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AP remains positive on demand despite macro head winds, going by its FY11
trends where despite 12% price hikes, it grew volumes by 16.8%. But even after a
1.6% margin drop in FY11, it remains cautious on outlook. AP cash generation
continues to be impressive with 73% of its EBITDA getting converted into cash.
Management cautiously optimistic on outlook
! The management noted that the 16.8% volume growth achieved in FY11 despite 5 price hikes
taken totalling 12% is a significant development. It has observed that demand growth in rural
and smaller towns was significantly better than larger cities and towns of the country.
! AP continued to expand its dealer network across all parts of the country. The expansion of
Colourworld network also continued with more than 18000 of dealers being covered currently.
Most of its premium segment emulsion paints are happening through this network.
Considerable investments were made in upgrading over 3000 retail outlets with the overall
objective of improving the ambience, providing better service and more information to
consumers at these outlets. AP also significantly expanded the chain of stores called 'Colour
Ideas', where the consumer is provided with an environment wherein he can experience what
colour can do to his home. Here he is also provided with Colour Consultancy Services.
Consumers have responded very positively to this retail chain and the company is in the
process of expanding it across the country.
! AP faced a 1.6% margin erosion in FY11, and management belives that the pressure on
margins could continue in FY12 as well, given the inflationary pressure on raw materials.
Expansion's making good progress
! After commissioning of the Rohtak Plant in April 2010, the total installed paints capacity in
India stands at close to 6,00,000 KL. AP plans to increase the installed capacity at the Rohtak
Plant from 150,000 KL per annum to 200,000 KL per annum by fourth quarter of FY 2011-12.
Construction has also commenced at Khandala near Pune (in Maharashtra) for the seventh
Decorative Paints plant with an initial capacity of 300,000 KL per annum of paints with an
investment of around Rs10bn. The plant will be commissioned sometime around the last
quarter of FY 2012-13. The Khandala plant can be expanded to 400,000 KL per annum later.
! With these expansions, AP is well positioned to sustain a strong volume growth for its
decorative paints business in India.
Strong cash generation continues
! AP's business continues to generate free cash, and its working capital management still
continues to improve ( AP's average working capital as % of revenues has reduced from 8%
in FY2007 to 4% in FY2011.) In FY11, its average working capital days decreased from
17days in FY10 to 13days in FY11 on account of higher accounts payable days (from 86days
in FY10 to 90days in FY11) and lower accounts receivable days (from 23days in FY10 to
20days in FY11), although inventory days increased from 47days in FY10 to 53days in FY11.
! In the last 5 years, it has converted 73% of its reported EBITDA into cash generation after
working capital requirement and corporate taxes. Its free cash generation has improved
sharply in the last 2 years, as its working capital in business has remained stable despite a
48% higher sales. AP's average working capital as % of revenues has reduced from 8% in
FY2007 to 4% in FY2011.
! AP's ROE continues to be impressive at 44% in FY11. It has averaged a dividend payout of
49% of its reported PAT in the last 5 years.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AP remains positive on demand despite macro head winds, going by its FY11
trends where despite 12% price hikes, it grew volumes by 16.8%. But even after a
1.6% margin drop in FY11, it remains cautious on outlook. AP cash generation
continues to be impressive with 73% of its EBITDA getting converted into cash.
Management cautiously optimistic on outlook
! The management noted that the 16.8% volume growth achieved in FY11 despite 5 price hikes
taken totalling 12% is a significant development. It has observed that demand growth in rural
and smaller towns was significantly better than larger cities and towns of the country.
! AP continued to expand its dealer network across all parts of the country. The expansion of
Colourworld network also continued with more than 18000 of dealers being covered currently.
Most of its premium segment emulsion paints are happening through this network.
Considerable investments were made in upgrading over 3000 retail outlets with the overall
objective of improving the ambience, providing better service and more information to
consumers at these outlets. AP also significantly expanded the chain of stores called 'Colour
Ideas', where the consumer is provided with an environment wherein he can experience what
colour can do to his home. Here he is also provided with Colour Consultancy Services.
Consumers have responded very positively to this retail chain and the company is in the
process of expanding it across the country.
! AP faced a 1.6% margin erosion in FY11, and management belives that the pressure on
margins could continue in FY12 as well, given the inflationary pressure on raw materials.
Expansion's making good progress
! After commissioning of the Rohtak Plant in April 2010, the total installed paints capacity in
India stands at close to 6,00,000 KL. AP plans to increase the installed capacity at the Rohtak
Plant from 150,000 KL per annum to 200,000 KL per annum by fourth quarter of FY 2011-12.
Construction has also commenced at Khandala near Pune (in Maharashtra) for the seventh
Decorative Paints plant with an initial capacity of 300,000 KL per annum of paints with an
investment of around Rs10bn. The plant will be commissioned sometime around the last
quarter of FY 2012-13. The Khandala plant can be expanded to 400,000 KL per annum later.
! With these expansions, AP is well positioned to sustain a strong volume growth for its
decorative paints business in India.
Strong cash generation continues
! AP's business continues to generate free cash, and its working capital management still
continues to improve ( AP's average working capital as % of revenues has reduced from 8%
in FY2007 to 4% in FY2011.) In FY11, its average working capital days decreased from
17days in FY10 to 13days in FY11 on account of higher accounts payable days (from 86days
in FY10 to 90days in FY11) and lower accounts receivable days (from 23days in FY10 to
20days in FY11), although inventory days increased from 47days in FY10 to 53days in FY11.
! In the last 5 years, it has converted 73% of its reported EBITDA into cash generation after
working capital requirement and corporate taxes. Its free cash generation has improved
sharply in the last 2 years, as its working capital in business has remained stable despite a
48% higher sales. AP's average working capital as % of revenues has reduced from 8% in
FY2007 to 4% in FY2011.
! AP's ROE continues to be impressive at 44% in FY11. It has averaged a dividend payout of
49% of its reported PAT in the last 5 years.
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