Asian Paints NSE – What’s Its True Intrinsic Value?

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Asian Paints NSE - Business Review

Asian Paints NSE, an Indian multinational company holding maximum market share in paint manufacturing and distribution. As the name tells, the company has much impact on Asian business.

As of date, they have almost 2200 wide range of colors. Almost inventing 20 innovations every year. Despite all challenges, the company has done a decent revenue growth.

The company has reported a net profit of Rs. 830 Cr in Q2’2021 result. It was with a growth of 0.85% compared to the previous year and 280% compared to Q1’2021.

In terms of revenue, the company has grown by 5.2% compared to Q2’2020.

HISTORY & ORIGIN OF ASIAN PAINTS NSE

The idea sparked during world war 2 when the import of paints was banned. 4 youngsters found this as an opportunity to establish their service in the color industry.

Champaklal with his 3 friends started to manufacture decorative paints. Those were the periods when paints were available only in bulk quantity. Asian paints were the 1st to bring paints in limited quantities.

This strategy was the turning point in their business growth.

The company was started in a small garage as Asian Oil and Paint Company Pvt Ltd. The name was changed to Asian Paint limited in the year 1965 as they become a public company.

Later in 1982, they entered the stock market by IPO of Rs. 10 per share.

Even in the 1970-80s, the company strongly believed in technology. They invested in premium systems and data analytics in the preparation of techno paints and emulsion systems.

BUSINESS OVERVIEW

Asian Paints NSE is the largest paint and color manufactures in India with a market share of 63.38%. The company dominates as 3rd largest manufactures of paints and chemicals in Asia.

It is been operated in more than 65 countries with 27 manufacturing sites across the globe.

Over the last 75 years, the company has deeply dominated Home decors. The company offers services like:

  • Home Painting Services.
  • Interior Design Services.
  • Experience Retail stores.
  • Color Consultancy.
  • Projects and Sanitization Services.

Apart from Paints, it also has a strong footprint in various other products like:

  • Chemicals.
  • Wall Covering.
  • Texture painting aid.
  • Waterproofing solutions.
  • Wall Stickers.
  • Mechanical Tools.
  • Kitchen Fittings.
  • Bath fittings and Sanitaryware.
  • Sanitizer and Surface disinfectants.
  • Adhesives.
  • Kitchen and Wardrobes.

As we have stated earlier, its business is well dominated in the Asian market in revenue. The Revenue split across geographies are:

  1. Asian – 44%
  2. Middle East – 27%
  3. Africa – 24%
  4. South Pacific – 5%

When you see the segment revenue split up,

  • Decorative Coatings – 83.7%
  • Internatonal Operations – 11.6%
  • Industrial Coating – 2.4%
  • Home Improvement Business – 2.3%

DECORATIVE COATINGS

Every year Asian Paints NSE develops almost 20+ new products. This segment has a high share of company revenue.

Decorative Coating primarily focuses on 4 segments. They are Interior walls, Exterior walls, wood finishes, and metal finishes.

Also, introduced new ranges like waterproofing, wall coverings, painting tools and implements, alongside adhesives, and Sanitizers.

Always look in changing environments with customer’s needs. They consistently work on strengthening their brand value and entering into many emerging markets.

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INTERNATIONAL OPERATIONS

The operation over 65 countries with a handful of Brands. They are Asian paints, Causeway paints, Asian paints Berger, KADISCO, SCIB paints, APCO, Taubmans.

The key focus is on Africa and Indonesia. Also, out of 14 countries, they back with 3rd place in 12 countries.

INDUSTRIAL COATING

The main focus is on automobile coatings, refinishes, protective coatings, floor coatings, and powder coatings.

They are the market leader in the auto refinish segment and the second-largest player in the automotive OEM segment.

Their industrial coating manufacturing capacity is being steadily enhanced to the growth of OEM demand.

HOME IMPROVEMENT BUSINESS

This is the segment that grows at a high rate. The place where the company has many plans for future development.

The primary categories are:

  1. Kitchens and Wardrobes.
  2. Bath Fitting and Sanitaryware.

TheTop brands are Sleek, Essess, Bathsense, AP Royale.

KEY BUSINESS STRENGTHS

  • 9th Largest company in the world for paint manufacturing.
  • 50+ years of holding leadership in India.
  • 75+ years of innovation in the paint industry.
  • 200+ Scientists in research and technology development
  • 70000+ Distribution Channels.
  • 10 AP homes stores across the Nation.
  • 26 paint manufacturing centers
  • 7500+ talents work in bringing innovation and adaptability for customers.
  • 430+ Colour Ideas stores in India

INDUSTRIAL OPPORTUNITIES AND THREATS

  • The base product of paint is Crude Oil. So, crude oil plays a crucial role in the price of paints. As price increases, the demand will come down.
  • This industry is completely aligned with the construction and automobile industries. As we know, both these industries demand are coming down in the last few years, there might be some impact on Paint businesses.
  • The main opportunity lies in the individual house painting as a renovating work.
  • The company has to focus on a more innovative way to stand out of the competition by:
      • Anti Bacterial Paints.
      • Erasable paints for children.
      • Safe painting services during the pandemic time
  • The domestic Paint industry is expected to be at Rs. 50000 Cr by 2020-21.
  • The overall domestic paint industry is facing a huge challenge in the last two financial years.
  • As COVID pandemic and shorter, the festival period has made a huge impact.
  • More players have started splitting the market shares.
  • The biggest opportunity lying behind is focusing on emerging markets like Africa and Pacific countries.
  • Home improvement business is fast-growing and to increase market share, the company has focused on the right direction.

FINANCIAL PERFORMANCE OF ASIAN PAINTS NSE

Asian Paints Share - Financial Performance

The above image has demonstrated the financial performance over the last 5 years.

  • Revenue has grown by 6.18% in the last 5 years, which is lower than the industry average of 6.68%.
  • EBITA has grown at a CAGR of 13.98% in the last 5 years.
  • Net Profit has grown at a CAGR of 14.16% in the last 5 years. The industry average has grown at a CAGR of 15.04%.
  • In the last 5 years, the market share has come down from 64.89% to 63.38%.

Now, we can look at the growth of share price in the last 5 years.

Share Price on 29th October 2015 – Rs. 845 per share

Share price on 29th October 2020 – Rs. 2225.45 per share.

Asian Paints Share price - 5 years performance

The share price has grown at a CAGR of 21.45% over the last 5 years.

Quarterly Results

  • In the last 4 quarters, the revenue was fall completely down in Q4’2020 and Q1’2021 quarters.
  • It was good to see, the revenue has grown compared to Q3’2020 in Q2’2021.
  • The EPS in Q2’2021 is the highest over the last 8 quarters.
  • This is definitely a positive sign for the company. As revenue and profit have started growing.

FUNDAMENTAL ANALYSIS – ASIAN PAINTS NSE

Number of Equity Shares – 95.92 Cr shares

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Market Capitalization – Rs. 213464.72 Cr

Valuation Ratios

The basic and foremost step in fundamental analysis is to calculate the valuation ratios. Come let have a quick snap,

  • Book Value – Rs. 105.61
  • Price to Book Value (P/B) – 21.07 times
  • Earnings Per Share (TTM) – Rs. 24.10 per Share
  • Price to Earnings (P/E) – 92.34 (Highly overvalued)
  • Industry P/E – 22.86
  • Dividend Yield – 0.53%
  • Debt to Equity Ratio – 0.04 (Continuously decreasing)
  • Current Ratio (Assets/Liabilities) – 1.73 (Continuously increasing, still behind threshold)
  • Interest Coverage Ratio – 34.16
  • Pledged Shares – 6.3% (Negative Sign – When promoters pledge their shares)
  • Net Profit Margin (FY2019-20) – 13.15%
  • Average Net Profit Margin – 11.70%
  • Return on Equity (FY2019-20) – 26.7%
  • Average Return on Equity – 25.89%
  • Free Cash Flow – Rs. 2254 Cr
  • Free Cash Flow Growth rate – 24.62%
  • EV/EBITDA – 48.37 (Highly Overvalued)

SHAREHOLDERS PATTERN OF ASIAN PAINTS NSE

  • Promoters – 52.79%
  • FII – 19.84%
  • Insurance Company – 3.78%
  • Mutual Funds – 3.2%
  • Other DII – 8.48%
  • Retail Investors – 11.9%

EXCESS LIQUID CASH PER SHARE

Total Liquid Asset:

  • Fixed Asset:
      • Investments: Rs. 1049.74 Cr
      • Other financial assets: Rs. 248.09 Cr
  • Current Asset:
      • Investments: Rs. 512.48 Cr
      • Cash and Cash Equivalents: Rs. 563.83 Cr
      • other financial assets: Rs. 781.65 Cr

Total Liquid Assets: Rs. 3155 Cr

Total Liabilities: Rs. 5620 Cr

Excess Liquid Cash: -Rs. 2465 Cr

Excess Liquid Cash per share: -Rs. 25.7 per share.

LONG TERM INVESTOR BENEFITS IN ASIAN PAINTS NSE INVESTMENT

As we always prefer long term investment in shares. Also, we educate people to choose any company by analyzing business values and not by the share price.

Here we will be giving small glimpses of how your wealth would have grown over from IPO to the current day.

If you just calculate the share price over the last 38 years, the share price has grown from Rs. 13 to Rs. 2225.45 at a CAGR of 14.5% in the last 38 years.

The wealth has grown by 222.5 times in 38 years.

Bonus and Splits Benefit:

But, there are other benefits with long term investments like a bonus, split, and dividend.

If you had invested Rs. 10000 in 1982, you would be entitled to get 769.23 Shares (Rs. 13 per Share)

Let us have a look at the bonus and splits the company has provided.

Bonus and Splits - Asian Paints Share

1985 – 3:5 Bonus (For Every 5 shares, You will be getting 3 Shares) – Total shares will be 1230.76 Shares.

1987 – 1:2 Bonus (For Every 2 Shares, you will be credited by 1 share) – Total share will be 1846.15 Shares.

1992 – 3:5 Bonus (For Every 5 Shares, you will be credited by 3 shares) – Total share will be 2953.84 Shares.

1996 – 1:1 Bonus (For Every share, you will be credited with an additional share – Total share will be 5907.68 Shares.

1996 – 1:25 share issues on merger with Pentasia Investments Ltd – Total Share will be 6144 Shares.

2000 – 3:5 Bonus (For Every 5 Shares, you will be credited by 3 shares) – Total Share will be 9830 Shares.

2003 – 1:2 Bonus (For Every 2 Shares, you will be credited by a share) – Total share will be 14746 Shares.

2013 – 1:10 Split (the FV 10 is converted to FV 1. So, for every share, you will be credited with 10 shares) – Total Share will be 147460 shares.

So, Currently, you will be having a total of 147460 Shares.

When calculating, the number of shares with the current market price of a share, the total amount will be Rs. 32.81 Cr.

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Just Imagine over 38 years, Your Rs. 10000 has grown to Rs. 32.81 Cr. Your wealth has grown at a CAGR of 38.4% in the last 38 years.

The wealth has grown by 32816 times in the last 38 years.

DIVIDEND PAYOUT BY ASIAN PAINTS NSE

In terms of dividend payout, we don’t have much data. We have data for the last 8 Years

Oct 2012 – Rs. 9.5 per Share (14746 Shares) – Rs. 140087

May 2013 – Rs. 36.5 per Share (14746 Shares) – Rs. 538229

Sep 2013 – Rs. 1.1 per share (147460 Shares) – Rs. 162206

May 2014 – Rs. 4.3 per share (147460 Shares) – Rs. 634078

Aug 2018 – Rs. 1.8 per share (147460 Shares) – Rs. 265428

May 2015 – Rs. 4.3 per share (147460 Shares) – Rs. 634078

Oct 2015 – Rs. 2.2 per share (147460 Shares) – Rs. 324412

May 2016 – Rs. 5.3 per share (147460 Shares) – Rs. 781538

Oct 2016 – Rs. 2.65 per share (147460 Shares) – Rs. 390769

May 2017 – Rs. 7.65 per share (147460 Shares) – Rs. 1128069

Sep 2017 – Rs. 2.65 per share (147460 Shares) – Rs. 390769

May 2018 – Rs. 6.05 per share (147460 Shares) – Rs. 892133

Oct 2018 – Rs. 2.85 per share (147460 Shares) – Rs. 420261

May 2019 – Rs. 7.65 per share (147460 Shares) – Rs. 1128069

Oct 2019 – Rs. 3.35 per share (147460 Shares) – Rs. 493991

Feb 2020 – Rs. 7.15 per share (147460 Shares) – Rs. 1054339

Jun 2020 – Rs. 1.5 per share (147460 Shares) – Rs. 221190

Oct 2020 – Rs. 3.35 per share (147460 Shares) – Rs. 493991

The total dividend payout in the last 7 years is Rs. 10093637 (1.1 Cr) for the investment of Rs. 10000 done on the Asian Paints NSE in 1982.

This is the real power of the long term investment.

INTRINSIC VALUE CALCULATION OF ASIAN PAINTS NSE

The 5 years EPS growth is 14.16. Let us expect a growth of 15% in profit for the next year

EPS (TTM) is Rs. 24.1 per share.

As it is an established company. We can keep a minimum Margin of the safety of 10%.

Considering all the above criteria, the intrinsic value should be less than Rs. 518.9 per share.

The current share price is traded at 3.29 times higher than the intrinsic value.

INSIGHTS TO INVESTOR

  • A company which is dominating in Paint and color industry for more than 50 years with its innovation and strategy.
  • One of the handpick companies in India, which has a clear projection of business and revenue.
  • Strong manufacturing and client base. With this have strong talents and scientists working together for innovation.
  • The stock has been a great example of Long term investing where Rs. 10000 invested in 1982 will be Rs. 32.81 cr. Which means, the invested amount has grown by 32816 times.
  • Asian Paints NSE is offering a good dividend payout from its profit.
  • Even then, the current price of the stock is trading at 3.29 times higher than intrinsic value.
  • As a value investor, you should wait for the opportunity and buy under the intrinsic value.
  • Finally, Fundamentally a strong company in both qualitative and quantitative aspects.

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