of INR63.8mn from Ess Ess. (Goodwill of INR385.8mn + Brands of INR42.8mn minus liability assumed INR63.8mn = Total consideration of INR364.8mn). Staff costs: Staff costs in Q1FY15 were slightly higher because of impact of closure of Bhandup plant. For the Bhandup plant, there are two types of costs, one for employees who

Asian Paints


are retiring shortly (cumulative costs were reported in Q1FY15 in staff costs line item), the other has been reported as an exceptional item. Staff costs would normalize in Q2FY15. Other income: Many FMPs were redeemed in Q1FY15. Tax provisions as per Union budget have been made. Tax provisions in budget will negatively impact yields from liquid funds (6-6.5% yields currently) and FMPs. In spite of this, returns generated on APL’s other income would still be competitive. Capacity utilisation: Capacity utilisation is ~80% across all plants. Capacity utilization would be bit lower for Khandala plant. Greenfield paints plant: APL is looking at options of opening a greenfield paints plant. Capex: The management has guided for standalone capex of INR5bn in FY15. This will be used for expansion of Rohtak plant (from 200,000 tons to 400,000 tons) and Ankleshwar plant. Both the expansions will be for the decorative space. Out of this INR5bn, maintenance capex would be ~INR1.5-2bn. Total capacity: Currently, total capacity of APL is 0.8mn tons. Post the expansion of Rohtak and Ankhleshwar plants, total manufacturing capacity will exceed 1mn tons. Cash: APL intends to hold excess cash. There are no plans of any special dividend. Tax rebate for Khandala plant in Q1FY15: Tax rebate for Khandala plant is INR200mn in Q1FY15. GST: GST will not have any significant impact on demand side of Asian Paints. Dividend income in Q2FY14 (which will come in base quarter Q2FY14): Dividend from Akzo Nobel was in Q2FY14.

Q4FY14 Analyst Meet | Key Takeaways Decorative business: FY14 volume clocked double digit growth backed by tier 2 and 3 cities. Paint industry size: USD6bn. Price hike: Price hike during FY14 was 6.25%. From May 1, 2014, prices have increased by 1% and further increment of 1.2% will be done from June 1, 2014. New launches in FY14: Launched Ultra Luxury Royal Aspira in India. To bridge the gap between premium emulsion and Royale, management relaunched Apcolite Advanced. In wallpaper category, ‘Nilaya’ brand was launched. 70 new Colour Ideas were launched and an Ezycolour store was inaugurated in Kolkata.

Wall paper business: APL did a quiet launch of its new wall paper collection Nilaya in FY14. Proper launch of products will be done in June 2014. Wall papers are being imported from 4 manufacturers in Germany and US.

Water proofing business: APL has already launched 3 products in this category and is expected to launch another 3 products in FY15.

Consumer Goods


Dealers: The company is continuously increasing its dealer network over the years. It is expanding by adding 2,000-3,000 dealers every year.

Sleek business: Sleek business posted revenue of INR793mn in the first year of business post acquisition (acquired on August 8, 2013). Management has decided on the future growth plan for Sleek business and steps will be taken to implement them in FY15.

Industrial business: Industrial paints faced demand challenges due to slowdown in public and private investments. Sales declined in powder business vis-a- vis last year due to price corrections and slow growth. However, improvement in mix and realisation resulted in better gross margins.

Automotive segment: Slow demand in automotive segment resulted in challenging environment for paint companies. However, margins improved due to lower inflation in material cost and better operational efficiencies.

International business: International business performed well backed by sales growth of 14.5% YoY in Middle East during FY14. Asia clocked 21.0% YoY sales growth in FY14 led by good performance in Bangladesh, Nepal and Emirates. However, sales in Egypt and Bahrain did not do well. Caribbean region registered 7.9% YoY sales growth due to economic slowdown. Currency depreciation in Jamaica and Egypt is also a concern.

Guidance: Will expand into other home interior business like tiles, furniture and furnishing if the present acquisition clocks good growth.

Berger International (BIL): APL has increased its stake in BIL to 96.79% in FY14.

Bhandup plant: Effective from May 5, 2014, Bhandup plant has shut down resulting in one time impact of INR280mn which will be recorded in FY15. Management has decided not to sell the land (where the plant was located).

Kadisco Chemical Industry: Agreement was signed with an Ethopian company, Kadisco chemical Industry, to acquire 51% stake either directly or through subsidiaries. It will help APL enter Africa which is a substantial market for paint industry (market size approximately at ~USD1bn).

ESS ESS Bathroom Products: Binding agreement was signed with ESS ESS Bathroom Products to acquire its front end sales, brands, networks and sales infrastructure business. Manufacturing will still be done by the promoter. Deal is in initial stage and the company is still negotiating with the promoter to decide the deal amount. 10% of APL dealers are already selling bathroom fittings and this synergy will help them increase sales of ESS ESS’ products.

Employee cost: INR200mn was reversed as gratuity investment rate changed from 8% to 9.5% in Q4FY14.

Other expenses: Other expenses increased 14.3% YoY due to operator’s strike in Sriperumbudur plant which resulted in higher freight cost in the last quarter. Actual effect of

Asian Paints


volatile currency in Q3 was felt in Q4, which also impacted margins. Diesel prices also increased in Q4FY14.

Income from operations: Khandala depreciation of INR833mn was offset by subsidy income of INR656mn.

Exceptional item: INR996mn provision of fixed assets at Bhandup plant.

Colour world dealers: Launched 3,200 colour world dealers totaling 27,000 dealers.

El Nino: El Nino may affect tier 3 cities directly and indirectly.

Capex: Capital expenditure of INR5,500mn earmarked for capacity expansion and maintenance in FY15 and FY16.

Royalty: INR244mn royalty received from international operations.

Global economy: Eurozone almost out of recession backed by growth in Germany and France. Even US is showing signs of improvement. Though there was a slowdown in China, its economy still clocked 7.5% growth. Japan economy also showed some recovery (came out of deflation).

Indian economy: Indian economy grew 4.9% YoY (lowest in past 10 years (except FY13 which had clocked 4.5% YoY growth). Agriculture sector helped boost Indian economy. Industrial sector did not recover from slowdown. Inflation was high during first three quarters in FY14 providing some relief in Q4FY14. Also, extreme currency fluctuation from 60 to 69 acted as an inhibitor in the recovery process.

Kansai Nerolac Q1FY15 Results | Key Highlights • Total income increased by 16.6% YoY to INR9237mn

• EBITDA increased by 15.4%YoY to INR1170mn

• COGS increased by 18.5% YoY to INR6210mn

• Staff cost increased by 7.7% to INR340mn

• Other income increased by 111.1% YoY to INR78mn

• EBITDA margin decreased by 14bps YoY due to increased in COGS margin by 105bps YoY

• PAT increased by 19.8% to INR730mn

Consumer Goods


Table 1: Kansai Nerolac Q1FY15 financial performance

Source: Edelweiss research

Key developments | Asian Paints In May 2014, Asian Paints entered a binding agreement with Ess Ess Bathroom Products Private Limited ("Ess Ess") and its promoters to acquire the latter’s entire front-end and sales businesses including the brands, network and sales Infrastructure. This is part of its strategy to enter the home improvement sector in India — in this case, the bath and wash segments. It feels this sector has considerable synergies with its retail paint business (addressing the same consumers and distributing its products through the same channels). To counter the increase in the raw material prices, Asian Paints took a price hike of 1% in May followed by 1.2% in June, which will reflect in its bottom-line when it reports its earnings in Q2FY15. It had taken cumulative price hikes of 6.14% in FY13. Asian Paints closed its oldest plant at Bhandup with effect from May 5, 2014. Due to the close down, company offered a voluntary/separation retirement scheme along with relocation option to its other factories to all the workmen.

Financial snapshotYear to March Q1FY15 Q1FY14 % change Q4FY14 % changeNet Sales 9,211 7,898 16.6 7,437 23.8Other operating income 26 21 25.2 30 (12.3)Total Income 9,237 7,919 16.6 7,467 23.7Cost of goods sold 6,210 5,241 18.5 5,135 20.9Gross profit 3,027 2,678 13.0 2,332 29.8Staff costs 340 316 7.7 334 1.9Other expenditure 1,517 1,348 12.5 1,179 28.7Total expenditure 1,857 1,664 11.6 1,513 22.7EBITDA 1,170 1,014 15.4 819 42.8Depreciation 165 153 7.6 170 (3.2)EBIT 1,005 861 16.8 649 54.9Other income 78 37 111.1 24 225.4Interest and financial charges - 0 NM 1 (100.0)PBT 1,083 898 20.6 672 61.2Provision for taxation 354 289 22.4 223 58.6Core Profit 730 609 19.8 449 62.5Add: Exceptionals (net of tax) - - NM - NMMinority interest - - NM - NMReported PAT 730 609 19.8 449 62.5

as % of net salesCOGS 67.2 66.2 105 68.8 (154)Staff costs 3.7 4.0 (31) 4.5 (79)Other expenditure 16.4 17.0 (60) 15.8 63EBITDA 12.7 12.8 (14) 11.0 170EBIT 10.9 10.9 1 8.7 219PBT 11.7 11.3 39 9.0 273Net profit 7.9 7.7 21 6.0 189Tax rate 32.6 32.2 46 33.2 (55)

Asian Paints


Revival in auto sector to spur industrial paints Performance of Asian Paints’ automotive segment was dented in FY13 and FY14 owing to slowdown in the automobile industry. Total vehicle production fell by 0.3% YoY in FY13 and 7.4% in FY14. As a result of the economic slowdown, many first-time buyers have delayed their car purchases. For example, first time buyers fell to 37% for Maruti Suzuki compared to ~50% a couple of years back. Analysis of auto sector demand shows that in the past three recovery cycles of FY99, FY03 and FY09, when GDP growth recovered by ~200bps, auto demand surged by more than 20% CAGR over two years post trough year. The primary demand drivers for the auto sector are improvement in GDP, high liquidity and improvement in purchasing power. We expect GDP growth to improve to 5.4%, 6.3% and 7.5% in FY15E, FY16E and FY17E, respectively, from ~4.5% in Q4FY14. Also, improved consumer sentiment due to a stable government should drive job creation and wage hikes.

Table 2: Auto sales - Signs of demand revival already visible in May and June

Source: SIAM, Edelweiss research

Key developments | Other paint companies L&T Technology Services selected by Akzo Nobel

Engineering firm Larsen & Toubro's (L&T) technology services arm has bagged a contract from Akzo Nobel to provide technical assistance and reduce capital expenditure. Work suspended at Howrah unit: Shalimar Paints

Shalimar Paints said it did not have the requisite financial strength to repair and rebuild the fire-damaged factory, the company's oldest. The final estimate for rebuilding and restoring full-scale operations has been arrived at INR600mn and is beyond the company’s resources. Shalimar Paints has suspended work at its Howrah unit in West Bengal. It is learnt that the state unit had about 350 workers who are now being offered to move to the company's Nashik and Secundarabad plants. In another development, Shalimar Paints has appointed Mr. Shankar Subramanian as Vice President for its decorative business. In this role, he will be responsible for growing the decorative business and add to the leadership depth of the company.

Vehicles WheelersJan-14 219,748 15,748 34,218 36,097 % YoY growth (9.4) (17.5) (22.4) (25.6) Feb-14 217,705 16,372 31,610 37,950 % YoY growth (3.9) (23.8) (32.6) (14.0) Mar-14 238,174 23,435 40,666 40,918 % YoY growth (7.3) (20.8) (26.5) (6.0) Apr-14 188,494 15,429 27,651 33,602 % YoY growth (9.5) (17.1) (27.4) (2.2) May-14 207,916 16,572 30,414 40,369 % YoY growth 3.2 (10.5) (17.7) 12.6 Jun-14 218,786 18,414 32,705 47,348 % YoY growth 11.2 (2.1) (12.5) 23.3

Three Total Passenger Total M&HCVs Total LCVs

Consumer Goods


Asian Paints FY14 annual report | Key highlights Environment

• Domestic demand for the company’s products was comparatively resilient though not as good as expected.

• Rural demand was relatively better than urban; retail demand was encouraging; the industrial market remained stagnant.

• In overseas business, despite a persistently challenging global environment, some markets where Asian Paints operates showed signs of recovery.

Decorative India business

• Asian Paints standalone sales increased 16.3% YoY to INR1,04,187.8mn. FY14 profit after tax stood at INR11,690.6mn versus INR10,500mn in the previous year, a growth of 11.3% YoY.

• Decorative paints account for over 75% of the overall paints market in India and includes wall finishes for interior and exterior use, enamels, wood finishes and ancillary products, such as primers, putties, etc.

• Key highlight in interior emulsion category was nation-wide launch and subsequent success of ultra luxury ‘Royale Aspira’.

• In exterior paints, ‘Apex Ultima’ grew extremely well supported by a successful advertising campaign and several field marketing initiatives.

• Ultima Protek, which was launched in exterior paints, is a two coat exterior painting system that offers best-in-class benefits like anti-algal, water proofing and overall durability.

• Wood finishes category registered significant growth in FY14. Industrial paints

• Non-auto - Asian Paints PPG: AP-PPG’s strategy to focus on the high-end protective coatings and powder coatings businesses helped in substantial improvement in product mix and margins. Cost reduction, better working capital management, superior technical services and technology support were the major focus areas during the year. The wholly-owned subsidiary, Asian Paints Industrial Coatings (APICL), shut down manufacturing operations of its powder coatings facility at Baddi in Himachal Pradesh due to plunge in processing volumes of powder coatings in past two years.

• Automotive coatings - PPG Asian Paints: This joint venture (JV) is the second largest automotive coatings supplier in the country and the largest auto-refinish coatings player. PPG-AP did exceedingly well to enhance margins in the business and grow despite all the structural factors affecting the economy.

International operations

• Net sales of the group’s overseas operations grew 15.5% to INR16,599mn. On constant exchange rates, net sales moved up 9.1% YoY.

• Profit before tax of overseas subsidiaries increased 4.6% YoY to INR1,420mn versus INR1,357mn in FY13.

• Tight leash on expenses and lower raw material inflation helped the international operations to deliver strong performance despite difficult market conditions.

Asian Paints


• Profits were affected due to certain expenses mainly related to acquisition of additional stake in Berger International, impact of pension fund liabilities and medical benefits in Caribbean units due to change in actuarial assumptions.

• Wholly-owned subsidiary in Mauritius, Asian Paints (International) Limited, signed an agreement with shareholders of Kadisco Chemical Industry Plc., Ethiopia to acquire either directly or through its subsidiaries 51% of its share capital.

• % contribution from international geographies were as follows - Middle East- 50.1%, Asia- 29.2%, Caribbean- 12.8% and South Pacific- 7.9%.

• Political turmoil in Egypt and Bahrain continued for the third year and affected growth in these markets.

• Bangladesh witnessed series of strikes/blockades in the run up to their general elections, while Sri Lanka experienced slow-down in demand conditions.

Region-wise sales

• Caribbean (Barbados, Jamaica, Trinidad and Tobago): In FY14, net sales grew 7.9% YoY to INR2,154mn from INR1,996mn in FY13. Profit before tax for the region stood at INR17mn versus INR75mn in FY13. Performance was hit by increase in pension fund liabilities and medical benefits. Continuing economic slowdown in the region has affected demand conditions and the paints market has contracted.

• Middle East (Egypt, Oman, Bahrain and UAE): Net sales increased 14.5% YoY to INR8,430mn from INR7,365mn in the previous year. Profit before tax for the region stood at INR802mn as compared to INR778mn in the previous year. Demand conditions in the Middle East except for Egypt and Bahrain are showing signs of recovery.

• Asia (Bangladesh, Nepal, Sri Lanka and Singapore): In FY14, net sales increased 21% YoY to INR4,915mn from INR4,061mn during FY13. Profit before tax came in at INR427mn as compared to INR290mn in FY13. Expansion of the manufacturing capacity in Bangladesh from 12,000KL to 24,000KL per annum is nearing completion and commissioning is expected by the Q1FY15.

• The subsidiary at Sri Lanka acquired land at the Matugama Industrial estate to set up a new manufacturing facility.

• South Pacific (Fiji, Solomon Islands, Samoa, Tonga and Vanuatu): In FY14, net sales grew 16.3% YoY to INR1,333mn from INR1,146mn in FY13. Profit before tax stood at INR234mn as compared to INR163mn in the previous year.

Manufacturing

• In FY14, operations at the manufacturing facility at Sriperumbudur, Tamil Nadu were affected due to a strike since December 2013.

• Asian Paints was able to mitigate impact of this strike by sourcing products from its other manufacturing facilities. This, however, resulted in increased cost of transportation during Q4FY14. The strike ended in April, 2014 and the plant has resumed normal operations.

• Manufacturing activity was discontinued at the Bhandup plant in Maharashtra w.e.f. May 5, 2014. Workers at the facility have accepted either the offered voluntary retirement / separation scheme or to relocate to other facilities of the company.

• Impact of the VRS will be ~INR280mn in the statement of profit and loss for FY15.

Consumer Goods


• Asian Paints will be initiating the expansion of capacity at its Rohtak plant in Haryana to increase manufacturing capacity from the current 2,00,000 KL per annum to 4,00,000 KL per annum.

Mix

• Continued focus on emulsions reduced the company’s dependence on enamels and distempers.

New launches

• Asian Paints launched a range of new products offering ‘new’ and ‘comprehensive’ solutions to customers on dampness, undulations and cracks in various substrates under the ‘Smart Care’ range in FY14.

• It also launched a range of top-end products like ‘Royale Aspira’ and ‘Ultima Protek’.

• The premium emulsions category saw revival with the re-launch of brand ‘I’ with the proposition of ‘dependable performance’.

• A new product, called ‘Apcolite Advanced’, was launched to bridge the gap between ‘Apcolite Premium Emulsion’ and ‘Royale’.

Network

• Sharp rise in the number of ‘in store’ colour consultancy customers was seen to more than 5,000 in FY14.

• After success of the Stores at Mumbai and Delhi, Asian Paints launched the first-ever ‘Ezycolour Store’ at Kolkata in August, 2013.

• Ezycolour is a more functional version of the ‘Color Stores’ and focuses mainly on delivering a great colour consultancy experience to customers.

• The company expanded the Total Colour Ideas Stores to 170 by launching a record 70 new stores in FY14.

• Asian Paints installed more than 3,200 colour worlds and took overall tally to 27,000 in India.

• Colourpro, which focuses on business development with the help of architects and interior design firms, spread its presence to 15 cities.

Home improvement

• Asian Paints entered into a binding agreement in May 2014 with Ess Ess Bathroom Products Pvt. Ltd. to acquire its entire front end sales business including brands, network and sales infrastructure.

• In the waterproofing segment the overall turnover of the SmartCare range more than doubled in FY14.

• The company soft launched wallpapers in FY14.

• Sleek, which was acquired at total investment of INR1,194.8mn has a retail network of more than 30 showrooms including shop-in-shops and a network of more than 250 dealers.

• Asian Paints is the midst of its working plan to expand its kitchens business across geographies where Sleek’s presence has been limited, streamlining of operations, configuring the IT systems and enhancement of manpower and process capabilities. Network expansion and synergies with the paints dealer network has also been attempted in few markets.

Asian Paints


Online Innovations

• The ‘Your Voice’ website is the blog where people can interact with the company directly and give feedback.

• ‘Online Colour Lab’ is an excellent interaction-cum-feedback forum started in FY14. This is the unique, first of its kind in India platform which allows the brand to interact with the customer in the digital space other than the social media.

Berger Paints FY14 annual report| Key highlights Paints industry structure and development

• During FY14, paint industry volumes as a whole continued to perform well with a growth rate estimated to be >2x of GDP for decorative products.

• Per capita consumption of paints in India is now ~2.6kgs versus the international average of 10-13 kgs. Total size of the paint market is roughly estimated at INR350bn.

• Decorative paints enjoy market share of 71% and the balance of 29% accounted by industrial paints.

• Decorative paints can be broadly categorised into water and solvent-based paints.

• Water-based paints enjoy an edge and are growing at higher rate because most paintable surfaces in architectural constructions use water-based coating.

• It enjoys added advantage of being more environmentally friendly. Berger Paints • Decorative segment accounts for ~80% of overall business.

• The company has improved the formulation as well as look and feel of its three premium advertised products, viz., Silk, Easy Clean and WeatherCoat All Guard.

• Silk is a deluxe interior emulsion with a soft and rich feel. It is positioned to compliment with the best-in-class furniture and fixtures, highlighting the decor of a room.

• Easy Clean is a premium emulsion also for interiors, but provides best washability and stain resistance

• WeatherCoat All Guard is a silicone-based long lasting, premium exterior paint that matures with age and repels water, protecting the exterior walls from rain.

• The company had launched niche products such as WeatherCoat Kool and Seal for roofs.

• This year, the company launched BreatheEasy Enamel. This is a unique water-based eco-friendly glossy enamel developed primarily for use on wood and metal.

• The company added to its texture coating stable by launching Tartaruga Hi-Build composed of a selection of coloured grits with added silicone for water resistance. The other two textured coatings, viz., WeatherCoat Texture and Tartaruga continue to perform well.

Global Paints Market • The global paints market is worth ~USD121bn (2012); total production is 38mn metric

tonnes (MT).

• In the Asia-Pacific region, water-based (architectural paints) constitutes 65% by volume.

• Globally, by volume, the split is approximately 50% architectural paints and the remaining 50% industrial performance coatings. The region contributes 44% to the paints and coatings market.

Consumer Goods


• India constitutes only 15% and China 57% by volume of the Asia Pacific market. Thus, there is a major growth opportunity available in both decorative and industrial segments in India.

• Berger Paints, being one of the largest participants in the organised paint market, which contributed to ~67% of the sales, is poised to take advantage of this prospect.

Akzo Nobel FY14 annual report | Key highlights Management change

• In December 2013, Mr. Amit Jain stepped down as Managing Director of AkzoNobel India, following his appointment as the Managing Director of the company’s decorative paints business in North and Central Europe.

• Mr. Jayakumar Krishnaswamy, who was appointed Managing Director in March 2014, has been with AkzoNobel India since 2011 as the Head of Supply Chain, and brings with him 26 years of understanding and insights across automotive, engineering, FMCG and cement industries.

Industry structure

• Decorative paints account for approximately 70% of the industry.

• Primary growth drivers of this business have been consumers’ shift to premium products, shortening of repainting cycle and better demand from Tier II and III cities.

• Another important demand driver is new homes underpinned by rising income levels, easy availability of finance for housing, shift from joint families to nuclear families and rapid urbanisation.

• Performance coatings business, which constitutes nearly 30% of the coatings market in India, is essentially a B2B market in contrast to the decorative paints, which is largely B2C market.

Decorative paints

Some of the initiatives which supported growth were: • Introduction of Weathershield Next Generation for professional users.

• Reinforcing sun reflect proposition through Weathershield Sunreflect campaign.

• Introduction of Fabrique Moment, a new range of inspired finishes under Velvet Touch Trends umbrella.

• Launch of VT - Fashion for walls and communication restage for WS Max.

• Expansion of distributor based servicing of hitherto underserved markets. Performance coatings

Highlights of the business for FY14 were the launch of: • ‘Duco Auto-Star’ for the mid-market segment.

• Bodyguard project, which is an integrated solution for strategic partnership with top insurance companies.

• Color Helpdesk.

Chemicals

A specialised lab to cater to the surface chemistry requirements of the agrochemical industry is being set up at the Thane site.

Asian Paints


Future plans

• Continues to use innovation and R&D strengths to reduce costs through process improvements, import substitution and improving material usage efficiency for sustainability.

• Focused R&D efforts in response to changing customer needs and feedback.

• Continue to leverage access to AkzoNobel’s global expertise to develop/adapt products for the Indian market.

Outlook and valuation: Growing strong; maintain ‘BUY’ Paint industry exhibits strong pricing power reflected by frequent price hikes. APL has initiated 1% price hike in decorative business in India from May 1, 2014, and has taken further 1.2% price hike from June 01, 2014. With urban recovery on the cards, discretionary spends and GDP growth rate are bound to increase. Paint industry exhibits a strong correlation with GDP growth (1.5-2x); hence, we expect APL to clock double digit volume CAGR over FY15-FY17, which will be further bolstered by market share gains, innovations and strong re-painting demand (90% of total demand). Industrial segment growth has languished over the past few quarters, which we believe is likely to pick up (some signs already seen in Q1FY15), especially in the automotive space (forms large part of non-decorative segment), led by likely improvement in discretionary spends and higher investments by the new Central government. We expect distribution synergies between the home décor segments and the existing paint distribution network to aid APL’s operating leverage. Also, brand investments in home décor brands (Sleek, Ess Ess) will help these businesses gain scale riding APL’s strong brand equity. On the back of this strong performance coupled with investment in new growth drivers (construction chemicals business, wall paper, Sleek business, Ess Ess bath fittings), we maintain 31x to FY17E earnings with target price of INR720. Maintain ‘BUY’.

Consumer Goods


Chart 1: Asian Paints - P/E band

Chart 2: Consolidated sales growth robust

Chart 3: Domestic decorative volume growth robust

Source: Company, Edelweiss research

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Asian Paints


Chart 4: Titanium dioxide price

Chart 5: Price movement in brent crude oil – affects major part of RM

Chart 6: Consolidated EBITDA margin expanded 20bps YoY


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Consumer Goods


Table 3: Asian Paints - Standalone snapshot (INR mn)


Table 4: Price changes summary


Year to March Q1FY15 Q1FY14 % Change Q4FY14 % ChangeNet sales 27,407 23,197 18.2 27,240 0.6 COGS 15,562 12,948 20.2 15,713 (1.0) Staff costs 1,506 1,353 11.3 1,025 46.9 Other expenditure 5,444 4,704 15.7 6,263 (13.1) Total expenditure 22,512 19,005 18.5 23,001 (2.1) EBITDA 4,896 4,192 16.8 4,239 15.5 Depreciation 547 530 3.2 538 1.6 EBIT 4,349 3,662 18.7 3,701 17.5 Interest 43 48 (10.5) 88 (51.5) Other income 489 521 (6.1) 390 25.3 PBT 4,795 4,136 15.9 4,004 19.8 Exceptional item 252 0 NA 100 NATax expenses 1,455 1,297 12.2 1,233 18.0 Net profit 3,088 2,839 8.8 2,671 15.6 As % of net revenuesCOGS 56.8 55.8 96 57.7 (90) Staff expenses 5.5 5.8 (34) 3.8 173 Others 19.9 20.3 (41) 23.0 (313) EBITDA 17.9 18.1 (21) 15.6 230 PAT 11.3 12.2 (97) 9.8 146 Tax rate 30.3 31.3 (100) 30.8 (46)

Date Price hikeJun-14 1.2 May-13 1.0 Feb-14 2.1 Sep-13 1.8 Aug-13 1.0 May-13 1.2 Jan-13 (0.2) May-12 3.2 Mar-12 2.1 Mar-12 1.4 Dec-11 2.2 Jul-11 1.3 Jun-11 2.5 May-11 4.4 Q4FY11 1.0 Dec-10 3.0 Aug-10 1.2 Jul-10 2.6 May-10 4.2

Asian Paints


Consolidated - Financial snapshot (INR mn) Year to March Q1FY15 Q1FY14 % change Q4FY14 % change FY14 FY15E FY16E Net revenues 33,622 28,411 18.3 33,071 1.7 127,148 150,298 178,617 Raw material costs 19,270 15,894 21.2 19,855 (2.9) 73,407 86,363 102,431 Employee expenses 2,253 2,009 12.1 1,761 27.9 7,597 9,304 11,075 Other expenses 6,495 5,618 15.6 7,233 (10.2) 26,165 30,592 36,268 EBITDA 5,565 4,647 19.8 4,851 14.7 19,979 24,039 28,843 Depreciation 646 599 7.8 622 3.8 2,556 2,608 3,030 EBIT 4,920 4,048 21.5 4,230 16.3 17,423 21,432 25,812 Other income 473 277 70.6 311 52.3 1,342 1,653 1,642 EBIT including other income 5,393 4,325 24.7 4,540 18.8 18,765 23,084 27,454 Interest 78 86 (9.0) 117 (33.7) 422 383 351 Profit before tax 5,315 4,239 25.4 4,423 20.2 18,343 22,702 27,103 Tax 1,665 1,390 19.8 1,336 24.6 5,715 7,038 8,402 Core profit 3,650 2,850 28.1 3,087 18.3 12,628 15,664 18,701 Minority interest (87) (98) NA (113) NA (440) (470) (561) Adjusted net profit 3,564 2,752 29.5 2,974 19.8 12,188 15,194 18,140 Exceptional item (177) - NM 100 NM (100) (280) - Net profit 3,387 2,752 23.1 2,874 17.8 12,089 14,914 18,140 Diluted EPS (INR) 3.5 2.9 23.1 3.0 17.8 12.6 15.5 18.9 As % of net revenues COGS 57.4 56.8 58.1 57.7 57.5 57.3 Employee cost 6.7 7.1 5.3 6.0 6.2 6.2 Other expenses 19.3 19.8 21.9 20.6 20.4 20.3 EBITDA 16.6 16.4 14.7 15.7 16.0 16.1 EBIT 14.6 14.2 12.8 13.7 14.3 14.5 PBT 15.8 14.9 13.4 14.4 15.1 15.2 Reported net profit 10.1 9.7 8.7 9.5 9.9 10.2 Tax rate 31.3 32.8 30.2 31.2 31.0 31.0

Consumer Goods


Company Description Asian Paints is the largest paints company in India and figures among the top 10 players in the world. The company has 25 manufacturing plants in 17 countries, serving consumers in 65 countries globally. The decorative segment accounts for almost 70% of the overall paints market. Paints sales in domestic and international markets contributed 81% and 13%, respectively, to the company’s consolidated revenue; chemical sales accounted for the balance. Among Asian Paints’ international businesses, while the Middle East contributes the lion’s share at 51% to revenue, the Caribbean contributes 14%. Asia and South Pacific contribute 27% and 8%, respectively. Investment Theme The paints industry is expected to post robust volume growth led by strong repainting demand and from construction. Growth in the repainting segment, accounting for about 90% of decorative demand, is on account of good demand in rural and small towns. Further, expected growth in construction activity over the next five years creates opportunity for fresh painting. Though Asian Paints is expected to grow ahead of the market on account of its pricing strategy at the lower end, higher growth in premium products, brand equity and distribution strength, moderation in real estate and auto segments can act as barrier.

Key Risks A slowdown in the economy is the biggest risk for the paints industry, as about 75% of demand for decorative paints arises from repainting, which, in turn, depends heavily on the country’s economic condition. A rise in crude oil price and rupee depreciation could hurt the company’s margin as crude derivatives account for majority of Asian Paints’ input costs.


Asian Paints

Financial Statements

Key AssumptionYear to March FY13 FY14 FY15E FY16E FY17EMacro AssumptionsGDP(Y-o-Y %) 5.0 4.8 5.4 6.3 7.5 Inflation (Avg) 7.4 6.2 5.5 6.0 6.0 Repo rate (exit rate) 7.50 8.0 7.8 7.3 6.5 USD/INR (Avg) 54.5 60.5 58.0 56.0 55.0

Company Sales assumptions 0.1 0.1 1.1 2.1 3.1 Volume growth - standalone

4.3 8.7 11.0 13.0 15.0

Pricing change - standalone 10.4 6.0 6.0 6.0 6.0

Subsidiary net sales growth 18.6 16.0 32.1 19.8 16.7

Cost assumptions 0.1 0.1 1.1 2.1 3.1 Titanium Dioxide (as % of COGS)

32.4 29.3 30.4 31.2 32.3

Crude Linked RM (as % of COGS)

21.1 21.2 20.5 21.4 22.3

Packing Material (as % of COGS)

14.9 15.3 15.5 15.5 15.5

COGS as % of sales (Consol) 58.6 57.7 57.5 57.3 57.2

COGS as % of sales (standalone)

57.6 57.0 56.3 56.0 55.5

Staff costs as % of sales (Consol)

5.7 6.0 6.2 6.2 6.2

Staff costs as % of sales (standalone)

4.7 4.8 5.4 5.4 5.4

A&P as % of sales (Consol) 4.7 5.0 5.1 5.1 5.1 A&P as % of sales (Domestic)

4.7 4.8 5.4 5.4 5.4

Financial assumptions 0.1 0.1 1.1 2.1 3.1 Tax rate (Consol) 29.9 31.2 31.0 31.0 31.0 Debtor days 29 30 31 31 31 Inventory days 98 97 98 98 98 Payable days 77 79 80 80 80 Cash conversion cycle (days)

50 48 49 49 49

Depreciation as % of gross block

5.6 7.3 6.5 6.5 6.5

Capex 7230 2,894 7,000 6,000 7,000 Dividend as % of net profit 39.6 42.1 42.0 42.0 42.0

Income statement (INR mn)Year to March FY13 FY14 FY15E FY16E FY17ENet revenues 109,386 127,148 150,298 178,617 213,902 Cost of materials 64,130 73,407 86,363 102,431 122,354 Gross profit 45,256 53,741 63,935 76,186 91,548 Employee costs 6,236 7,597 9,304 11,075 13,363 Ad & sales costs 5,153 6,310 7,723 9,172 10,998 Others 16,548 19,855 22,869 27,096 31,954 EBITDA 17,320 19,979 24,039 28,843 35,232 Depreciation 1,546 2,556 2,608 3,030 3,453 EBIT 15,774 17,423 21,432 25,812 31,780 Other income 1,145 1,342 1,653 1,642 1,813 EBIT incl. other income 16,919 18,765 23,084 27,454 33,592 Net interest charges 367 422 383 351 319 PBT 16,552 18,343 22,702 27,103 33,274 Provision for taxation 4,957 5,715 7,038 8,402 10,315 Core PAT 11,595 12,628 15,664 18,701 22,959 Extraordinary item - (100) (280) - - Minority (456) (440) (470) (561) (689) Adjusted PAT 11,139 12,089 14,914 18,140 22,270 Eshares outstanding (mn) 959 959 959 959 959 EPS (INR) basic 11.6 12.7 15.8 18.9 23.2 Diluted shares (mn) 959.2 959.2 959.2 959.2 959.2 EPS (INR) fully diluted 11.6 12.6 15.5 18.9 23.2 CEPS (INR) 13.7 15.8 19.0 22.7 27.5 DPS 4.6 5.3 6.5 7.9 9.8

Dividend payout ratio (%) 39.6 42.1 42.0 42.0 42.0

Tax rate 29.9 31.2 31.0 31.0 31.0

Common size metrics (%)Year to March FY13 FY14 FY15E FY16E FY17ECost of materials 58.6 57.7 57.5 57.3 57.2 Employee costs 5.7 6.0 6.2 6.2 6.2 Advertising & sales costs 4.7 5.0 5.1 5.1 5.1 Other general expenditure 15.1 15.6 15.2 15.2 14.9 EBITDA margin 15.8 15.7 16.0 16.1 16.5 EBIT margin 14.4 13.7 14.3 14.5 14.9 Net profit margin 10.2 9.6 10.1 10.2 10.4

Growth metrics (%)Year to March FY13 FY14 FY15E FY16E FY17ERevenues 13.6 16.2 18.2 18.8 19.8 EBITDA 14.8 15.4 20.3 20.0 22.2 PBT 13.8 10.8 23.8 19.4 22.8 Net profit 12.7 8.5 23.4 21.6 22.8 EPS 12.7 8.5 23.4 21.6 22.8


Consumer Goods

Balance sheet (INR mn)As on 31st March FY13 FY14 FY15E FY16E FY17EShare capital 959 959 959 959 959Reserves 32,884 39,433 47,073 56,365 67,772 Shareholders' funds 33,843 40,392 48,032 57,324 68,732 Minority interest 1,608 2,460 2,930 3,491 4,180 Long term borrowings 473 414 381 348 314Short term borrowings 1,899 1,986 1,827 1,667 1,508 Current maturities of debt 138 91 84 77 69Borrowings 2,510 2,492 2,292 2,092 1,892 Deferred tax liability 1,544 1,878 1,878 1,878 1,878Sources of funds 39,504 47,222 55,132 64,785 76,681 Tangible assets 23,657 23,307 27,700 30,669 34,216Intangible assets 311 895 895 895 895Capital work in progress 592 716 800 850 900Total net fixed assets 24,560 24,918 29,394 32,414 36,011Goodwill on consolidation 442 1,414 1,414 1,414 1,414Non current investments 1,501 1,921 1,921 1,921 1,921Current investments 1,456 5,291 5,291 5,291 5,291

Cash and cash equivalents 7,367 9,317 10,070 13,506 17,826

Inventories 18,303 20,699 23,188 27,502 32,851Sundry debtors 9,809 11,103 12,765 15,170 18,167Loans & advances 3,193 3,767 3,767 3,767 3,767Other assets 1,215 1,944 1,944 1,944 1,944Total c. assets (ex cash) 32,520 37,512 41,663 48,383 56,729Trade payable 14,416 17,457 18,929 22,451 26,817Other c. liabilities & prov 13,925 15,693 15,693 15,693 15,693Total c.liabilities & prov 28,341 33,150 34,622 38,144 42,510

Net current assets (ex cash 4,179 4,362 7,042 10,239 14,219

Uses of funds 39,504 47,222 55,132 64,785 76,681 BV (INR) 35 42 50.1 59.8 71.7

Free cash flow (INR mn)Year to March FY13 FY14 FY15E FY16E FY17ENet profit 11,139 12,089 14,914 18,140 22,270 Add: Non cash charge 2,369 3,514 3,740 3,942 4,460 Depreciation 1,546 2,556 2,608 3,030 3,453 Others 823 958 1,133 912 1,007 Gross cash flow 13,508 15,602 18,655 22,082 26,730 Less:Changes in WC 2,519 648 2,680 3,198 3,979Cash from operations 10,989 14,954 15,975 18,885 22,751 Less: Capex 7,230 2,894 7,000 6,000 7,000Free cash flow 3,759 12,060 8,975 12,885 15,751

Peer comparison valuation

Market cap Diluted PE (X) EV/EBITDA (X) ROAE (%)

Name (USD mn) FY15E FY16E FY15E FY16E FY15E FY16E

Asian Paints 9,606 38.8 31.9 23.5 19.5 34.4 34.4

Colgate 3,713 40.5 36.0 28.2 24.1 92.6 92.6

Hindustan Unilever 22,803 34.4 31.2 24.9 22.2 85.6 74.4

ITC 46,727 27.9 24.5 18.1 15.7 35.0 35.9

Marico 2,581 26.5 21.8 16.8 13.7 22.0 21.9

Nestle Ltd 8,346 39.3 33.5 22.6 19.4 47.3 44.0

Pidilite Industries 3,018 32.8 26.4 21.9 17.4 26.1 27.3

AVERAGE - 34.3 29.3 22.3 18.9 49.0 47.2

Source: Edelweiss research

Cash flow metricYear to March FY13 FY14 FY15E FY16E FY17EOperating cash flow 10,989 14,958 15,975 18,885 22,751Financing cash flow (6,010) (5,500) (8,137) (9,399) (11,381)Investing cash flow (7,820) 1,361 (7,084) (6,050) (7,050)Change in cash (2,842) 10,819 754 3,436 4,320Capex (7,230) (2,894) (7,000) (6,000) (7,000) Dividends paid (5,155) (5,904) (7,275) (8,848) (10,863)

RatiosYear to March FY13 FY14 FY15E FY16E FY17EROAE (%) 36.3 32.8 34.4 34.4 35.3 ROACE (%) 47.7 45.5 48.7 48.9 50.0 Debtor days 29 30 31 31 31 Inventory days 98 97 98 98 98 Payable days 77 79 80 80 80 Cash conversn cycle (days) 50 48 49 49 49 Current ratio 1.5 1.6 1.6 1.8 1.9 Debt/EBITDA 0.1 0.1 0.1 0.1 0.1 Debt/Equity 0.1 0.1 0.0 0.0 0.0 Adjusted debt/equity 0.1 0.1 0.0 0.0 0.0 Interest coverage (x) 46.2 44.4 60.3 78.3 105.4

Operating ratiosYear to March FY13 FY14 FY15E FY16E FY17ETotal asset turnover 3.0 2.9 2.9 3.0 3.0 Fixed asset turnover 6.0 5.3 5.7 5.9 6.4 Equity turnover 3.6 3.4 3.4 3.4 3.4

Valuation parametersYear to March FY13 FY14 FY15E FY16E FY17EDiluted EPS (INR) 11.6 12.6 15.5 18.9 23.2 Y-o-Y growth (%) 12.7 8.5 23.4 21.6 22.8 CEPS (INR) 13.7 15.8 19.0 22.7 27.5 Diluted P/E (x) 52.0 47.9 38.8 31.9 26.0 Price/BV (x) 17.1 14.3 12.1 10.1 8.4 EV/Sales (x) 5.2 3.7 3.8 3.1 2.6 EV/EBITDA (x) 33.1 23.7 23.5 19.5 15.8 Dividend yield (%) 0.8 0.9 1.1 1.3 1.6


Asian Paints

Top 10 holdings

Perc. Holding Perc. Holding

Life Insurance Corp Of India 6.41 Smiti Holding & Trading Co 5.64

Geetanjali Trading & Inv 5.14 Oppenheimerfunds Incorporated 1.88

Aberdeen Asset Management Plc 1.70 Vanguard Group Inc 0.84

Jp Morgan Chase & Co 0.73 Harris Trust & Savings Bank 0.71

Blackrock Fund Advisors 0.58 Vontobel Asset Management Ag 0.51

*as per last available data

Insider Trades

Reporting Data Acquired / Seller B/S Qty Traded 07 Feb 2014 Suprasad Investments and Trading Company Private Limited Buy 30000 02 Dec 2013 Sudhanva Investments And Trading Pvt. Ltd. Sell 116500

*in last one year

Bulk Deals Data Acquired / Seller B/S Qty Traded Price No Data Available

*in last one year

Additional Data

Directors Data Ashwin Choksi Non-executive Chairman Ashwin Dani Non-executive Vice Chairman Ms. Amrita Vakil Non-executive Director K.B.S. Anand MD & CEO Mahendra Choksi Non-executive Director Amar Vakil Non-executive Director Malav Dani Non-executive Director Mrs. Vibha Paul Rishi Non-Executive Independent Director Dipankar Basu Non-Executive Independent Director Deepak Satwalekar Non-Executive Independent Director R. A. Shah Non-Executive Independent Director Dr. S. Sivaram Non-Executive Independent Director Mahendra Shah Non-Executive Independent Director S. Ramadorai Non-Executive Independent Director M. K. Sharma Non-Executive Independent Director

Auditors - Shah & Co- Chartered Accountants, B S R & Associates - Charted Accountants

*as per last annual report


Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

Asian Paints BUY SO M Bajaj Corp HOLD SU H

Colgate HOLD SP M Dabur BUY SO M

Emami BUY SP H GlaxoSmithKline Consumer

Healthcare

HOLD SP M

Godrej Consumer BUY SP H Hindustan Unilever REDUCE SU L

ITC BUY SO L Marico BUY SO M

Nestle Ltd HOLD SU L Pidilite Industries BUY SO M

United Spirits BUY SP H

RATING & INTERPRETATION

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return


Asian Paints

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91-22) 4009 4400, Email: [email protected]

Vikas Khemani Head Institutional Equities [email protected] +91 22 2286 4206

Nischal Maheshwari Co-Head Institutional Equities & Head Research [email protected] +91 22 4063 5476

Nirav Sheth Head Sales [email protected] +91 22 4040 7499

Coverage group(s) of stocks by primary analyst(s): Consumer Goods Asian Paints, Bajaj Corp, Colgate, Dabur, Godrej Consumer , Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd, Pidilite Industries, GlaxoSmithKline Consumer Healthcare, United Spirits

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 149 40 12 202 * 1 stocks under review

Market Cap (INR) 139 57 6

Date Company Title Price (INR) Recos

Recent Research

10-Jul-14 ITC Another harsh tax increase; pricing power remains; Company Update

342 Buy

10-Jul-14 ITC Cigarette tax harsh, but not life threatening; EdelFlash

342 Buy

04-Jul-14 Consumer Goods

Slowdown blues continue; Result Preview

> 50bn Between 10bn and 50 bn < 10bn

Buy Hold Reduce Total

Rating Interpretation

Buy appreciate more than 15% over a 12-month period

Hold appreciate up to 15% over a 12-month period

Reduce depreciate more than 5% over a 12-month period

Rating Expected to


Consumer Goods

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Asian Paints

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ASIAN PAINTS - Business StandardConsumer Goods 2 Edelweiss Securities Limited Asian Paints’ Q1FY15 concall | Key Takeaways . Demand: Demand continues to be good for Tier 2 and Tier

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