Buy Asian Paints : Defensive multiplier… �� :ICICI Securities,

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Asian Paints

Defensive multiplier…
�� Sustainable volume growth
• In the last 10 years, Asian Paint’s market capitalisation has
increased 14x with average 2.4% dividend yield every year
• Asian Paints is the largest paint company in India with more than
50% market share in decorative paints
• In the last 10 years, the company has grown 2.3x to the real GDP
of 8.5%. Revenues have grown 5x with ~20% CAGR and bottomline
growing @26% CAGR
• With volume growth at ~15% CAGR in the last 10 years and 4.5%
calibrated price hikes, the company has witnessed such high
topline growth
• Asian Paints has witnessed robust international business growth
over the last five years by increasing its presence in various
markets specifically in the Caribbean and Middle Eastern region
• The company has continuously improved its margins over the
years from 16.2% in FY02 to 18.1% in FY11. It also commands
higher margins compared to its peers due to backward integration
of its crude-based derivatives like PAN and Penta
�� Going ahead
• We believe it would continue to grow at 20%+ in the next three to
five years as demand for decorative paints, specifically repainting,
continues to increase in Tier-II and Tier-III cities
• Considering the economy continues to grow at 8%, strong repainting
demand and the company’s leadership position in
decorative paints, we believe the company will continue to
witness 13-15% volume growth in the next three to five years
• The company has pricing power. Hence, it can pass on any cost
inflations through sustained price hikes in the decorative segment.
However, in industries paints, it does not command similar pricing
power
Valuation
Asian Paints would continue to register robust volume growth and would
maintain its leadership position by enjoying the maximum chunk of the
increasing pie. With more than 40% consistent dividend payout over the
last 10 years, the company has improved its RoEs from ~30% in FY02 to
~43% in FY11 and RoCEs from ~39% in FY02 to ~57% in FY11.
Considering strong cash flows, higher returns ratios and lighter balance
sheet, Asian Paints would command higher multiples compared to its
peers.