In s titu tio n a l E q u itie s
Initiating Coverage
Paint Sector
The sector which keeps on giving growth
In recent times, growth in India’s paint sector has been an outlier in the overall domestic
consumer space. The industry has been witnessing a gradual shift in terms of consumer
preferences from the traditional whitewash to better quality paints. Besides, it is also witnessing
healthy competitive environment, where players are applying different strategies to tap the
growing demand in the market for a larger regional share. Additionally, rise in disposable income
of the average middle class, urbanization, growing rural market, shortening of repainting cycle,
upgradation, increase in sale of premium-end products and launch of many innovative products
are the major drivers that are pushing the growth of the organized paint industry. Within the
Indian decorative paint segment, Asian Paints (APNT) and Berger Paints (BRGR) are the two
largest players with more than 80% of their overall revenues coming from the segment and within
the industrial paints segment, Kansai Nerolac (KNPL) is the leader (segment contributes ~45% to
its revenue). Since in the current environment there is a preference for businesses that are
relatively more resilient, sector multiples at current levels in near term will look expensive. We
initiate coverage on APNT (Accumulate rating) and BRGR (Sell rating), as we believe that Indian
decorative paints will continue to witness higher demand within this space, majorly led by steady
shift from unorganized to organized players with bigger players gaining further share.
Leaders continue to maintain share even as new players have entered in an oligopolistic market:
Organized domestic decorative paints industry is a comfortable oligopoly with a few big players (Asian
Paints, Berger, Kansai Nerolac and Akzo Nobel), constituting bulk of the segment, with strong entry
barriers such as distribution network and brand equity. The industry has demonstrated consistent pricing
discipline and has not seen mutually destructive price wars, discounting etc. Thus, every company has
co-existed with its own specific niche – regional strength, expertise in particular product sub-segment etc.
Although new players have entered the market over the last decade, existing players have strengthened
their distribution network, focused on capacity building and introduced innovative products & services to
help them fortify their market standing across regions.
Domestic decorative paints putting on a good show in a tough environment: Over the years, the
segment has been driven by urbanization, shortening of re-painting cycle and industry initiatives in terms
of reach expansion and introduction of variety of products. In recent times, the industry has been
witnessing a gradual shift in consumer’s preference from the traditional whitewash to better quality ‘value
for money (VFM)’/’bottom of pyramid (BOP)’ paints, especially in the tier II/III/IV cities. Growth prospect
for these products (mainly putty, distemper, lower end enamels) is strong in the near term for the listed
paint majors. Besides, the industry is witnessing healthy competitive environment, where players are
applying different strategies to tap the growing demand in the market for a larger regional share.
Additionally, rise in disposable income of the average middle class, urbanization, growing rural market
and launch of many innovative products (like eco-friendly, odour free and dust & water-resistant paints)
are other major drivers that are propelling the organized industry growth.
Benign cost environment in near term: The Indian paint industry is a raw-material oriented industry.
The primary cost being crude and its derivatives. Amid the tight business conditions, the soft price trend
in raw materials has been a beneficial factor for companies. Notwithstanding the sharp depreciation in
the exchange rate, overall material prices have been lower even on a sequential basis. This has helped
improve the gross margins for the entire coatings business in India as well as the International markets.
In addition, the cost control measures, especially in the area of selling & distribution and admin expenses
should help negate some of the adverse impact of lower topline in FY21 for Indian paint companies.
Sector view: Demand conditions for the industry has improved progressively since May’20 driven by
demand in upcountry markets, but sporadic lockdowns in various states might cause some hiccups. Tier
II/III/IV cities will continue to do well and even metros and tier I cities are expected to bounce back both
for decorative and other segments as well. Since in the current environment there is a preference for
businesses that are relatively more resilient, sector multiples at current levels in near term will look
expensive. We initiate coverage on APNT (Accumulate rating) and BRGR (Sell rating) as we believe
these are fundamentally strong businesses in the domestic decorative space.
Vishal Punmiya
Research Analyst
vishal.punmiya@nirmalbang.com
+91-22-6273 8064
Company
Rating
Mcap
CMP (Rs)
TP (Rs)
Upside/
Downside
(%)
P/E (x)
EV/EBITDA (x)
RoE (%)
Rsbn
$bn
FY21E
FY22E
FY23E
FY21E
FY22E
FY23E
FY21E
FY22E
FY23E
APNT
Accumulate
1,822
25
1,899
2,080
10
68
51
44
42
34
30
24
28
29
BRGR
Sell
522
7
538
500
-7
76
57
48
46
36
31
24
27
28
Source: Companies, Nirmal Bang Institutional Equities Research
1 September 2020
In s titu tio n a l E q u itie s
Paints Sector
2
Table of Content
Industry overview …………………..….……..………………………..….……..………...03
Demand drivers of decorative segment…………….…………………..….…………….11
Key players in the decorative segment...…………..………………..…….……….……18
Foraying into adjacencies…………….…..……..……….………………….……….……20
Raw material centricity…….…….…….…….……..……………………..….……………22
Capacity expansion during the recent years.…..…......…......…......…......…..........…24
Key risks to the sector…………..……………………..….……….…….…….…….…….25
Key highlights from recent channel checks.......……….………………….……….……26
Comparison of top paint companies in decorative segment.…………….……….……27
Sector view....……….…..……………………..…………..……….…….…….…….…….28
Companies
Asian Paints Ltd…. ………………………………………………………………..………33
Berger Paints Ltd..………………………………………….……...………………………63
In s titu tio n a l E q u itie s
Paints Sector
3
Industry overview
I. Global picture
As against the global paints and coatings industry, which generates revenue of ~US$160bn, the Indian paint
industry is valued at ~US$7.1bn as on FY20. Asia Pacific (APAC), the world’s largest coatings market with
45% market share and valued at US$71bn+ in 2019, has been growing faster than the global and matured
markets on account of relatively higher growth in the economy, especially in China and India. China is the
largest part of the APAC market, comprising nearly 60% of volume and value. Including the next two largest
markets, India and Japan, the top three markets account for over 80% of the volume and value of the APAC
region.
Exhibit 1: Global: APAC shares 45% of market share
Exhibit 2: APAC: Top 3 countries demand 80% of market share
Asia Pacific
45%
EMEA 30%
US and
Canada 18%
Latin America 7%
China 60%
India 12%
Japan 8%
Korea 6%
Others 14%
Source: PPG investor presentation, Nirmal Bang Institutional Equities Research
Source: Industry, Nirmal Bang Institutional Equities Research
India, APAC’s second largest coatings market, is dominated by the decorative segment with ~75% market
share. This is unlike the global and APAC markets’ structure where decorative segment (architectural)
contributes less than 40%. Industrial paint’s lower contribution in India’s overall paint market is probably
attributable to lower industrial and infrastructure development compared to other matured countries and
developing countries like China, and higher technical know-how required in the industrial paint segment,
which in turn leads to negligible involvement of unorganized players and thus a lower market size.
Globally, the top 10 companies dominate the market with more than 50% market share. However, APAC and
China remain fragmented with regional and international players co-existing in these markets. The Indian
paint market, unlike APAC and China, is an oligopolistic market with the top 4 players controlling a little less
than 70% market share of the overall domestic paint industry.
Exhibit 3: Industrial paints contribute >60% to the demand
globally….
Exhibit 4: ….as well as in APAC….
Architectural
39%
OEM and Special Purpose
(incl. general industrial, auto
oem, wood, protective,
marine etc). 61%
Decorative
36%
Industrial (incl. general
industrial, protective, powder,
wood, auto oem, marine etc).
64%
Source: Sherwin Williams investor presentation, Nirmal Bang Institutional Equities
Research
Source: Coatings World, Industry, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
4
Exhibit 5:… unlike in India where decorative paints have 75%
demand
Exhibit 6: Top 10 players have >50% share across the globe
Decorative
75%
Industrial (incl. automotive and
general oem, protective, powder
coatings etc.) 25%
Sherwin-
Williams
13%
PPG 11%
Akzo Nobel 7%
Nippon 4%
RPM 4%
Axalta 3%
BASF
3%
Kansai 3%
Asian Paints 2%
Jotun 1%
Other (>5,000
firms) 49%
Source: Company, Industry, Nirmal Bang Institutional Equities Research
Source: Sherwin Williams investor presentation, Nirmal Bang Institutional Equities
Research
Exhibit 7: APAC’s paint market is highly fragmented as
compared to…..
Exhibit 8: ….India’s market which is oligopolistic with top 4
players commanding nearly 70% market share
Nippon
8%
Akzo
Nobel
7%
Asian Paints
5%
Kansai 3%
KCC 2%
Sherwin-Williams 2%
Jotun 2%
Berger 2%
Axalta 2%
Others 55%
BASF, Noroo, TOA,Hempel,
SKShu, Carpoly, Chugoku
each have 1% share
Asian Paints
39%
Berger
Paints
12%
Kansai
Nerolac
11%
Akzo Nobel
6%
Others 32%
Source: PPG investor presentation, Nirmal Bang Institutional Equities Research
Source: Company, Industry, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
5
II. Constituents of the Indian paint industry
The domestic paint industry has grown at a rate of 10.4% from FY08, when the market was valued at
Rs159bn, to FY20, when the market size reached ~Rs520bn. Over the years, the decorative paint segment
(market share of ~75-80%) has grown at a CAGR of 11.4% against the industrial segment (market share of
~20-25%), which has grown at a CAGR of 7.9%.
Within the industry, the organized sector has been commanding ~70% market share and the balance 30% is
accounted by the unorganized sector. Till the first half of 2010s, the unorganized sector had ~35% market
share, but with demonetisation and implementation of GST, the organized players have been able to capture
market share from the unorganized players.
Exhibit 9: Indian paint industry has grown at 10.4% CAGR over 12 years
107 185 322 390
52
76
113
130
-
100
200
300
400
500
600
FY08 FY12 FY16 FY20
Decorative paint segment
(Rsbn)
Source: Industry, Company, Nirmal Bang Institutional Equities Research
Exhibit 10: Contribution of decorative paints in the overall Indian paint industry has evidently
increased over the years
67 71 74 75
33
29
26
25
-
10
20
30
40
50
60
70
80
90
100
FY08 FY12 FY16 FY20
Decorative paint segment Industrial paint segment
(%)
Source: Industry, Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
6
Exhibit 11: Paints industry in India
Decorative (75%-
80%)
Interior
Paints/emulsions
/enamels
Exterior
Paint/emulsions
/enamels
Distemper
Putty
Wood coatings
Cement paints
Primers and
thinners
Industrial (20%-
25%)
General Industrial
Automative
coating
Protective coating
Powder coating
Glass coating
Pipe coating
Niche segments
viz. coil, marine,
refinish coatings
Source: Company, Industry, Nirmal Bang Institutional Equities Research
A. Decorative paint industry in India
The decorative paint segment includes multiple categories depending on the nature of the surface like interior
wall paints, exterior wall paints, wood finishes, enamels as well as ancillary products like primers, putties etc.
Many factors have contributed to the faster growth of the decorative paint segment compared to the
industrial segment (and will continue to do so in the medium term). They include: (a) rapid scale of
urbanization and increase in nuclearization of families (b) rising disposable income (c) reduction in repainting
cycle (d) government boost for housing (e) upgradation and growth of top-end products and (f) slowdown in
the auto industry and infrastructure development in the recent years.
In s titu tio n a l E q u itie s
Paints Sector
7
Exhibit 12: Domestic decorative segment grows at 11.4% CAGR over the last 12 years
107
185
322
390
-
50
100
150
200
250
300
350
400
450
FY08 FY12 FY16 FY20
Decorative paint segment
(Rsbn)
Source: Industry, Company, Nirmal Bang Institutional Equities Research
Interior/exterior paints/emulsions/enamels: Under the decorative paint segment, emulsion paints
(water-based paints) have been growing at a fast pace on account of their durability, washability and
superior aesthetics. Moreover, manufacturers have forayed into providing a wider choice to customers
with introduction of plastic, acrylic and textured emulsions, each having their unique properties to meet
the unique demand of the customers. Enamel paints (oil/solvent-based paints) can be used on a wide
variety of surfaces including metals, glass, wood and masonry surfaces, because of their hard, durable
and washable features.
Distemper: Distemper paints are water-based paints. They are also known as cement paints as they
can be applied directly on walls with plaster finish without using the primer. Considered as a better
version of whitewash, distemper paints are a cheaper option for emulsions and even last for more than 4
years. The major constituents of distemper are chalk, lime, water and some coloring pigments and are
available in powder and paste form. The distemper market, valued at ~Rs120-150bn, is highly
fragmented. The unorganized players’ share in distemper is substantially higher at 40-45% compared to
the overall share of the unorganized sector, which is at ~30% of the paint industry. Substantial increase
in the usage of distemper in smaller markets and market share gain from the unorganized sector have
boosted volume growth for the organized paint industry.
Putty: Putty, generally applied after primer, ensures smooth and even finish before painting and
increases longevity of the paint. Growing population, improving standard of living, rise in income levels,
changing lifestyles, rising urbanization and government’s infrastructure plans are some of the vital
factors driving growth of this product category. The putty market, valued at ~Rs50-60bn, is highly
fragmented as well. While preferred brands like UltraTech and JK Cement have the highest share,
followed by all four major paint companies, the share of the unorganized sector is still high.
Cement paints: Cement paints can be applied on the exterior as well as interior walls. It is essentially
applied on the exterior wall surface for preventing water penetration and reducing dirt collection. It is
suitable for coating concrete as well as decorating indoor and outdoor walls.
Wood coatings: These are primarily used on sidings, windows, doors, with stains and sealers used on
cabinets, furniture, flooring and decks, in order to increase durability, resistance to moisture and improve
aesthetics.
Primers and thinners: A primer (undercoat) is a layer of coating put on materials before painting to give
them a smooth finish by leveling out the surface. It ensures better adhesion of paint to the surface,
shields the material from paint and increases paint’s durability. Thinners are used to reduce the viscosity
of paint for its application. It is also used to clean painting equipment such as brushes, rollers and
containers used during painting.
In s titu tio n a l E q u itie s
Paints Sector
8
B. Industrial paint indutry in India
The industrial paint segment includes automotive and auto refinish coating, general industrial (GI) paints,
protective coatings, powder coatings and other niche segments like coil coatings, marine coatings etc. This
segment is dependent on business cycles and economic conditions. Growth of the industrial paint segment,
which accounts for 20-25% of the market, is highly dependent on the automotive sector. The auto sector has
been the leading consumer of industrial paints with 40-50% of the demand coming from it.
Exhibit 13: Domestic industrial paint segment grows at 7.9% CAGR over the last 12 years
52
76
113
130
-
20
40
60
80
100
120
140
FY08 FY12 FY16 FY20
Industrial paint segment
(Rsbn)
Source: Industry, Company, Nirmal Bang Institutional Equities Research
Automotive and refinish coating: A direct function of the automotive industry of a country, the
automotive coatings segment has been facing challenging times due to the slowdown faced by the auto
industry over the last one and a half to two years. India’s automotive refinish market is valued at
~Rs20bn.
Due to automotive coating’s high contribution to industrial paints, there is direct positive correlation
between the growth of the auto industry and growth of industrial paints. During the 8-year period from
FY08 to FY16, when auto volumes grew at a CAGR of 9.8%, the industrial paint segment grew at a rate
of 10.2%. However, given the slowdown in the auto industry in the recent years, the 12-year auto
volume CAGR (from FY08-FY20) recorded at lower 6.9%, has in turn slowed down growth in industrial
paints during the same duration which was recorded at 7.9%.
KNPL is the leader in the automotive space and APNT is the leader in the auto refinish market.
GI coating: KNPL is the leader in the GI coatings category, which is used primarily for construction,
heavy engineering and agricultural equipment etc. Industrial coating space has been facing challenging
times on account of continued slowdown in overall investments in the manufacturing sector and tight
liquidity conditions for the small to mid-size companies
Protective coating: Protective coatings are thin layers of solid material applied to a substrate, with the
coating acting as a barrier to inhibit or prevent corrosion. BRGR is the leader in this category.
Powder coatings: Powder coatings are usually used for coating metals to prevent corrosion and for
finishing applications. They are superior to liquid coating as they are free from VOC (volatile organic
compounds) unlike liquid coatings. Powder coating is gaining increasing importance in the automotive,
furniture, appliances and others, as powders are an essential part of a construction that experiences
damage such as spillage, abrasion and exposure to dust, chemicals, heavy load and UV light. India’s
powder coating market is valued at ~Rs63bn. In powder coatings, KNPL is the leader followed by
BRGR.
In s titu tio n a l E q u itie s
Paints Sector
9
Exhibit 14: Auto sector slowdown in the recent years
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
2Ws 3Ws PVs CVs
(%)
Source: SIAM, Nirmal Bang Institutional Equities Research
III. Rise in per capital consumption of paints
India’s per capita consumption of paints has increased at a CAGR of 7.0% over 7 years, from 2.6kgs in FY12
to 4.1 kgs in FY19. However, compared to the global average of ~13-15 kgs per capita consumption, India’s
per capita consumption of paints is far behind despite the huge size of the market. Thus, there is immense
headroom for the domestic market to grow in the long term given that structural drivers of the industry and
economy are in place.
Exhibit 15: India’s per capita consumption of paints far less
vis a vis global average
Exhibit 16: Growing per capita consumption in India
20+ 13-15 4
0
5
10
15
20
25
Developed countries Global average India
(kgs)
2.6 3.3 4.1
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
FY12 FY15 FY19
(kgs)
Source: Company, Industry, Nirmal Bang Institutional Equities Research
Source: Company, Industry, Nirmal Bang Institutional Equities Research
IV. Correlation of industry with GDP growth
In line with the global paint industry, growth of the domestic paint industry is closely linked to GDP growth.
The paint industry’s volume growth tends to be between 1.5x and 2x GDP growth. The strong positive
correlation between growth of the industry and GDP growth is a given since demand for paints tends to
follow overall economic activity, including income levels, industrial production and construction spending.
However, FY20 has been an exceptional year where the correlation has been relatively lower on account of
the Covid-19 pandemic hitting the industry towards the end of the year. Commenting on impact of Covid-19
induced lockdown on the industry, Mr. S Mahesh Anand, President, Indian Paint Association (IPA) stated
that “FY20 sales had been moderate and have ended flat, if not negative.”
In s titu tio n a l E q u itie s
Paints Sector
10
Exhibit 17: The industry’s value growth is positively correlated with the GDP growth
Source: Akzo Nobel India Presentation, Nirmal Bang Institutional Equities Research
Exhibit 18: Correlation of industry volumes with real GDP growth
12.1
14.8
14.5
15.5
12.2
11.8
12.0
5.5
6.4
7.4
8.0
8.3
7.0
6.1
2.2
2.3
2.0
1.9
1.5
1.7
2.0
0.0
0.4
0.8
1.2
1.6
2.0
2.4
2.8
0.0
3.0
6.0
9.0
12.0
15.0
18.0
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Paint industry volume growth (%) Real GDP growth (%) Correlation (x)
(%)
(x)
Source: Industry, Company, Nirmal Bang Institutional Equities Research
Exhibit 19: Correlation of industry volumes with nominal GDP growth
12.1
14.8
14.5
15.5
12.2
11.8
12.0
13.8
13.0
11.0
10.5
11.8
11.1
11.0
0.9
1.1
1.3
1.5
1.0
1.1
1.1
0.0
0.4
0.8
1.2
1.6
0.0
3.0
6.0
9.0
12.0
15.0
18.0
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Paint industry volume growth (%) Nominal GDP growth (%) Correlation (x)
(%)
(x)
Source: Industry, Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
11
Demand drivers of decorative segment
Exhibit 20: Decorative paints remain an attractive and high growth segment in the Asian markets
Source: Akzo Nobel N.V. presentation, Nirmal Bang Institutional Equities Research
I. Urbanization and nuclearization of families:
Industry’s long-term growth is attributable to many macro-economic and demographic factors, including rise
in gross household income, increasing urbanization and rising nuclearization of families.
Gross household income has been continuously increasing, albeit at a slower pace in the recent years.
Consequent to the rise in disposable income, consumer spends have also been rising. However, the
propensity to save (level of savings as a percentage of disposable income) has been gradually declining,
thereby reflecting consumers’ willingness to spend more than what they used to.
India’s urbanization trajectory has shaped well from 25.6% in 1990 to 34.5% in 2019 (34.9% 2020P). Rising
urbanisation, supported by real estate demand and improving infrastructure, have been boosting paint
demand. The UN expects ~40% of India’s population to reside in urban areas by 2030. Thus, even going
ahead, increasing urbanization will aid the growth of the decorative paint industry. Rising number of
households (on account of increasing nuclearization of families) has also been driving demand for housing.
Another factor that partially corroborates increase in housing over the years is the rise in home loans. As on
FY20, retail housing loans have grown at a 10-year CAGR of more than 16%, which shows consumer’s
growing aspiration to own a house.
While the real estate sector has seen a slowdown in the last two years and may continue to be under stress
in the near term, we believe that over the medium to long term the sector’s outlook is positive.
In s titu tio n a l E q u itie s
Paints Sector
12
Exhibit 21: Household disposable income has been increasing, although at a slower rate
26,638
30,107
34,606
39,150
47,084
53,716
62,052
67,083
75,930
85,746
93,680
1,02,847
1,14,261
1,26,049
1,41,946
12.3
13.0
14.9
13.1
20.3
14.1
15.5
8.1
13.2
12.9
9.3
9.8
11.1
10.3
12.6
0.0
5.0
10.0
15.0
20.0
25.0
0
20,000
40,000
60,000
80,000
1,00,000
1,20,000
1,40,000
1,60,000
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Household disposable income % growth
(Rsbn)
(%)
Source: MOSPI, Nirmal Bang Institutional Equities Research
Exhibit 22: Propensity to save has been declining thereby reflecting increase in spends
7,637
8,690
9,944
11,183
13,309
16,390
17,493
20,656
22,353
22,853
24,391
24,749
27,871
32,773
34,468
15.8
13.8
14.4
12.5
19.0
23.2
6.7
18.1
8.2
2.2
6.7
1.5
12.6
17.6
5.2
28.7
28.9
28.7
28.6
28.3
30.5
28.2
30.8
29.4
26.7
26.0
24.1
24.4
26.0
24.3
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Gross household savings % growth as a % of disposable income
(Rsbn)
(%)
Source: MOSPI, Nirmal Bang Institutional Equities Research
Exhibit 23: Percentage of population residing in urban areas expected to increase to 40% in 2030
25.6
27.7
30.9
32.8
34.9
40.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
1990
2000
2010
2015
2020P
2030F
Percentage of residing in urban areas
(%)
Source: MOHUA (Handbook of Urban Statistics 2019), UN, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
13
II. Value migration
The eminent players in the industry have been focusing on growing the bottom of the pyramid space, which
is far broader in terms of volume vis a vis the top-end and mid segments, through continuous new offerings
and focused advertising and marketing. Further, companies have been reiterating that while the premium
range continues to grow, the economy range (including emulsions, distempers and putties) have been
growing at a much faster rate. Increased awareness among rural households about applying lower/under-
coat (putty and primer) before applying final coat (distempers) has aided demand for low-end products. Paint
companies have been gaining market share from the unorganized players post regulatory reforms like GST
and have also resorted to competitive pricing to gain market share. Given that the presence of the
unorganized sector in the lower-end paint segment is much higher than the overall industry and general
growth in usage of paints, there is still headroom for paint companies to grow within the bottom of the
pyramid space.
Exhibit 24: Bottom of the pyramid offerings of APNT/BRGR/KNPL over the recent years
Source: Company, Nirmal Bang Institutional Equities Research
Putty: The putty market, valued at ~Rs50-60bn, is highly fragmented. While preferred brands like UltraTech
and JK Cement have the highest share, followed by all four major paint companies, the share of the
unorganized sector is still high.
Distemper: The distemper market, valued at ~Rs120-150bn, is also highly fragmented. The unorganized
players’ share in distemper is substantially higher at 40-45% compared to the overall share of the
unorganized sector, which is at ~30% of the paint industry. Substantial increase in usage of distemper in
smaller markets and market share gain from the unorganized sector have boosted volume growth for the
organized paint industry. This product is sold largely in the pre-Diwali period on account of higher demand
from the smaller towns/rural areas during the festive season.
Exhibit 25: Unorganized segment has a higher share in
distemper market vs….
Exhibit 26: ….. overall paints industry
Unorganized
40-45%
Organized 55-60%
Unorganized
30%
Organized 70%
Source: Company, Industry, Nirmal Bang Institutional Equities Research
Source: Company, Industry, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
14
III. Shortening of re-painting cycle over the last decade
Re-painting constitutes ~70% of the decorative segment demand in India and globally. While re-painting is a
function of various factors (including income levels, festive & marriage season and lifestyle improvement),
fresh construction is a function of improvement in real estate and infrastructure development, which depends
on the overall economic growth.
Re-painting cycle in India has reduced significantly from 7-8 years till early 2010s to 4-5 years now. Factors
that have influenced reduction in the re-painting cycle are: the rise in income levels, increase in number of
rented houses (where the owners prefer re-painting to attract tenants) and significant ease of the painting
process. The reduction of the re-painting cycle is despite the increase in the life of paints as consumers have
been giving importance to aesthetics, change in looks and appearance of their premises.
One of major issues impacting the timely repainting of homes was the hassle involved in the painting
process, including disruption to daily life, smell of fresh paint, cleaning after the painters left etc. To address
these issues, many companies have been successfully venturing into express painting services as well as
offering consultancies to their customers. These steps have led to the easing of the painting process as well
as avoidance of delay in the re-painting activity.
Exhibit 27: Mix of repainting and fresh painting in the global
market similar to…..
Exhibit 28: ….the mix in India
Fresh
painting 30%
Re-painting 70%
Fresh
painting 30%
Re-painting 70%
Source: Sherwin Williams investor presentation, Nirmal Bang Institutional Equities
Research
Source: Company,Industry, Nirmal Bang Institutional Equities Research
Exhibit 29: Re-painting cycle has reduced over the years; We do not expect any major reduction in re-
painting cycle further in the medium term
7-8 4-5
0
1
2
3
4
5
6
7
8
2010 2019
(yrs)
Source: Industry, Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
15
IV. Growing demand from smaller towns and rural areas
For the industry, metros and tier I areas contribute ~25% in value terms with the smaller towns (tier II/III/IV
cities) and rural areas contributing the balance 75%. For the past few years, demand in smaller cities and
towns has been growing at a faster pace than metro and tier I cities. Rise in disposable income, incremental
consumption expenditure, increase in awareness, development of rural markets and various launches have
fuelled the paint industry’s growth.
Paint companies have been proactively expanding their dealer base in newer geographies, especially tier
II/II/IV cities and rural areas, to ensure adequate presence. This has also led to some market share gain from
the informal sector. Further, many people have been entering the paint cycle, which has boosted growth in
these regions.
Even once the pandemic led lockdown was lifted, rural areas have been able to sustain demand on the back
of a good monsoon, good crop year, government support and lower penetration of the pandemic compared
to urban areas. Even in case of many smaller towns, demand has returned to pre-COVID levels. We have
highlighted management commentary of the top three players, showcasing the relatively better scenario in
smaller/rural markets in recent earnings call:
Management commentary from latest earnings call and interviews on demand scenario:
APNT:
Business picked up in tier II/III/IV cities where the demand conditions were better, while in metro and
tier I cities the business was slower.
Tier III and tier IV cities have outgrown metro and tier I cities.
Western region, including Mumbai and hinterlands, is far more affected. Across India, metros like
Chennai, Kolkata, Bengaluru and Delhi have been affected and tier I cities like Ahmedabad, Surat are
also affected.
Dealer expansion has happened in the months of May and June, especially in tier III and tier IV cities.
BRGR:
Upcountry and non-metro markets are witnessing a quick rebound with pent-up demand streaming in.
Specific micro-markets and regions such as the agriculture belts in North and Central India — that
include states such as Uttar Pradesh — and non-industry regions in Eastern India are doing well. In the
South, there is good demand from Karnataka.
Decorative paints, driven by repainting demand, are doing better, primarily in upcountry terrains. After a
washout in April, there was good demand in May and the same improved further in June. If the current
trend (in demand) continues, June 2020 will see us do better than last year and demand will be even
higher than pre-COVID levels.
There is a high probability of demand extending all the way up to July-September periods this year,
banking on agri-reforms and recovery in rural markets post a good monsoon.
KNPL:
Return of demand was better than expected and was driven by rural and small towns, partly attributable
to pent up demand and partly to regular demand.
Smaller towns across the country, except those in Western regions, have recovered. Recovery is the
highest in North, followed by East, then South and West.
V. Housing for all/affordable housing measures by the government has aided fresh painting
demand and will aid repainting demand in the future
The government has been pushing for affordable housing across the country. Certain measures taken by the
government in the recent years include:
Pradhan Mantri Awas Yojana - Housing for All (Urban) Mission was launched in 2015 to provide
housing for all in urban areas by 2022. As on CY19, 10.3mn houses were sanctioned and 3.2mn
houses were completed and delivered against the target of 20mn.
In line with the Housing for All mission, the Pradhan Mantri Awas Yojana Gramin aims at providing a
pucca house, with basic amenities, to all houseless people and those households living in kutcha and
dilapidated houses, by 2022. Of the revised target of constructing 40mn pucca houses across India by
2022, 15.4mn houses have been completed.
In s titu tio n a l E q u itie s
Paints Sector
16
Smart City Mission: Also introduced in 2015, this mission aims to promote smart cities that provide core
infrastructure, give a decent quality of life to its citizens, offer clean and sustainable environment and
apply Smart’ Solutions. One of the basic requirements of a smart city to sustain itself is housing without
which sustenance and further growth of a smart city will be limited. Unlike metros, these smart cities will
require good amount of affordable housing to cater to the large middle and lower-income population.
In September 2019, the government announced Rs100bn special window to provide last-mile funding
for the completion of ongoing housing projects that are not NPAs or facing bankruptcy proceedings
under NCLT.
Through budget 2020, the government increased the tax deduction limit on the home loan interest
component to Rs350,000 from Rs200,000 for housing units worth up to Rs4.5mn, which would boost
consumption.
These measures would provide boost to demand and supply of housing, in turn aiding growth of
concrete and paintable houses in India. In the next 4-5 years, these houses will enter the re-painting
cycle.
Exhibit 30: Progress of Pradhan Mantri Awaas Yojana as on CY19
Source: MOHUA, Nirmal Bang Institutional Equities Research
VI. Availability initiatives by company
All the eminent players in the decorative paint segment have been consciously and aggressively trying to
increase their distribution network in order to penetrate deeper into markets across India. Along with the
increase in urbanization and growing number of smaller towns and villages, the dealer universe, which
currently stands at an estimated 120,000-150,000 outlets, is expected to increase by ~10% every year. With
this growing number, companies have been proactively expanding their dealer base in newer geographies,
especially in tier II/II/IV cities and rural areas, to ensure adequate presence across the length and breadth of
the country.
Further, these companies have been moulding their product offerings as per evolving needs of the market
and consumers across various price points. Most players in the organized segment have been focusing on
growing the bottom of the pyramid space, which is far broader in terms of volume than the top-end and mid
segments, through continuous new offerings and focused advertising & marketing.
In s titu tio n a l E q u itie s
Paints Sector
17
Exhibit 31: Number of dealers have grown along with…
Exhibit 32:…increase in number of depots for most companies
0
20,000
40,000
60,000
80,000
APNT BRGR KNPL
FY18 FY20
0
50
100
150
200
APNT BRGR KNPL
FY18 FY20
Source: Company, Industry, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research; Note: For BRGR
FY19 no. of depots taken as annual report is not yet available for FY20
VII. Innovations, upgradation and growth in premium segment
While there is no linearity in upgradation of paints used by consumers, the industry has been witnessing
changes with regards to up-trading/premiumization over more than a decade including shift from-
Distemper to interior emulsion
Mid-segment to top-end segment
Low-end to top-end segment
Cement paint to exterior emulsions
Unorganized to organized in smaller towns, especially in tier III/IV cities and rural areas
Albeit metros and the tier I cities, even tier II cities to certain extent, have a relatively larger contribution to
the top-end product offering, smaller towns have been showing increasing interest for premium products as
well. This has come into play as consumers are now more aesthetically aware and also have the means to
opt for better value products, even at higher prices. Another factor that influences consumers to opt for
premium variants is cost of labour, which is largely inflexible at all levels and contributes significantly (~60-
70%), thereby making the choice of the paint variant relatively indifferent.
Further, paint companies have been launching products offering health centric benefits, like APNT’s Royale
Health Shield (anti-bacterial) and Royale Atmos (anti-pollution, air-purifying), BRGR’s Silk Breathe Easy
(anti-bacterial, anti-pollution), KNPL’s Impressions Eco Clean (anti-bacterial, fungal resistant). Currently,
there are fewer options available in the value added sub category and mainly in the premium price range but
with the increasing demand for these products, companies are likely to launch more specialized products.
Exhibit 33: Premium-end offerings of APNT/BRGR/KNPL over the recent years
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
18
Key players in the decorative space
I. Top 4 players
Asian Paints Ltd. (APNT): APNT is India’s largest paint company commanding over 40% of the overall
domestic paint industry and ~55% in domestic decorative paint industry. The company is present in 15
countries and has 26 manufacturing facilities across the globe. During FY20, the company generated
Rs202bn in revenue with ~84% contribution coming from its domestic decorative business. APNT strives to
be a holistic home décor company, from a conventional paint company, through its foray into the home
improvement space.
Berger Paints India Ltd. (BRGR): BRGR is India’s second largest paint company commanding ~12%
market share of the overall paint industry and over 20% market share of the domestic decorative paints
segment. On a consolidated basis, decorative paint segment contributes a bit over ~80% to the company’s
revenue, and the balance 20% is contributed by industrial paints. The company has 14 manufacturing plants
in India (6 outside India) with total capacity of ~609,247 KL. The company also caters to overseas markets
such as Nepal, Poland and Russia through its subsidiaries.
Kansai Nerolac Paints Ltd. (KNPL): KNPL, a subsidiary of Kansai Paints Co. Ltd. Japan, and has
completed 100 years of presence in India. KNPL is the leader in industrial paints in India (~45% of topline)
within which it is the leader in automotive coatings, general industrial coatings and powder coatings. In
decorative paints, KNPL is the third largest player in India (~55% of revenue). The company has
manufacturing capacity of 518mn litres across 6 plants in India and has another unit coming up at
Visakhapatnam in Andhra Pradesh. The distribution network comprises 27,500+ dealers and 104 sales
depots. The company has also acquired Marpol Pvt. Ltd. (powder coating) and Perma Construction Aids Pvt
Ltd (construction chemicals) and has filed for the merger of these companies with itself.
Akzo Nobel India Ltd.: The fourth largest player in the industry is present in decorative segment (~60%
contribution) and industrial segment (~40% contribution), including marine coatings, protective coatings,
powder coatings, specialty coatings and vehicle refinishes. The company's portfolio includes brands such as
Dulux, Interpon, Trinar, Resicoat, Wanda, Sikkens etc. AKZO has five plants, which are located at
Telangana, Karnataka, Madhya Pradesh, Punjab and Maharashtra. Presently, the company has 52 sales
depots. In the recent years, Akzo Nobel has ventured into adjacent categories of waterproofing through
‘Dulux Acquatech’ and woodcare through ‘Sadolin’. AKZO’s focus will continue to remain on its premium
paints portfolio along with innovation and renovation of its brand.
Exhibit 34: Top 4 players command more than 95% share in the organized decorative market
Asian Paints
55%
Berger Paints
20%
Kansai Nerolac
15%
Akzo Nobel
7%
Others
3%
Source: Industry, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
19
II. Other players
Shalimar Paints: Shalimar Paint Colour & Varnish Company was established in 1902 in Howrah, West
Bengal by two Britishers - A N Turner and A N Wright. Shalimar Paints has a pan-India sales and distribution
network. With 30+ depots, the company services more than 5,000 dealers across the country. Manufacturing
facilities are located at Howrah, Nashik, Shikandrabad and a fourth one is coming up in Chennai.
Nippon Paint India: Nippon Paint India, the domestic arm of the Japan-based company has been
operational in India for more than 10 years and produces coats for automotive, industrial and decorative
segments. Within the decorative space, which contributes ~55% to its topline, the company offers a range of
interior, exterior emulsions and enamel and is also into construction chemicals. Kerala, Karnataka, Tamil
Nadu and Andhra Pradesh are some of the markets where the company is faring well in the decorative
segment,
Indigo Paints: Indigo Paints started operations in 2000 and it is present across segments, such as interior
and exterior emulsion, enamels, wood coating, putty, primer and ceiling and floor coat. The Sequoia Capital
backed company has 33 sales depots across India. In 2019, Indigo Paints had planned to increase its
capacity by investing Rs400-500mn every year for five years towards all its three plants. Largely focused on
India's small towns (tier II/III cities), the company has recently entered bigger markets like Mumbai and Delhi.
Kamdhenu Paints: Kamdhenu Paints, launched in 2008, is the paint vertical of business conglomerate
Kamdhenu Ltd. Offerings include decorative paint products like exterior and interior emulsions, cement
paints, water and solvent based primers, acrylic distempers, enamels, wood finishes, textured to designer
finishes. The company has 31 sales depots and a network of 4,000 dealers. The company’s manufacturing
unit is located at Bhiwadi, Rajasthan.
JSW Paints: JSW Paints Pvt. Ltd., part of the US$13bn JSW Group, started the paint division in April 2019.
The company set up its first largest and fully-automated industrial coil coatings facility with an annual
capacity of 25,000 KL in Mumbai and decorative paints unit with 100,000 KL annual capacity at Vijayanagar
in Karnataka. Currently, the company’s products are available in the southern and western states of the
country. The company plans to scale up availability to pan-India by the end of FY21. It’s the only company
offering all water based decorative paints portfolio in the country.
Other paint companies in India with smaller presence are Jenson & Nicholson Paints Pvt. Ltd. (JNPL), Snowcem
Paints, Jotun Paints, etc.
In s titu tio n a l E q u itie s
Paints Sector
20
Foraying into adjacencies
I. Waterproofing and construction chemicals
Many paint companies have been entering into the waterproofing and construction chemicals space in the
past few years. Although there has been a significant shift in the last 10 years in terms of seriousness
towards waterproofing, which was otherwise looked upon as an added cost, the Indian waterproofing market,
valued at US$0.7bn-US$0.8bn is fairly underutilized compared to China’s US$22bn market. Thus, there is a
lot of headroom to grow in this segment in the next 15-20 years. So far, paint companies have been able to
cross-sell their waterproofing products through their existing dealer network. Going ahead, other channels
like hardware shops, cement dealers can be exploited.
Exhibit 35: Most companies have ventured into waterproofing and construction chemicals
Source: Company, Nirmal Bang Institutional Equities Research
II. Painting services
To reduce the hassle of the painting process faced by the end consumer, paint companies have taken steps
to make the process more organized by providing painting services. While APNT has been offering painting
services for many years, BRGR pioneered the concept of Express Painting. Following the Covid-19
outbreak, paint companies have taken appropriate measures and safety protocols for addressing the
paranoia felt by the consumer towards allowing outsiders (painters) into their premises.
Exhibit 36: APNT and BRGR have modified their painting services to ensure implementation of
adequate safety measures in response to COVID
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
21
III. Adhesives
The India adhesives and sealants market, valued at ~Rs90bn, is consolidated, with the top four players –
including Pidilite Industries, Henkel AG & Co, Sika, Bostik India, and H.B. Fuller - with an approximate
market share of 85%. During the past few years, along with construction chemicals, paint companies have
also entered into adhesives market, which would enable them to tap into the vast B2B and B2C channels
and also leverage their existing distribution network. Some paint manufacturers, though marginal players till
now, plan to expand their market share in adhesives and sealants market which may intensify competition in
the years to come.
Exhibit 37: Many companies have ventured into adhesives and sealants category
Source: Company, Nirmal Bang Institutional Equities Research
IV. Sanitizers and disinfectants
In the wake of the Covid-19 outbreak, many paint companies, including the leaders, have come up with a
range of sanitizers and disinfectants.
Exhibit 38: Sanitizers and disinfectants APNT/BRGR/KNPL
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
22
Raw material centricity
The industry uses over 300 raw materials in its manufacturing process. Major components involved in the
manufacture of paints include:
Resins (aka polymers/binders) that form the coating layer and hold the pigment in place
Pigments that impart colour and opacity
Solvents (aka thinner/vehicle) that dissolve or disperse different components used in the paint
formulation, making paint the desired consistency for application. Once paint is applied, the solvent
evaporates, allowing resin and pigment to produce a film of paint and dry rapidly.
Additives that are used to modify the properties of the liquid paint or dry film.
Exhibit 39: Crude oil and its derivatives form over 50% of the industry’s raw materials
Source: PPG investor presentation, Nirmal Bang Institutional Equities Research
Importance of crude prices
Over 50% of raw materials like phthalic anhydride, pentaerythritol, methyl methacrylate, aromatics, etc,
which act as resins, solvents and additives, are derivatives of crude oil, thereby making crude oil prices an
important indicator to track input costs. Further, since crude oil is a heavily imported commodity, fluctuation
in foreign exchange becomes another parameter to track.
Another way to look at the impact of volatility in crude prices on the profitability of a paint company is that it
acts as a natural hedge during economic downturn. This is on account of conjunction of global demand and
crude prices. We have seen that with outbreak of the Covid-19 pandemic, oil prices plummeted 50% due to a
drastic fall in demand across the globe. Thus, when demand is impacted, lower crude oil prices aid in
expanding gross margins.
Since mid-2000s, the Indian market, much like global markets, has been moving towards environmentally
compliant water-based paints from the solvent-based ones. In general, gross margins are better in water-
based paints compared to solvent-based paints as they are relatively less sensitive (water-based paints use
certain crude derived products in the manufacturing process) to movement in crude oil prices. In line with the
global trend, even consumers have been increasingly preferring water-based coatings on account of their
superior aesthetics, durability and washability. Although demand for oil/solvent-based paints is here to stay,
exposure to price fluctuations in crude oil can be reduced to a certain extent given that usage of water-based
coatings is increasing.
In s titu tio n a l E q u itie s
Paints Sector
23
Importance of titanium dioxide (TiO2).
Titanium dioxide pigment, derived from ilmenite, comprises ~20-25% of the total content of paint and is
commercially available in two forms – Anatase and Rutile. Rutile TiO2 is considered to be more durable and
stable and also more efficient in scattering light. Anatase pigments are used mostly in cheap dispersion
paints, self-cleaning paints and in road marking paints. Application of rutile pigments is much broader and in
practice covers all paint types. Around 70% of India’s domestic demand for TiO2 is met through import
deliveries and China is the leading exporter of TiO2 to India. Imports from China for APNT and BRGR vary
between 8% and 10% of total raw material cost. Companies have been finding alternative sources to reduce
exposure and volatility.
Exhibit 40: Paint companies to benefit from low crude prices
Exhibit 41: TiO2 prices have stayed stable in the recent months
0.0
20.0
40.0
60.0
80.0
100.0
120.0
Aug-13
Feb-14
Aug-14
Feb-15
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Feb-19
Aug-19
Feb-20
Aug-20
EUCRBRDT Index
($/bbl)
150
190
230
270
310
Aug-13
Feb-14
Aug-14
Feb-15
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Feb-19
Aug-19
Feb-20
Aug-20
TiO2 (Rs/kg)
(Rs)
Source: Bloomberg, Nirmal Bang Institutional Equities Research
Source: Bloomberg, Nirmal Bang Institutional Equities Research
Exhibit 42: USD/INR volatility impacts input costs
Exhibit 43: India WPI Phthalic anhydride
50.0
55.0
60.0
65.0
70.0
75.0
80.0
Aug-13
Feb-14
Aug-14
Feb-15
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Feb-19
Aug-19
Feb-20
Aug-20
USD/INR
0
20
40
60
80
100
120
140
160
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
India WPI Phthalic anhydride
Source: Bloomberg, Nirmal Bang Institutional Equities Research
Source: Bloomberg, Nirmal Bang Institutional Equities Research
Exhibit 44: Raw material as a % of sales change consequent to change in crude prices
57.9
60.2
59.0
58.3
56.9
56.4
55.3
57.6
58.5
56.3
62.7
63.6
61.5
60.6
58.6
58.5
56.9
58.3
61.0
58.5
67.4
68.6
69.6
69.1
68.0
62.9
58.5
60.4
63.8
61.7
86.7
114.4
110.5
107.6
85.7
47.5
49.0
57.6
70.2
60.9
-
20.0
40.0
60.0
80.0
100.0
120.0
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
APNT BRGR KNPL Brent Crude (Yearly avg.)
(%)
($/bbl)
Source: Company, Bloomberg, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Paints Sector
24
Capacity expansion during the recent years
Asian Paints Ltd. (APNT): APNT, the leader in the decorative paints segment, has been continuously
investing in expanding its manufacturing footprint to serve customer demand. During FY16, the company had
expanded the installed capacity of its plant at Rohtak, Haryana from 200,000 KL to 4,00,000 KL. During
FY19, the company commissioned two large paint manufacturing units with an installed capacity of
300,000KL each, at Mysuru, Karnataka in September 2018 and Visakhapatnam, Andhra Pradesh in January
2019. The plant at Mysuru, Karnataka (scalable upto 600,000 KL) has been built with estimated investment
of Rs23.0bn and the plant at Visakhapatnam, Andhra Pradesh (scalable upto 500,000 KL) has been built
with an estimated investment of Rs17.9bn. With these two capacity additions, the company’s overall installed
capacity stands at 1.73mn KL per annum.
Berger Paints India Ltd. (BRGR): BRGR has been significantly ramping up its capacities in the last few
years to cater to the increasing demand. The company had commercialized its paint and putty plants at
Naltali, Assam in FY17, which has an annual capacity of 48,000 KL/MT of water-based paints, 24,000 KL of
solvent based paints, 14,000 MT of resin and 24,000 MT of wall putty. During the same year, the British
Paints division of the company had commenced commercial production of its distemper and putty
manufacturing facility in Nalbari, Assam with a capacity of 6,600 KL/MT and 7,200 MT per annum,
respectively. During FY19, the effective capacity of the Hindupur water-based plant was increased to
109,200KL and the first phase of emulsion plant with final capacity 44,160MT in Rishra was completed.
Installation of BRGR’s holistic coatings facility at Sandila Industrial Area, Uttar Pradesh at an estimated
investment of Rs2.5bn is on track for completion in 2021.
Kansai Nerolac Ltd. (KNPL): From 4 facilities in FY15 to 6 facilities as on FY20, KNPL has been
aggressively augmenting its capacity over the past few years to match the demand of its expanding product
portfolio. In FY19, KNPL commercialized the plant at Sayakha, Gujarat, and in FY20 it commenced
production at its manufacturing facility at Goindwal-Sahib, Amritsar, Punjab. Both these facilities have a
cumulative capacity of 75,800KL and estimated capex of Rs5.7bn. Work is currently in progress to set up
another manufacturing unit at Visakhapatnam in Andhra Pradesh, which is has a planned capacity of
60,000KL and an estimated cost of Rs3.0bn. As on FY20, the company has a manufacturing capacity of
518mn litres.
Exhibit 45: Number of manufacturing plants of the top 3 players as on FY15 vs FY20
6 9 49 13 6
0
2
4
6
8
10
12
14
APNT BRGR KNPL
FY15 FY20
Source: Company, Nirmal Bang Institutional Equities Research
Further, smaller companies have also been on a capex investment mode:
Shalimar Paints ramped up its capacity by 70,000KL with Nashik plant getting commercialised in 2019.
The newest entrant, JSW Paints, plans to expand capacity with an investment of Rs750mn. Currently,
the company has two plants - Mumbai, Maharashtra (25,000KL) and Vijayanagar, Karnataka
(100,000KL).
Akzo Nobel India invested Rs650mn in its sixth facility in India located in Thane, Maharashtra.
In 2019, Indigo Paints had planned to increase its capacity by investing Rs400-500mn every year for
five years across all its three plants.
In s titu tio n a l E q u itie s
Paints Sector
25
Key risks to the sector
The evolving nature of the Covid-19 pandemic makes near term predictability a challenge.
Considering Covid-19 to be a near term risk to the industry, medium term/long term outlook
remains positive due to structural opportunities as mentioned above. Companies have been
initiating services revolving around safe painting and have received positive response from many
consumers. However, reaction of consumers to the pandemic getting prolonged and consequent
restrictions/lockdowns is yet to be gauged. Further, timing of the return of migrant workforce to
support demand-generating sectors such as real estate and infrastructure development is
dependent on the longevity of the pandemic.
Sensitivity to crude prices and USD/INR exchange rates will remain an inherent risk to the sector
since crude (and its derivatives) and TiO2 are major to raw materials used in paints and are largely
imported.
Paint consumption is positively co-related to GDP growth and therefore a slowdown in GDP would
affect the industry directly. Also, paint being a discretionary spend item, there is a likelihood of
customers putting their paint requirements on hold for some time, thereby impacting renovation
demand.
The vagaries of the monsoon - extended monsoon in some regions and deficit rainfall in others –
affect demand from the rural sector, as an extended monsoon can reduce the number of dry days
before the festive season and deficit rainfall affects income.
Slowdown in infrastructure and construction activities would affect overall demand for paint
companies. Delay in the revival of the auto industry would continue to pose a threat to the growth of
industrial paints demand.
In s titu tio n a l E q u itie s
Paints Sector
26
Key highlights from recent channel checks:
APNT - an undisputed leader: Most of the dealers we spoke to stated that demand for the products of
APNT is undoubtedly higher than the other players. There is outright demand for other companies’
products as well, but not as high as APNT’s. Sale of newer entrant’s or smaller player’s products
requires efforts from the dealer’s end, in terms of convincing the contractor/painter as to why the
product is suitable for their need, which at times they’re not willing to take.
Inventory days: For most dealers, average inventory days hover around 10-15 days – 5-6 days for
APNT and 15-18 days for other companies. Further, order placed with APNT is generally fulfilled within
4-6 hours while for other companies it takes between 12-24 hours.
Preference for returns over margins: While a dealer earns lower margins on products of the market
leader compared to the higher margins offered by other companies, the return generated on account of
higher number of rotations is far ahead of what can be earned from products of other companies. Thus,
it is the return that dealers primarily look at rather than margins.
Rise in consumer awareness: Many dealers mentioned that for the past few years, demand is purely
dependant on the customer’s preference compared to earlier times when the dealer could easily
influence consumer’s decision. Painters and contractors are much more aware of the product’s features
and applications. That is why it is difficult for dealers to push any specific company’s brand/product.
Growth in top-end products as well as low end products: Dealers have stated that there is healthy
growth in premium products, especially value-added products like APNT’s Royale Shield and BRGR’s
Easy Clean. Across regions, there is high grown in bottom of pyramid products like distemper and putty.
Sale of Birla and JK Cement’s putty is much ahead of any other paint companies.
Negligible sale of sanitizers for Paint companies as of now: Some paint companies have been
pushing their dealers to buy sanitizers but there is hardly any pick-up as no consumer would go to a
paint or a hardware shop to buy sanitizers. Few dealers believed that companies need to advertise for
their sanitizers on a local level rather than national level.
In s titu tio n a l E q u itie s
Paints Sector
27
Comparison of top 3 paint companies in decorative segment
Exhibit 46: APNT has done well across majority of the parameters over the years
Parameter (consolidated)
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Net sales growth (%)
APNT
15.6
24.3
13.3
15.7
11.3
1.9
5.5
11.7
14.4
5.0
BRGR
23.8
25.9
13.5
15.6
11.7
-2.3
7.8
13.5
17.3
5.0
KNPL
24.8
22.1
10.4
11.0
12.7
7.5
7.6
14.9
16.4
-2.7
Gross margin (%)
APNT
42.1
39.8
41.0
41.7
43.1
43.6
44.7
42.4
41.5
43.7
BRGR
37.3
36.4
38.5
39.4
41.4
41.5
43.1
41.7
39.0
41.5
KNPL
32.6
31.4
30.4
30.9
32.0
37.1
41.5
39.6
36.2
38.3
Employee cost (% of net sales)
APNT
5.9
5.5
5.7
6.0
6.5
6.9
6.9
6.6
6.4
6.8
BRGR
6.1
5.6
5.6
5.8
5.9
6.5
6.7
6.9
6.7
7.1
KNPL
4.4
4.2
4.3
4.4
4.2
4.6
5.0
5.0
5.2
5.9
Ad spends (% of net sales)
APNT
4.4
4.3
4.7
5.0
5.3
3.9
4.1
3.9
4.1
4.5
BRGR
4.8
5.1
5.5
5.6
6.6
4.9
5.3
4.8
3.3
NA*
KNPL
3.9
3.9
3.7
3.7
4.3
6.3
6.9
6.1
5.1
5.2
EBITDA margin (%)
APNT
17.2
15.4
15.3
14.8
14.7
19.4
19.8
19.0
19.6
20.6
BRGR
10.7
10.3
11.1
11.1
11.8
15.4
15.8
15.6
15.4
16.7
KNPL
13.3
13.3
12.1
11.8
12.9
15.5
18.2
17.0
13.9
15.2
Adj. PAT margin (%)
APNT
10.9
10.3
10.2
9.8
10.2
12.6
12.9
12.1
11.2
13.4
BRGR
6.4
6.1
6.5
6.4
6.1
8.7
9.4
8.9
8.2
10.3
KNPL
9.9
8.5
6.3
6.7
7.8
9.7
12.6
11.0
8.3
9.9
EPS (Rs)
APNT
8.8
10.3
11.6
12.8
14.8
18.7
20.2
21.3
22.5
28.2
BRGR
2.2
2.6
3.2
3.6
3.8
5.3
4.4
4.7
5.1
6.8
KNPL
3.8
4.0
3.3
3.9
5.1
6.8
9.4
9.5
8.4
9.7
ROE (%)
APNT
43.3
40.1
36.3
33.1
32.4
31.9
27.5
25.5
24.1
27.6
BRGR
23.3
24.3
25.0
24.1
22.2
26.1
24.8
22.5
21.3
25.8
KNPL
24.4
21.8
15.1
15.3
18.1
17.8
19.1
17.3
13.8
14.5
ROCE (%)
APNT
42.3
36.5
33.8
31.3
29.7
29.2
24.9
22.5
22.8
26.3
BRGR
17.7
18.2
18.1
17.4
16.5
20.4
20.8
19.3
18.9
22.8
KNPL
21.9
20.2
14.2
14.6
17.5
17.4
18.8
17.0
13.5
14.2
No. of employees (standalone)
APNT
4,937
4,937
5,236
5,555
5,897
6,067
6,156
6,238
6,456
6,750
BRGR
2,446
2,431
2,464
2,607
2,666
2,808
2,993
3,130
3,450
NA*
KNPL
2,220
2,336
2,456
2,298
2,388
2,566
2,697
2,861
2,997
2,992
Sales/employee (Rsmn)
APNT
15.6
19.4
20.8
22.6
23.7
23.5
24.5
27.0
29.8
29.9
BRGR
9.6
12.1
13.6
14.8
16.2
15.0
15.2
16.5
17.6
NA*
KNPL
9.4
10.9
11.4
13.5
14.7
14.7
15.0
16.3
18.1
17.6
Source: Company, Nirmal Bang Institutional Equities Research
*Note: FY20 annual report of BRGR is not out yet
In s titu tio n a l E q u itie s
Paints Sector
28
Sector View
In recent times, growth in India’s paint sector has been an outlier in the overall domestic consumer space.
The industry has been witnessing a gradual shift in terms of consumer preferences from the traditional
whitewash to better quality paints. Besides, it is also witnessing healthy competitive environment, where
players are applying different strategies to tap the growing demand in the market for a larger regional share.
Additionally, rise in disposable income of the average middle class, urbanization, growing rural market,
shortening of repainting cycle, upgradation, increase in sale of premium-end products and launch of many
innovative products (like eco-friendly, odour free and dust & water-resistant paints) are the major drivers that
are pushing the growth of the organized paint industry. Within the Indian decorative paint segment, Asian
Paints (APNT) and Berger Paints (BRGR) are the two largest players with more than 80% of their overall
revenues coming from the segment and within the industrial paints segment, Kansai Nerolac (KNPL) is the
leader (segment contributes ~45% to its revenue).
The overall current environment for discretionary products hinges on opening up of markets. The demand
conditions for the paint industry has improved progressively since May’20 driven by demand in upcountry
markets. Companies remain confident of the demand conditions with secondary sales improving month-on-
month. In terms of regions, Tier II/III/IV cities are expected to continue to do well and even Metros and Tier I
cities are expected to bounce back both for decorative paints and other segments as well. From cost point of
view, key raw material prices are benign, this along with cost rationalization measures will aid margin in the
near term. In the medium term, faster growth in the premium products, operating leverage led efficiencies
and savings in logistics costs (with additions of capacities) will add to operating margins.
Since in the current environment there is a preference for businesses that are relatively more resilient, sector
multiples at current levels in near term will look expensive. We initiate coverage on APNT (Accumulate
rating) and BRGR (Sell rating), as we believe that decorative paints, in Indian context, will continue to
witness maximum demand within this space, majorly led by steady shift from unbranded/unorganized to
organized players with bigger players gaining further share. We also think that these are fundamentally
strong businesses within the domestic decorative space.
Exhibit 47: Revenue of FMCG companies under our coverage universe and top 3 paint companies of India
Revenue (Rsbn)
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Hindustan Unilever
175
194
217
252
274
302
305
313
339
377
383
Gillette India
7
9
11
12
14
17
20
20
17
17
17
Colgate-Palmolive (India)
20
23
27
32
36
40
39
40
42
45
45
Dabur India
34
41
53
62
71
78
78
76
77
85
87
Emami
10
12
15
17
18
22
24
25
25
27
27
Britannia
38
46
55
62
69
79
84
91
99
111
116
Nestle India
51
63
75
83
91
99
82
91
100
113
124
ITC
182
212
248
296
329
361
362
396
403
444
451
Marico
27
31
40
46
47
57
60
59
63
73
73
Total FMCG revenue
544
631
740
862
949
1,054
1,053
1,111
1,166
1,291
1,323
APNT
67
77
96
109
126
140
143
151
168
192
202
BRGR
19
23
29
33
39
43
42
46
52
61
64
KNPL
17
21
25
28
31
35
38
41
47
54
53
Total Paint revenue
102
121
151
170
196
218
223
237
266
307
319
Source: Company, Nirmal Bang Institutional Equities Research
Note: Nestle year ending is December, Gillete year ending is June
In s titu tio n a l E q u itie s
Paints Sector
29
Exhibit 48: Paint companies have grown nine out of ten times ahead of coverage FMCG companies
during the last 10 years
16.0
17.4
16.4
10.1
11.0
-0.1
5.5
4.9
10.8
2.4
18.6
24.2
12.8
14.9
11.6
2.0
6.3
12.6
15.3
3.7
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FMCG companies Paint Companies
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 49: Valuation of Indian companies vis a vis global companies
Company
Country
MCap
($ bn)
P/E (x)
EV/
EBITDA (x)
EBITDA margin (%)
3yr CAGR (FY17-FY20)
3 yr Avg (FY18-FY20)
FY20
FY21E
FY22E
FY20
FY21E
FY22E
FY18
FY19
FY20
Rev
EBIT
DA
EPS
RoE
RoCE
APNT
India
25
67.3
67.6
51.3
43.5
42.4
33.9
19.0
19.6
20.6
10.3
11.7
11.7
25.7
23.9
BRGR
India
7
79.4
76.2
56.8
49.5
46.4
36.1
15.6
15.4
16.7
11.8
13.9
15.3
23.2
20.4
KNPL
India
4
49.4
55.2
40.2
31.7
33.2
25.7
17.0
13.9
15.2
9.2
2.9
0.8
15.2
14.9
PPG Industries, Inc
USA
28
23.8
25.0
19.3
14.6
15.2
12.8
17.2
15.3
17.6
2.0
2.9
1.1
24.2
14.1
Nippon Paint Holdings Co
Japan
28
88.1
73.9
54.7
33.4
31.2
24.5
16.9
16.7
15.0
8.9
45.3
13.6
8.6
8.9
Akzo Nobel NV
Netherlands
19
26.8
24.0
19.5
15.0
13.4
11.7
12.1
11.2
14.6
-0.6
-3.5
10.3
31.6
24.0
Source: Bloomberg, Company, Nirmal Bang Institutional Equities Research; Note: (i) For all international companies, FY18=CY17, FY19=CY18, FY20=CY19,
FY21E=CY20E, FY22E=CY21E. (ii) Valuation ratios are as on 31
st
August 2020.
Exhibit 50: Returns across periods for consumer coverage companies- Paint companies fall among
the best in the lot
Company/Index
1yr
2yr CAGR
3yr CAGR
4yr CAGR
5yr CAGR
10yr CAGR
15yr CAGR
Nifty 50
4.1
-0.9
5.2
7.0
6.5
7.5
11.0
Sensex 30
3.7
0.2
7.1
8.2
7.0
7.6
11.2
BSE FMCG
8.6
-3.1
5.3
7.8
7.9
12.6
NA
BSE CDGS
9.5
-7.6
-1.5
3.8
5.5
8.5
NA
Asian Paints
23.2
18.2
19.9
15.1
17.2
21.6
28.2
Berger Paints
54.9
30.5
33.4
23.0
29.6
32.9
27.4
Britannia
62.9
6.4
22.4
23.4
19.4
34.3
26.6
Colgate
17.7
10.1
9.4
10.1
7.1
13.0
17.3
Dabur
15.2
3.5
17.4
13.2
10.5
16.9
22.0
Emami
22.3
-20.5
-13.6
-11.8
-11.4
8.8
23.0
Gillette India Ltd.
-24.3
-9.8
0.3
3.2
0.5
10.9
14.5
Hind. Unilever
19.1
12.1
22.7
24.7
20.1
23.4
18.7
ITC
-18.6
-20.7
-11.3
-5.9
-2.2
6.1
11.8
Marico
-4.6
1.9
5.9
5.7
11.8
19.6
24.5
Nestle
31.5
23.3
35.8
25.3
22.1
19.2
21.5
Source: Bloomberg, Nirmal Bang Institutional Equities Research; CDGS= Consumer Discretionary Goods & Services
In s titu tio n a l E q u itie s
Paints Sector
30
Exhibit 51: Earnings growth across periods for consumer coverage companies
Company
1yr
2yr CAGR
3yr CAGR
4yr CAGR
5yr CAGR
10yr CAGR
15yr CAGR
Asian Paints
25.5
15.2
11.7
10.8
13.7
12.5
19.7
Berger Paints
22.3
19.5
15.3
15.5
20.0
18.5
18.0
Britannia
21.9
18.5
16.8
14.4
19.7
26.6
15.2
Colgate
9.6
9.2
12.2
7.4
7.9
7.3
14.1
Dabur
1.1
5.4
6.0
5.0
7.0
11.6
16.4
Emami
1.8
1.0
-2.3
-0.6
3.0
12.1
21.7
Gillette India Ltd.
-9.0
0.3
-3.1
2.0
7.8
5.3
NA
Hind. Unilever
10.9
14.6
16.7
13.1
13.1
12.4
11.5
ITC
22.5
18.8
14.4
13.1
9.7
14.1
14.7
Marico
13.5
13.6
9.0
9.8
12.9
15.8
19.8
Nestle
15.8
21.5
18.7
14.6
9.8
11.1
14.0
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
31
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In s titu tio n a l E q u itie s
32
Company Section
In s titu tio n a l E q u itie s
Initiating Coverage
Reuters: ASPN.NS; Bloomberg: APNT IN
Asian Paints Ltd.
‘Royale’ play commands rich valuation
Asian Paints (APNT) is a 78-year-old company with operations across 15 counties. It is
the largest paint company in India and also Asia’s third-largest paint company. Over
the years, the company has made fearless moves and even entered related segments
to evolve itself into a home décor company. It manufactures a range of paints for
decorative and industrial use, offers end-to-end painting & designing services, colour
& decor consultancy, waterproofing solutions and much more. In the Industrial
coatings space, APNT operates through two strategic 50:50 joint ventures with PPG
Inc., USA, a global leader in coatings. Over the years, the company has built a resilient
franchise with strong brand recall, significant first mover advantage in dealer network
(70,000+ dealers currently) and use of technology across operations. It has always
stayed ahead of time by adapting to current market trends and anticipating future
trends through the use of digital. Within the Indian organized decorative market, APNT
is a leader with ~55% market share (improvement of over 20% in as many years). Even
though new players have entered the market, APNT has maintained its strong market
leadership despite selling products at a premium to its peers. We see APNT garnering
additional market share over the next few years as it has recently added new
capacities. In terms of performance, over the last decade, the company has grown its
sales at a CAGR of ~11.7% and PAT at a CAGR of ~12.5%. While 1QFY21 was badly
affected due to tight business conditions, for the company’s domestic decorative
business, demand conditions improved in May and June after a complete washout in
April. There is still some uncertainty due to the sporadic lockdowns but we think the
business should do well overall progressively. We expect APNT to deliver 9.0%, 13.0%
and 15.1% CAGR growth over FY20-23E in Revenue, EBITDA and PAT, respectively,
underpinned by (a) strong growth in the organized decorative paints industry (from
Tier II/III/IV cities, especially for lower end products), (b) faster growth in premium
products, (c) pick-up in GDP growth beyond FY21 (internally we expect real/nominal
GDP growth rate of 6.0%/9.7% in FY22) and (e) higher contribution from allied
businesses. As operations improve beyond FY21 and utilization levels of new plants
go up, we anticipate return ratios to improve and go back to FY20 levels by FY23 itself.
We believe that valuation for APNT will always appear expensive as it has consistently
delivered strong volume growth even compared to other consumer segments,
maintained market leadership in its core business, continuously generated robust cash
flows and maintained a healthy dividend payout of >50%. At current market price
(CMP), the stock trades at 44.1x FY23E EPS of Rs43.1. We initiate coverage on APNT
with Accumulate rating and a target price (TP) of Rs2,080 based on 52x September’22
EPS, implying an upside of 10% from CMP.
ACCUMULATE
Sector: FMCG
CMP: Rs1,899
Target Price: Rs2,080
Upside: 10%
Vishal Punmiya
Research Analyst
vishal.punmiya@nirmalbang.com
+91-22-6273 8064
Key Data
Current Shares O/S (mn)
959.2
Mkt Cap (Rsbn/US$bn)
1,901.6/25.8
52 Wk H / L (Rs)
2,017/1,431
Daily Vol. (3M NSE Avg.)
551,347
Share holding (%)
3QFY19
4QFY20
1QFY21
Promoter
52.8
52.8
52.8
Public
47.2
47.2
47.2
Others
-
-
-
One -Year Indexed Stock Performance
60
70
80
90
100
110
120
130
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
ASIAN PAINTS LTD
Nifty 50
Price Performance (%)
1 M
6 M
1 Yr
Asian Paints
12.7
10.3
23.7
Nifty Index
2.3
3.2
4.6
Source: Bloomberg
FY20 Annual Report
1QFY21 Result and press release
Financial Summary
Y/E March (Rs mn)
FY19
FY20
FY21E
FY22E
FY23E
Net sales
1,92,401
2,02,113
1,96,587
2,34,720
2,61,922
YoY growth (%)
14.4
5.0
-2.7
19.4
11.6
EBITDA
37,655
41,618
42,536
52,943
60,073
EBITDA margin (%)
15.7
16.2
16.9
17.5
17.5
Adj. PAT
21,559
27,052
26,931
35,525
41,303
EPS
22.5
28.2
28.1
37.0
43.1
YoY change (%)
5.7
25.5
-0.4
31.9
16.3
ROCE (%)
22.8
26.3
23.7
27.2
28.2
ROE (%)
24.1
27.6
24.4
27.9
28.8
ROIC (%)
29.5
29.3
27.7
35.2
39.4
P/E (x)
84.5
67.3
67.6
51.3
44.1
P/B (x)
19.2
18.0
15.2
13.5
12.0
EV/EBITDA (x)
48.1
43.5
42.4
33.9
29.8
Source: Company, Nirmal Bang Institutional Equities Research
1 September 2020
In s titu tio n a l E q u itie s
Asian Paints Ltd.
34
About the company:
APNT is India’s largest paint company commanding over 40% of the overall domestic paint industry and
~55% in organized domestic decorative paint segment. The company is present in 15 countries and has 26
manufacturing facilities across the globe. During FY20, the company generated Rs202bn in revenue with
~84% contribution coming from its domestic decorative business.
Exhibit 1: Consolidated revenue breakdown as on FY20
Domestic decorative
83.7%
International
11.6%
Industrial
2.4%
Home improvement
2.3%
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 2: Revenue from contracts with customers (including royalty)
Revenue from contracts with customers (including royalty) (Rsmn)
FY18
FY19
FY20
Consolidated
Gross revenue
1,97,805
2,19,219
2,31,892
Growth (%)
5.0
10.8
5.8
Discount
26,778
28,055
30,931
Growth (%)
20.2
4.8
10.3
as a % of gross revenue
13.5
12.8
13.3
Net revenue
1,71,027
1,91,165
2,00,961
Standalone
Gross revenue
1,65,370
1,87,017
1,98,520
Growth (%)
3.4
13.1
6.2
Discount
20,921
23,878
27,147
Growth (%)
13.5
14.1
13.7
as a % of gross revenue
12.7
12.8
13.7
Net revenue
1,44,449
1,63,139
1,71,373
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
35
Decorative Paints
APNT has been intensively focusing on innovation and improving its products, besides expanding its product
range and offering its consumers a wide range of products & services, delivering value proposition in every
segment.
Exhibit 3: Product offerings FY11 v/s FY20
Source: Company, Nirmal Bang Institutional Equities Research
Steering the upgradation and premium products drive
While there is no linearity in upgradation of paints used by consumers, the industry has been witnessing
changes with regards to up-trading/premiumization over more than a decade including shift from
Distemper to interior emulsion
Mid-segment to top-end segment
Low-end to top-end segment
Cement paint to exterior emulsions
Unorganized to organized in smaller towns, especially in Tier III/IV cities and rural areas
Although metros and tier I cities, even tier II cities to certain extent, have a relatively larger contribution to the
top-end products, smaller towns have been showing increasing interest in premium products. This has come
into play as consumers are now more aesthetically aware and also have the means to opt for better value
products, even at higher prices.
India being a large market and with urbanization far away from its peak, the bottom of the pyramid is much
broader in volume terms. Upgradation is a continuous possibility given the rising aspirations, growing
awareness and increase in disposable income and there is always potential in terms of converting a bottom
of the pyramid consumer to the organized market and there onwards to the upper segments.
APNT has a strong premium and super-premium (luxury) portfolio, which has been able to benefit from the
evolving consumer preferences. The company has even adressed the gap between consumer needs and
availablility through the launch of products like ‘Royale Health Shield’ (anti-bacterial) and ‘Royale Atmos’
(anti-pollution, air-purifying). Recently, the company has launched another paint called ‘Royale Health Shield
– Asthma and Allergy Friendly variant’, which provides a more suitable environment for people with allergies
and asthma post painting and helps create a healthier environment indoor.
To bolster premium products in the smaller towns, APNT provides one room/one wall makeover where
consumers can experiment and eventuall fully adapt the upper product segment.
In s titu tio n a l E q u itie s
Asian Paints Ltd.
36
Currently, there is a relative slowdown in the growth trajectory of the top end segment as metros and urban
areas (which have a larger contribution) have been relatively impacted more by the Covid-19 pandemic.
Once the situation normalizes, the growth will return. We expect APNT’s dominance in top end offerings to
continue, driving its margin expansion over the long term.
Exhibit 4: Product offerings in the top-end segment
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 5: Price range of paints, putty, distemper
APNT
Interior
Price Range
Exterior
Price Range
Top end/Luxury
Royale
420-1100
Ultima
330-460
Mid-segment
Apcolite
260-320
Apex
160-210
Bottom of pyramid/Economy/Value for money
Tractor/TruCare
60-160
Ace/TruCare
30-210
Source: Aapkapainter, Colourdrive, Company, Nirmal Bang Institutional Equities Research
Focus on bottom of the pyramid segment
For the past few years, demand in smaller cities and towns has been growing at a faster pace than metro and
urban areas. Rise in disposable income, incremental consumption expenditure, increase in awareness,
development of rural markets and various launches have fueled the paint industry’s growth. Increased
awareness among rural households about applying lower-coat (putty and primer) before applying final coat
(distempers) has aided demand of low-end products.
For APNT, nearly 40-50% demand comes from metros and tier I cities, and the balance 50-60% comes from
smaller towns and rural areas. For APNT, the premium-end range continues to grow, but the economy and
value for money range (including emulsions, distempers and putties) have been growing at a much faster
rate for the last 3-4 years. In the last three years, the company has introduced a number of products under
the ‘Tractor’ and ‘Ace’ brands, which are essentially its economy/value for money brands. Even the recently
launched economy emulsions - Tractor Sparc and Ace Sparc, priced 15%-20% below the lowest priced
product it had in the past, have performed well and have spurred growth in the low-end segment. There is
further potential for APNT to grow strongly in this segment by capturing market share from the unorganized
sector (which is much higher in the lower-end paint segment than the overall industry) and general growth in
usage of paints, which will in turn drive volume growth.
In s titu tio n a l E q u itie s
Asian Paints Ltd.
37
Exhibit 6: Product offerings in the low-end segment
Source: Company, Nirmal Bang Institutional Equities Research
Project/institution business
Under its institutional business, APNT provides painting solutions and waterproofing solutions to its
customers, including co-operative housing societies, new buildings, institutes and government organisations.
APNT is present in over 90 locations, including metros across the country. Over the past several years, the
company has recorded heathy growth in this business along with market share gains. However, the margins
in this segment are slightly lower than the retail business on account of its competitive intensity.
.
Foraying into adjacencies
I. Waterproofing and construction chemicals
APNT forayed into construction chemicals segment in FY13 through the launch of ‘SmartCare’ range,
comprising water proofing and crack bridging products. In FY14, the company set up a research group
dedicated for the development of new products for waterproofing, sealant, construction chemicals and tile
segments. Since then, APNT has made significant strides in the waterproofing category and as on FY20, its
‘SmartCare’ range of products is the second largest brand in the segment.
Besides the mainstream products, the waterproofing and construction chemical business have served as key
drivers of growth as the company has been able to get a good hold in some infrastructure projects and new
large construction projects. The current portfolio comprises waterproofing products for interior, cracks and
joints, tiling, terrace and bathrooms.
During FY19, the company set up a ‘Waterproofing, Hygiene and Application Experiential Zone’ at its
R&D/R&T facility at Turbhe, Navi Mumbai for customers, including architects, applicators, waterproofing
contractors and engineers. The experiential zone has different interactive displays of various waterproofing
system solutions as well as adhesive products range and also has a section for mechanized tools, which
demonstrates faster and smoother finishes to customers.
Given the impending monsoon season, APNT launched a new campaign - ‘Terrace Waterproofing’ - in the
recent months to increase awareness about waterproofing. Since this is an exterior painting job, customers
have not given into paranoia and have responded well to the campaign. This has helped APNT in creating
brand saliency and has also given further leads for its waterproofing business.
The waterproofing and construction chemical segment falls into two verticals - project business and retail
business. Some of the key projects currently undertaken by APNT include Bangaluru Airport, Delhi Airport
and tunnel in Jammu & Kashmir. The company also supplies to its industrial division, AP-PPG, for some of
the infrastructure projects, including highways. Margins earned in retail waterproofing business are equivalent
to what is earned in paints. However, in projects/institutions business, margins are relatively lower.
In s titu tio n a l E q u itie s
Asian Paints Ltd.
38
Exhibit 7: Construction chemicals and waterproofing portfolio FY13 v/s FY20
Source: Company, Nirmal Bang Institutional Equities Research
II. Others including painting accessories, adhesives and sanitizers
Painting accessories: APNT forayed into painting accessories by launching a range of paint application
tools in collaboration with Harris Brushes of UK in 2012-13. In FY16, it launched a range of paint application
tools like power sanders, water jet washer, spray machine for putty and paint and putty mixer - all under a
new brand called “TruCare”. Leveraging its retail distribution strength and brand equity, the company has
strongly forayed into the painting accessories segment in both mechanized and non-mechanized categories.
Exhibit 8: Tools and applicators range under the ‘TruCare’ brand
Source: Company, Nirmal Bang Institutional Equities Research
Adhesives: During FY16, APNT entered the retail segment of the adhesives category with a distribution
arrangement with Henkel Adhesives Technologies, Germany, to sell the ‘Loctite’ brand of adhesives under a
co-branding initiative. Further, in FY17, it introduced ‘True Grip Ultra’ adhesive, primarily to exploit network
synergy and gain access to thousands of hardware and décor stores. The category has been further
expanded with a stationary range of products.
Exhibit 9: Adhesives FY16 v/s FY20
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
39
Wall coverings: In FY15, APNT launched a full range of wall coverings under the brand name ‘Nilaya’. It is
promoted to architects and designers through the company’s Colour Idea stores across the country.
Exhibit 10: Wall coverings available in three collections
Source: Company, Nirmal Bang Institutional Equities Research
Sanitizers, San Assure and safe painting: In response to the Covid-19 pandemic and in an effort to
strengthen its foray into the currently nascent ‘Health and Hygiene’ play, APNT launched hand sanitizers and
surface disinfectants recently under the brand name of ‘Viroprotek’. The product is being manufactured at the
company’s plant at Ankleshwar, Gujarat and it is taking steps to set up additional capacity for these products
at the plant at Rohtak, Haryana.
Exhibit 11: Construction chemicals and waterproofing portfolio FY13 v/s FY20
Source: Company, Nirmal Bang Institutional Equities Research
APNT also launched a sanitization service ‘San Assure’ (for shops, offices, homes) and a professional variant
‘San Assure Pro’ (for housing societies, hospitals, hotels and institutions) recently.
In s titu tio n a l E q u itie s
Asian Paints Ltd.
40
Exhibit 12: Sanitization services introduced in response to the pandemic
Source: Company, Nirmal Bang Institutional Equities Research
The company has been providing painting services for many years. In FY15, APNT launched ‘Express
Painting Service’ to complete painting with mechanized ‘dust free’ application to complete painting job within
a week. In response to Covid-19, the company launched a ‘Safe Painting’ campaign in May to address the
fear among consumers towards letting in external painters in their house. The campaign assures customers
that the painters are safe to enter their homes and offers a great painting experience. It has also helped the
painters and contractors in becoming confident of approaching customers and telling them that it is safe to let
them into the house because they are following certain standard operating procedures with respect to
hygiene and care in terms of what they are taking into their houses.
Exhibit 13: Safe painting services
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
41
III. DIY
The Do It Yourself (DIY) market is still in its embryonic stages in India compared to developed nations where
it has a significant share. The concept will take significant time to have a notable presence in India primarily
because of the nature of building materials used in India. In developed countries, houses are built using
wooden frame structures compared to the brick and mortar construction in India, which makes the painting
process much easier.
Exhibit 14: DIY proportion higher in developed markets like US and Canada
Source: Sherwin Williams investor presentation, Nirmal Bang Institutional Equities Research
However, in response to Covid-19 led paranoia felt by consumers towards letting in a stranger into a house,
APNT has launched a range of DIY products that can be used for the peripheral needs of consumers. The
offerings incline towards décor, health & hygiene and repair & maintenance related product needs.
Exhibit 15: APNT has introduced a DIY range of products
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 16: Contents of EzyCR8 ‘Health & Hygiene’ DIY kit
Source: Company,Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
42
Network distribution and expansion
APNT has set a benchmark for the industry when it comes to store and dealer expansion.
Colour World stores: From a network of 15,000+ colour worlds as on FY10, the company has scaled up to
50,500+ Colour World stores across the length and breadth of India. These stores are equipped with
proprietary colour tinting system, enabling them to offer the widest range of colour options.
Colour Idea stores: Started in 2009 with two stores, the Colour Ideas chain provides color consultancy &
home solutions services to customers and has expanded to 430+ stores as on FY20. These stores provide
end-to-end wall décor solutions, from colour personalisation to safe painting and furnishings.
AP Homes: AP Homes are multi-category integrated décor stores, offering products & solutions across
categories of paints, wallpapers, modular kitchens, bath fittings, sanitaryware, furnishings and light fittings,
among others. Currently, there are 10 décor stores across Coimbatore (Tamil Nadu), New Delhi, Kochi
(Kerala), Raipur (Chhattisgarh), Karur (Tamil Nadu), Tumkur (Karnataka), Jajpur (Odisha), Bengaluru
(Karnataka), Nashik (Maharashtra) and Amritsar (Punjab).
Connecting digitally: The company has always tried to connect with the customer using technology. ‘Ezy
colour’ consultancy offers assistance from colour experts who answer queries regarding colour combinations
with the help of visualisation technology and digital preview in just a few clicks. ‘Beautiful Homes’ is an online
décor platform that offers design ideas as per individual personal styles. ‘Colour with Asian Paints’ is a colour
visualizer and wall painting application that lets customers try wide range of wall colours, textures and
wallpaper designs at the click of a button. Customers can take a photograph of the wall they need painted
following which they can pick from a range of colour combinations and can also pick layouts from the gallery
to sample wall colours and textures onto it.
Exhibit 17: Different stores and distribution formats
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 18: Aggressive dealer expansion along with…
Exhibit 19: ….increase in number of supply points
52,000
60,000
70,000
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
FY18 FY19 FY20
131
136
140
124
129
134
139
144
FY18 FY19 FY20
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
43
Home Improvement
In order to offer end-to-end home décor/renovation services, the company ventured into home improvement
segment FY14 onwards with kitchen and bath business. Demand for both the aforementioned sub-segments
depends on demand in the real estate industry. While there are immediate concerns regarding the real
estate industry, the overall long-term outlook remains strong.
Kitchen: APNT operates in the kitchen business through its wholly-owned subsidiary Sleek International
Pvt. Ltd. (Sleek). The company had acquired a 51% stake in Sleek in FY14 and balance 49% in FY18.
There are 185+ Sleek stores across the country with an established presence in South, West and North
India and a growing presence in East India.
The modular kitchen solutions market, which is a highly fragmented market with majority unorganised
players (~8% organized), is estimated at ~Rs150bn. The industry has been witnessing a shift towards
branded modular kitchen solutions from local carpenters and interior designers. Though metro and urban
cities have already seen the move towards modular kitchens, demand for branded modular kitchens has
caught up rapidly in Tier II and Tier III cities over the last two years.
Bath: APNT operates in the chrome plated fillings and sanitaryware space under the brand Ess Ess
Bathroom Products Pvt. Ltd. (Ess Ess) and is a prominent player in the bath segment in India and has
high-quality products in this segment, including bath fittings and a wide range of sanitaryware.
Similar to modular kitchens, the chrome plated fillings and sanitaryware business too has a large number of
unorganised players. About 60% of the market is serviced by the organised players.
Unlike the decorative paints business, contribution from the institutional channel is higher in both the sub-
categories of home improvement. While the new construction/projects are under a slump given the liquidity
crunch and Covid-19 led impact, government initiatives and positive long-term outlook for the real estate
sector would drive the long-term growth of this business.
Exhibit 20: Revenue trajectory of home improvement business
Rsmn
FY16
FY17
FY18
FY19
FY20
Sleek
Revenue
1,351
1,576
1,734
2,144
2,383
growth (%)
10.9
16.7
10.0
23.6
11.1
PBT
-157
-202
-129
-228
-410
Ess Ess
Revenue
1,190
1,503
1,617
2,021
2,194
growth (%)
45.5
26.3
7.6
25.0
8.6
PBT
-265
-185
-190
-303
-294
Total home improvement revenue
2,542
3,079
3,351
4,165
4,577
as a % of consolidated net revenue
1.8
2.0
2.0
2.2
2.3
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 21: Top cities have almost one-third of Sleek stores
City
No. of stores
Bangalore
9
Mumbai
9
Chennai
7
Pune
6
Hyderabad
6
Ahmedabad
5
Vijayawada
5
Coimbatore
5
Kochi
4
Delhi
3
Source: Sleek website, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
44
International operations
APNT’s international journey began in 1978 when it established presence in Fiji and since then has
expanded to 14 other countries across four regions - Asia (Nepal, Sri Lanka, Bangladesh, Singapore and
Indonesia), the Middle East (UAE, Bahrain and Oman), Africa (Egypt and Ethiopia) and South Pacific (Fiji,
Solomon Islands, Samoa, Tonga and Vanuatu). Key highlights of the company’s international operations
include:
The biggest international market for the company as on FY20 has grown at a 5-year CAGR of 13.2%.
The company continues to focus on building capacity, as has been the case in recent years, across
units to support its growth in these markets. Currently, APNT is undertaking the expansion of its existing
plant in Indonesia and has also commenced its plans in Bangladesh.
The company is among the top 3 players in decorative paints in 12 of the 14 countries outside India.
APNT’s presence in the Middle East and South Asia is significant and the company is looking to expand
with key focus on Africa and Indonesia.
APNT entered African markets in FY15 through the acquisition of controlling stake in Kadisco Paint &
Adhesive Industry Share Company, Ethiopia.
During FY18, APNT completely divested from the low growth Caribbean markets in order to focus on
expanding its international portfolio in the emerging markets of Asia and Africa.
Exhibit 22: International markets geography wise revenue breakdown as on FY20
Asia
44.0%
Middle East
27.0%
Africa
24.0%
South
Pacific
5.0%
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 23: International region-specific brands
Brand
Country
Asian Paints
Bangladesh, Nepal, Sri Lanka and Indonesia
Causeway Paints
Sri Lanka
Asian Paints Berger
Oman, Bahrain and UAE
Kadisco Asian Paints
Ethiopia
Scib Paints
Egypt
Apco Coatings
Fiji, Solomon Islands, Tonga and Vanuatu
Taubmans
Fiji and Samoa
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
45
Exhibit 24: Revenue growth of APNT’s International markets
14.7
16.8
17.9
20.9
19.8
21.8
22.3
23.4
23.2
13.7
6.6
16.8
-5.3
10.4
2.3
4.9
-15.0
-5.0
5.0
15.0
25.0
0.0
5.0
10.0
15.0
20.0
25.0
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Revenue from International operations Growth (%)
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 25: APNT ranks amongst the top 3 players in decorative paints in 12 of the 14 countries
outside India
Location
Rank in decorative paints
Sri Lanka
1
Nepal
1
Bangladesh
2
Oman
4
Bahrain
1
UAE
1
Egypt
3
Ethopia
2
Fiji
1
Samoa Islands
1
Tonga
1
Vanuatu
1
Solomon Islands
1
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
46
Industrial Segment
APNT is also present in industrial coatings space, which contributes a miniscule ~2.4% to the overall
revenue. Of the total industrial paint demand for the company, about two-third comes from the automotive
sector. APNT operates in the industrial space through two joint ventures-
PPG Asian Paints Pvt. Ltd. (PPG-AP): This 50:50 JV manufactures automotive original equipment
manufacturer (OEM), refinish, marine, packaging and certain industrial coatings. Over the last two
years, general slowdown in the economy, lower spending, BS-VI compliance and slowdown in the
auto industry in the last year or so have affected this segment. For APNT, business de-growth in the
financial year was primarily attributed to the auto and two-wheeler markets, which declined by 15%
and 14%, respectively.
Asian Paints PPG Pvt. Ltd. (AP-PPG): This 50:50 JV services the protective coatings, floor
coatings, road marking paints and powder coatings segments, and also services customers in the
infrastructure, oil & gas, power plants and white goods sectors. During FY20, the industrial coatings
market faced a challenging business environment with the overall investments in the manufacturing
sector of the economy witnessing continued slowdown for the year and due to liquidity crunch. AP-
PPGʼs strategy to focus on geographical expansion and enhancement of product portfolio through
customer acquisition and product launches resulted in substantial growth in Protective Coatings and
Powder Coatings market segments.
As per IND-AS, PPG-AP has to be treated as an associate company wherein only APNT’s share of profit
after tax of PPG-AP would be consolidated as against proportionate consolidation of every line item of P&L.
At the same time, AP-PPG has to be consolidated as a subsidiary of APNT in the consolidated financials.
Exhibit 26: Profit considered in consolidation
329
496
458
408
507
34
187
85
31
227
0
100
200
300
400
500
600
FY16
FY17
FY18
FY19
FY20
PPG-AP AP-PPG
(Rsmn)
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
47
Constant reinvention through Research and Development/Technology
(R&D/R&T) and Digital Innovation
The company at its R&D/R&T facility at Turbhe, Navi Mumbai, with over 200 scientists, continuously
emphasizes on its strategy around new technology adoption and product development, focusing on creating
sustainable products, as well as value re-engineering for productivity improvement and cost optimization. It
continues to maintain a strong focus on Intellectual Property (IP) and has filed a total of 54 patents, 14 of
which have been in FY21. Some of the activities undertaken by the team include:
Development of new products and processes
Creating revolutionary products that improve health and hygiene of the surfaces and sets benchmark
Creating products in the premium range keeping in mind aspects of Green Assure and product
sustainability
Upgradation of existing products with value added features to create product differentiation to retain
market share
Continuous benchmarking of products against national/international competition
Exhibit 27: Research & Technology Centre at Turbhe, Navi Mumbai
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 28: R&D expenses as a % of sales
49
45
86
71
310
418
43
35
456
521
631
680
751
762
873
836
0.5
0.4
0.5
0.5
0.7
0.7
0.5
0.4
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0
100
200
300
400
500
600
700
800
900
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Capital Recurring R&D as a % of net revenue
(Rsmn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
48
Exhibit 29: Breakdown of R&D expenses
(Rsmn)
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Employee Cost
268
309
361
391
447
471
517
Depreciation on Equipment and Building
57
63
68
75
65
68
112
Travelling Expenditure
15
16
17
19
30
16
17
Testing and Laboratory Expenditure
15
11
16
17
15
13
11
Power and Fuel
24
24
25
29
31
31
37
Stores and Spares
6
5
8
8
8
8
6
Repairs and Maintenance
8
11
26
13
19
17
21
Materials Consumed
4
7
6
5
5
5
6
Others
60
76
104
125
130
133
146
Total recurring expenses
456
521
631
680
751
762
873
Capital Expenditure
49
45
86
71
310
418
43
Total R&D expenses
506
566
716
752
1060
1180
915
Source: Company, Nirmal Bang Institutional Equities Research
Asian Paints stepped up its efforts on the digital front way ahead of the industry. In 2008 itself, APNT
adopted automated storage and retrieval systems when robotic warehousing was unheard of in the Indian
manufacturing industry. Without any reference point, APNT adopted robotic warehousing and integrated it
with ERP to solve the problems of an overstuffed inventory, increased opex, supply chain efficiency and
factory level losses, in one stroke.
It also decided to adopt the highly scalable in-memory platform and the new S/4 HANA when it sensed that
the old ERP system needed an upgrade. This was one of the first implementations of S/4 HANA in India’s
manufacturing industry. The platform helped APNT target customers with personalized real time offers,
which in turn reduced operational costs with a 60% reduction in database requirements.
The company also upgraded its demand forecasting platform which allowed better predictability of the sales
patterns across various geographies and brands which we believe helped in improving the ability to service
an ever-increasing range of products while keeping inventory levels within control.
In FY20 as well, the Company has continued to invest in digital technologies such as AI, ML, Robotic
Process Automation (RPA), security systems and advanced analytics which have been used to create
immersive customer experiences, improve the operational productivity and aid in better decision making.
In s titu tio n a l E q u itie s
Asian Paints Ltd.
49
Expanding footprint
I. Organic capacity expansion
APNT, the leader in the decorative paints segment, has been continuously investing in expanding its
manufacturing footprint to serve customer demand. During FY16, the company expanded the installed
capacity of its plant at Rohtak, Haryana from 200,000 KL to 4,00,000 KL. During FY19, the company
commissioned two large paint manufacturing units with an installed capacity of 300,000KL each, at Mysuru,
Karnataka in September 2018 and Visakhapatnam, Andhra Pradesh in January 2019. The plant at Mysuru,
Karnataka (scalable upto 600,000 KL) has an estimated cost of Rs23.0bn and the plant at Visakhapatnam,
Andhra Pradesh (scalable upto 500,000 KL) has an estimated cost of Rs17.9bn. With these two capacity
additions, the company’s overall installed capacity stands at 1.73mn KL per annum.
Exhibit 30: Overall manufacturing footprint
Location
No. of paint manufacturing plants
India
10
Sri Lanka
2
Nepal
2
Bangladesh
1
Indonesia
1
Fiji
1
Samoa Islands
1
Oman
1
Bahrain
1
Dubai
1
Egypt
2
Ethopia
3
Total
26
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 31: Total manufacturing locations in India (Installed capacity/annum)
DECORATIVE PAINT PLANTS
KL
Rohtak, Haryana
400,000
Kasna, Uttar Pradesh
80,000
Ankleshwar, Gujarat
130,000
Khandala, Maharashtra
300,000
Patancheru, Telangana
80,000
Visakhapatnam, Andhra Pradesh
300,000
Mysuru, Karnataka
300,000
Sriperumbudur, Tamil Nadu
140,000
Combined capacity of decorative paints plants
1,730,000
CHEMICAL PLANT
MT
Cuddalore, Tamil Nadu
6,720
INDUSTRIAL PAINT PLANTS
MT or KL
Sarigam, Gujarat (MT)
7,200
Taloja, Maharashtra (KL)
14,000
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
50
Exhibit 32: Capex over the years
1.5
5.4
6.4
2.4
4.4
8.0
6.7
14.1
11.5
3.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Capex
(Rsbn)
Source: Company, Nirmal Bang Institutional Equities Research
II. Inorganic growth
In order to bolster presence in the international markets and to foray into other segments, the company has
undertaken several inorganic routes, including the following acquisitions in the last decade:
To embark on the journey towards a holistic décor solutions provider, APNT acquired a 51% equity
stake in Sleek International Private Limited (SIPL) for a consideration of ~Rs1.2bn during FY14. During
FY18, APNT purchased the balance stake of 49% from the non-controlling shareholders of SIPL for a
consideration of Rs501mn.
During FY15, the company acquired the entire front-end sales business (including brands, network and
sales infrastructure) of Ess Ess Bathroom Products Private Limited for a consideration of Rs365mn.
During FY15, Berger International Pvt. Ltd., Singapore, a wholly owned indirect subsidiary of the
company, acquired a 51% stake in Kadisco Paint and Adhesive Industry Share Company, one of the
leading paint companies in Ethiopia engaged in the manufacturing and selling of decorative paints,
industrial paints, automotive paints, other coatings and adhesives for a cash consideration of Rs1.2bn.
In the start of FY18, the company strengthened its international footprint by acquiring 100% stake in
Causeway Paints Lanka Pvt. Ltd. (Causeway), Sri Lanka through its wholly-owned subsidiary Berger
International Pvt. Ltd., Singapore. Causeway is a key player in the Sri Lankan coatings market and has
been operating for more than two decades in the country before its acquisition.
Further, in FY18 company acquired 100% equity stake in Reno Chemicals Pharmaceuticals and
Cosmetics Pvt. Ltd. for a cash consideration of Rs1.6bn to meet APNT’s growing infrastructure
requirements.
In s titu tio n a l E q u itie s
Asian Paints Ltd.
51
Enhancing skills and supporting stakeholders
APNT’s ‘Asian Paints Colour Academy’ is a National Skill Development Corporation approved training partner
that has been supporting the Skill India Mission furthered by the Government of India. Programmes
undertaken at these academies to provide hands-on experience to the participants include:
Vocational training;
Technical knowledge distribution;
Productivity and livelihood; and
Value creation through impactful people solutions
Colour Academies are equipped with facilities to upgrade the skills of existing painters, thus helping them
become specialists in their respective fields. Academy offers training programs across a variety of skills,
including designer finishes, emulsions, metal care, mechanization, water proofing, wood finishes and
wallpaper installation in order to improve the skill set of painters. Since the inception of Colour Academies in
August 2014, APNT has imparted more than 147,000 trainings across its 50+ academies.
In the wake of the Covid-19 pandemic, APNT joined forces with several NGOs to provide food, masks and
sanitizers to its applicators, contractors and painters in order to ensure their safety. By April 2020, the Direct
Bank Transfer (DBT) drive was established through which the company was able to transfer money to their
bank accounts. Additionally, APNT offers free sanitization services to their dealer outlets and offers insurance
for the outlet employees.
In s titu tio n a l E q u itie s
Asian Paints Ltd.
52
Financial story in charts
APNT has delivered a growth of 7.6% in consolidated revenue over FY15-20. Going forward, we expect
gradual growth over the coming quarters of FY21E followed by rebound in FY22E volumes and thus build in
consolidated revenue growth of 9.0% over FY20-23E.
Exhibit 33: We expect volumes to decline slightly for FY21E led by the lockdown related impact in 1Q,
after which we expect positive growth trajectory to resume
-5.0
0.0
5.0
10.0
15.0
20.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Domestic decorative volume growth %
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 34: Standalone revenue expected to grow 8.9% over
FY20-FY23E which will aid…
Exhibit 35: …9.0% consolidated sales growth over the same
period
104.2
116.5
118.3
126.5
141.7
163.9
171.9
167.6
200.0
222.0
16.3
11.8
2.2
7.7
1.4
12.6
4.9
(2.5)
19.3
11.0
(5.0)
-
5.0
10.0
15.0
20.0
25.0
-
50.0
100.0
150.0
200.0
250.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Standalone sales (Rsbn) Growth (%)
(Rsbn)
(%)
125.8
140.1
142.7
150.6
168.2
192.4
202.1
196.6
234.7
261.9
15.7
11.3
1.9
5.5
11.7
14.4
5.0
(2.7)
19.4
11.6
(5.0)
-
5.0
10.0
15.0
20.0
25.0
-
50.0
100.0
150.0
200.0
250.0
300.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Consolidated sales (Rsbn) Growth (%)
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
We expect gross margin to expand by 152bps over FY20-23E primarily on account of FY21E benefiting from
benign crude prices. EBITDA margin is likely to expand by 234bps, led by gross margin expansion and cost
efficiencies kicking in.
In s titu tio n a l E q u itie s
Asian Paints Ltd.
53
Exhibit 36: Consolidated gross margin to expand 152bps
Exhibit 37: Employee cost expected to increase 7.5%…
41.7
43.1
43.6
44.7
42.4
41.5
43.7
44.9
45.0
45.2
39.0
40.0
41.0
42.0
43.0
44.0
45.0
46.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Gross Margin (%)
(%)
7.6
9.1
9.9
10.3
11.2
12.4
13.7
14.4
16.0
17.0
21.8
19.4
9.1
4.5
7.9
10.9
10.5
5.1
11.2
6.2
0.0
5.0
10.0
15.0
20.0
25.0
0.0
5.0
10.0
15.0
20.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Employee cost (Rsbn) Growth (%)
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 38:… Other expenses expected to increase 7.8%...
Exhibit 39: ….leading to EBITDA growth of 13.0% over FY20-23E
26.2
30.7
24.6
27.1
28.2
29.7
33.0
31.4
36.7
41.4
20.6
17.3
-19.7
10.1
4.0
5.4
11.0
-4.9
16.8
12.7
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
0.0
10.0
20.0
30.0
40.0
50.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Other expenses (Rsbn) Growth (%)
(Rsbn)
(%)
18.6
20.6
27.7
29.9
32.0
37.7
41.6
42.5
52.9
60.1
11.8
10.4
34.6
7.8
7.1
17.8
10.5
2.2
24.5
13.5
0.0
10.0
20.0
30.0
40.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
EBITDA (Rsbn) EBITDA growth (%)
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 40: EBITDA margin to expand by ~234bps over FY20-
23E
Exhibit 41: Adj. PAT to grow at a CAGR of 15.1% led by topline
growth and cost efficiencies
14.8
14.7
19.4
19.8
19.0
19.6
20.6
21.6
22.6
22.9
0.0
5.0
10.0
15.0
20.0
25.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
EBITDA Margin (%)
(%)
12.3
14.2
18.0
19.4
20.4
21.6
27.1
26.9
35.5
41.3
10.3
15.8
26.4
7.9
5.1
5.7
25.5
-0.4
31.9
16.3
-10.0
0.0
10.0
20.0
30.0
40.0
-
10.0
20.0
30.0
40.0
50.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Adj. PAT (Rsbn) Growth (%)
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
APNT has reported a 5-year CAGR of 13.7% in net profit. We build in earnings CAGR of 15.1% over FY20-
23E along with margin expansion of 238bps. Accordingly, RoE and RoCE will expand by 116bps and
183bps, respectively over the same period.
In s titu tio n a l E q u itie s
Asian Paints Ltd.
54
Exhibit 42: Adj. PAT margin to expand by 238bps leading to…
Exhibit 43: ….improvement in return ratios i.e. RoE/RoCE by
116/183bps respectively
9.8
10.2
12.6
12.9
12.1
11.2
13.4
13.7
15.1
15.8
0.0
5.0
10.0
15.0
20.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Adj. PAT margin (%)
(%)
33.1
32.4
31.9
27.5
25.5
24.1
27.6
24.4
27.9
28.8
31.3
29.7
29.2
24.9
22.5
22.8
26.3
23.7
27.2
28.2
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
RoE (%) RoCE (%)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 44: Cash conversion cycle (CCC)
No. of Days
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Inventory days
57
56
54
56
57
55
59
64
57
54
Debtor days
30
30
30
32
35
35
34
35
34
34
Creditor days
46
43
40
42
44
43
41
40
37
37
On average sales basis
41
43
45
46
48
47
52
59
53
51
Inventory days
97
99
97
101
100
94
105
116
103
99
Debtor days
30
30
30
32
35
35
34
35
34
34
Creditor days
79
75
71
76
77
74
73
73
68
68
On average COGS/sales basis
48
54
56
57
57
55
66
78
69
65
Inventory days
60
59
51
64
58
60
61
65
59
56
Debtor days
32
31
30
35
38
36
32
37
36
35
Creditor days
51
40
40
47
47
45
39
41
41
38
On year-end sales basis
42
49
42
52
48
51
55
61
55
53
Inventory days
103
103
91
115
100
102
109
118
107
102
Debtor days
32
31
30
35
38
36
32
37
36
35
Creditor days
87
71
71
84
81
78
69
74
74
69
On year-end COGS/sales basis
48
63
50
66
56
61
73
80
70
67
Source: Company, Nirmal Bang Institutional Equities Research
The company’s FCF generation declined during FY17 and FY18 on account of high capex spends on two of
its plants – Mysuru and Vizag. Going ahead, we expect improvement in FCF generation over FY20-23E on
expectation of lower capex spends in the near term.
In s titu tio n a l E q u itie s
Asian Paints Ltd.
55
Exhibit 45: We expect cash flow from operations increase over FY20-23E
14.0
11.9
22.4
15.3
21.1
24.7
26.3
23.7
34.2
36.5
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Cash flow from operations
(Rsbn)
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 46: FCFF to sharply increase in FY22E given lower capex spends
11.7
7.5
14.4
8.6
7.0
13.2
22.5
20.5
30.7
31.0
0.6
0.4
0.8
0.5
0.4
0.7
1.2
1.1
1.6
1.6
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FCF FCF yield
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
56
Historical cost line items and savings over the years
Exhibit 47: Common size P&L (as a % of consolidated net revenue)
(as a % of Revenue)
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Revenue
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
RM cost
57.9
60.2
59.0
58.3
56.9
56.4
55.3
57.6
58.5
56.3
Gross margin
42.1
39.8
41.0
41.7
43.1
43.6
44.7
42.4
41.5
43.7
Employee expenses
5.9
5.5
5.7
6.0
6.5
6.9
6.9
6.6
6.4
6.8
Advertisement expenses
4.4
4.3
4.7
5.0
5.3
3.9
4.1
3.9
4.1
4.5
Processing charges
0.7
0.6
0.7
0.7
0.8
0.7
0.7
0.7
0.7
0.7
Travel expenses
0.6
0.6
0.6
0.7
0.7
0.8
0.8
0.6
0.6
0.7
Freight cost
4.0
4.1
4.3
4.7
5.1
5.6
6.1
5.8
6.0
6.0
Other operating expenses
9.3
9.4
9.5
9.7
10.0
6.2
6.3
5.7
4.0
4.5
EBITDA margin
17.2
15.4
15.3
14.8
14.7
19.4
19.8
19.0
19.6
20.6
Depreciation / Amortisation
1.5
1.3
1.4
2.0
1.9
1.9
2.2
2.1
3.2
3.9
Interest & Finance Charges
0.3
0.4
0.3
0.3
0.2
0.3
0.2
0.2
0.5
0.5
Other Income
0.9
1.5
1.6
2.1
2.5
1.5
1.7
1.3
1.2
1.5
Taxes
4.9
4.5
4.6
4.5
4.6
5.9
6.3
6.2
5.7
4.2
Minority interest
0.5
0.3
0.4
0.3
0.2
0.2
0.2
0.1
0.1
0.1
Adj. PAT
10.9
10.3
10.2
9.8
10.2
12.6
12.7
11.7
11.2
13.4
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 48: Employee expenses have hovered around 6.4-
6.8% as a % of net consolidated sales
Exhibit 49: Freight cost have stabilized to 6.0% in the recent
years
4.5
5.3
6.2
7.6
9.1
9.9
10.3
11.2
12.4
13.7
5.9
5.5
5.7
6.0
6.5
6.9
6.9
6.6
6.4
6.8
0.0
2.0
4.0
6.0
8.0
0.0
5.0
10.0
15.0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Employee expenses (Rsbn) as a % of net revenue
(Rsbn)
(%)
3.1
4.0
4.7
5.9
7.1
8.0
9.1
9.8
11.5
12.1
4.0
4.1
4.3
4.7
5.1
5.6
6.1
5.8
6.0
6.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Freight cost (Rsbn) as a % of net revenue
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 50: Absolute ad spends have been growing every year
after decline in FY16
Exhibit 51: Travel spends hovering around 0.6-0.7% in the
recent years
3.4
4.1
5.2
6.3
7.4
5.6
6.2
6.6
7.9
9.2
4.4
4.3
4.7
5.0
5.3
3.9
4.1
3.9
4.1
4.5
0.0
1.0
2.0
3.0
4.0
5.0
6.0
0.0
2.0
4.0
6.0
8.0
10.0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Advertisment expenses (Rsbn) as a % of net revenue
(Rsbn)
(%)
0.5
0.6
0.7
0.9
1.0
1.2
1.2
1.0
1.2
1.4
0.6
0.6
0.6
0.7
0.7
0.8
0.8
0.6
0.6
0.7
0.0
0.2
0.4
0.6
0.8
1.0
0.0
0.5
1.0
1.5
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Travel expenses (Rsbn) as a % of net revenue
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
57
Exhibit 52: Processing charges steady at 0.7%
Exhibit 53: Other operating expenses <4.5% in the recent years
0.5
0.6
0.8
0.9
1.1
1.0
1.1
1.1
1.3
1.3
0.7
0.6
0.7
0.7
0.8
0.7
0.7
0.7
0.7
0.7
0.0
0.2
0.4
0.6
0.8
1.0
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Processing charges (Rsbn) as a % of net revenue
(Rsbn)
(%)
7.2
9.0
10.4
12.2
14.1
8.8
9.5
9.6
7.8
9.0
9.3
9.4
9.5
9.7
10.0
6.2
6.3
5.7
4.0
4.5
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0.0
5.0
10.0
15.0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Other operating expenses (Rsbn) as a % of net revenue
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
58
Valuation and view
While 1QFY21 was badly affected due to tight business conditions, for the company’s domestic decorative
business, demand conditions improved in May and June after a complete washout in April. Business picked
up in tier II/III/IV cities where the demand conditions were better compared to metro and tier I cities were the
business was slower. While the business achieved 80% of base business volumes in May, APNT managed
double digit volume growth of more than 14% in June. Overall, for 1QFY21, APNT achieved 62% of base
business volumes and 56% in value terms on the back of pushing upgradation and premium range of
products. The safe painting and terrace waterproofing have gained traction. International business portfolio
performed well, as markets in UAE and Africa were open in April and portfolio performance improved
progressively across all markets. Asia was the worst affected region as Nepal was severely affected with
complete washout in April and May. In June, Nepal has completely opened up, so there is pent up demand.
Growth in Bangladesh and Sri Lanka have mirrored India. Going further if there are no disturbances, this
portfolio will do well. JV for the automotive coatings - PPG-AP, continued to be severely impacted during the
quarter. JV for the industrial coatings - AP-PPG, was also impacted in 1QFY21 but saw an improving trend in
June. Going forward, while there is still some uncertainty in the domestic market due to the sporadic
lockdowns but we think the business should do well overall progressively. Soft material prices and cost control
measures especially in S&D and admin expenses will support operating margins in the near term. No big
capital expenditure is expected now like the last two years.
We expect APNT to deliver 9.0%, 13.0% and 15.1% CAGR growth over FY20-23E in Revenue, EBITDA and
PAT, respectively, underpinned by (a) strong growth in the organized decorative paints industry (from II/III/IV
cities, especially for lower end products), (b) faster growth in premium products, (c) pick-up in GDP growth
beyond FY21 (we expect real/nominal GDP growth rate of 6.0%/9.7% in FY22) and (d) higher contribution
from allied businesses. As operations improve beyond FY21 and utilization levels of new plants go up, we
anticipate return ratios to improve and go back to FY20 levels by FY23 itself. We believe that valuation for
APNT will always appear expensive as it has consistently delivered strong volume growth even compared to
other consumer segments, maintained market leadership in its core business, continuously generated robust
cash flows and maintained a healthy dividend payout of >50%. At CMP, the stock trades at 44.1x FY23E EPS
of Rs43.1, at a discount of ~15% to five-year average P/E of 52.1x. We initiate coverage on APNT with
Accumulate rating and a TP of Rs2,080 based on 52x September’22 EPS, implying an upside of 10% from
CMP.
In addition to the risk which is present to the sector:
A near term monitorable to look out for is the outcome of the probe ordered by the Competition
Commission of India (CCI) against APNT for allegedly denying access to the distribution channels
in the relevant markets to JSW Paints.
Exhibit 54: One year forward P/E
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Feb-19
Aug-19
Feb-20
Aug-20
Forward PE 5 yr Median SD -1 SD +1
(x)
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
59
Exhibit 55: Average P/E
59.8
54.7
52.1
42.9
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
1yr 3yr 5yr 10yr
Avg. PE (x)
(x)
Source: Company, Nirmal Bang Institutional Equities Research
Shareholding
Exhibit 56: Shareholding breakdown as on June 2020
18%
9%
0%
53%
20%
Foreign portfolio investors
Domestic institutional investors
Governement holding
Promoters
Public & Others
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 57: Top 10 shareholders
Name of the shareholder
%
Life Insurance Corp of India
2.9
BlackRock Inc.
1.3
Vanguard Group Inc.
1.1
Axis Asset Management Co Ltd.
0.8
JPMorgan Chase & Co.
0.6
ICICI Prudential Asset Management
0.6
Standard Life Aberdeen PLC
0.4
UTI Asset Management Co Ltd.
0.4
Motilal Oswal Asset Management Co.
0.4
Sands Capital Management LLC
0.3
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Asian Paints Ltd.
60
Board of directors and KMP
Name
Designation
Description
Mr. Ashwin Dani
Non-Executive
Chairman
He joined APNT as a Senior Executive in 1968 and moved through successive senior positions
like Director - R&D, Works Director and Whole-time Director. He served as Vice- Chairman and
MD from Dec 1997 to Mar 2009 and presently holds the position of Non-Executive Chairman of
the Company.
Mr. Amit Syngle
MD & CEO, Additional
director
He has spent 30 years with the Company and has headed Supply Chain, Sales & Marketing and
Research & Technology functions. In addition, he also spearheaded the acquired businesses of
the Kitchens and Bath spaces in the Home Improvement venture of the Company. Before being
appointed as an Additional Director/ Managing Director & CEO, Mr. Amit Syngle held the
position of Chief Operating Officer of the Company.
Mr. Manish Choksi
Non-Executive Vice
Chairman
He joined APNT in the year 1992 as an Executive and has grown in ranks by holding various
positions across different functions of the Company. He has spearheaded the IT function of the
Company.
Mr. Abhay Vakil
Non-Executive Director
He has been associated with the company since 1974. Prior to becoming Managing Director in
1998, he was overseeing the Decoratives India SBU of the Company. He ceased to be the MD
of APNT on FY09 and since then holds the position of Non-Executive Director on the Board of
APNT.
Mr. Malav Dani
Non-Executive Director
He joined APNT as Manager-Quality in 2005 and worked on customer centricity initiatives. He
was appointed as a Non-Executive Director on the Board of the Company, since 2013 and is
also the Chairman of the CSR Committee of the Board from October, 2015.
Ms. Amrita Vakil
Non-Executive Director
She began her career at APNT in 2003 in the HR department and was responsible for end-to-
end training of the Executives cadre of the Company. In the year 2005, she joined Frost &
Sullivan as a Senior HR Executive and managed a Generalist HR profile where she spent a total
of 5 years.
Mr. Jigish Choksi
Non-Executive Director
During his 5 year long stint with APNT which began in 2010, he has worked as an Area
Manager-Project Sales for 3 years and thereafter, he was a part of the Marketing team Mr.
Choksi is the Managing Director of M/s. Elf Trading & Chemicals Manufacturing Limited - an
agro-chemical company.
Mr. Deepak
Satwalekar
Independent Director
He has been a consultant to the World Bank, the Asian Development Bank, USAID and the UN
HABITAT. He was also the MD & CEO of HDFC Standard Life Insurance Co. Ltd., before his
retirement in Nov 2008, before which he served as the MD of HDFC Ltd. from 1993 to 2000.
Dr. S Sivaram
Independent Director
He has over 30 years of experience in research on polymer synthesis, high performance
polymers and surface chemistry of polymers. He was bestowed with "Padma Shri" award by the
President of India in January, 2006 for his outstanding contribution in the field of science and
technology.
Mr. M K Sharma
Independent Director
Mr. M.K. Sharma began his career with DCM Limited and subsequently joined Hindustan
Unilever Ltd. as Legal Manager. He retired as the Vice Chairman of Hindustan Unilever Ltd. of
in May, 2007. He serves as a Director on the Boards of several companies of repute.
Ms. Vibha Paul Rishi
Independent Director
She started her career with the Tata Administrative Services and was part of the founding team
of Titan Watches. She spent 17 years at PepsiCo in marketing and innovation roles in India, US
and UK and was one of the founding team employees of PepsiCo when they set up in India.
Mr. R Seshasayee
Independent Director
He joined Ashok Leyland Ltd. in 1976 rose to Managing Director in 1998. He has served on the
board of ICICI Bank from 1997 to 2003. The former chairman of Infosys Ltd. and Indusind Bank
Ltd. is on the board of APNT since 2017.
Ms. Pallavi Shroff
Independent Director
She is the managing Partner of M/s. Shardul Amarchand Mangaldas, with extensive experience
of over 37 years. Her broad and varied representation of public and private corporations and
other entities before legal institutions, has earned her national and international acclaim.
Mr. Suresh Narayanan
Independent Director
Mr. Suresh Narayanan is currently the Chairman & MD of Nestle India Limited. He joined Nestle
in the year 1999 and has been associated with the Company since then. He was the Chairman
and CEO of Nestle Philippines, Inc. prior to joining Nestle India.
Mr. R J Jeyamurugan
CFO & Company
Secretary
Mr. R J Jeyamurugan, an associate member of the ICAI and ICSI, was appointed as the CFO &
Company Secretary of the Company, w.e.f. 27th November, 2019. He heads the Finance,
Accounts, Shared Service Centre, Tax, Legal, Secretarial & Investor relations functions of the
Company.
In s titu tio n a l E q u itie s
Asian Paints Ltd.
61
Financials (Consolidated)
Exhibit 58: Income statement
Y/E March (Rsmn)
FY19
FY20
FY21E
FY22E
FY23E
Net Sales
1,92,401
2,02,113
1,96,587
2,34,720
2,61,922
% Growth
14.4
5.0
-2.7
19.4
11.6
COGS
1,12,646
1,13,835
1,08,290
1,29,128
1,43,539
Staff costs
12,368
13,661
14,364
15,969
16,959
Other expenses
29,732
32,999
31,397
36,680
41,350
Total expenses
1,54,746
1,60,495
1,54,051
1,81,777
2,01,849
EBITDA
37,655
41,618
42,536
52,943
60,073
EBITDA margin (%)
19.6
20.6
21.6
22.6
22.9
% growth
17.8
10.5
2.2
24.5
13.5
Other income
2,330
3,043
2,772
4,184
5,184
Interest costs
1,053
1,023
808
751
663
Depreciation
6,221
7,805
8,059
8,255
8,549
Profit before tax (before
exceptional items)
32,712
35,833
36,442
48,121
56,046
Tax
10,981
8,549
9,183
12,127
14,124
Rate of Tax (%)
33.6
23.9
25.2
25.2
25.2
Share from assc. /NCI
114
183
328
470
620
Profit from discontinued
operations
-58
-50
0
0
0
Reported PAT
21,617
27,101
26,931
35,525
41,303
Adj PAT
21,559
27,052
26,931
35,525
41,303
Adj PAT margin (%)
11.2
13.4
13.7
15.1
15.8
% Growth
5.7
25.5
-0.4
31.9
16.3
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 60: Balance sheet
Y/E March (Rsmn)
FY19
FY20
FY21E
FY22E
FY23E
Share capital
959
959
959
959
959
Reserves
93,746
1,00,342
1,18,715
1,34,000
1,51,323
Net worth
94,706
1,01,302
1,19,674
1,34,960
1,52,282
Minority Interest
3,613
4,035
4,363
4,833
5,453
Total debt
6,156
3,401
2,801
2,201
1,601
Other LT liabilities
12,137
11,984
10,995
10,000
9,004
Total liabilities
1,16,611
1,20,722
1,37,834
1,51,994
1,68,341
Gross block
77,672
81,230
83,230
85,230
89,230
Depreciation
15,919
21,707
29,765
38,020
46,568
Net block
61,753
59,523
53,465
47,210
42,662
Capital work-in-progress
2,097
1,402
2,602
4,102
5,602
Goodwill
3,213
3,200
3,200
3,200
3,200
Investments
25,686
20,189
29,079
35,920
43,770
Inventories
31,499
33,898
34,932
37,945
39,920
Debtors
19,134
17,994
19,707
23,378
25,418
Cash
4,449
7,828
11,275
16,699
18,819
Other current assets
14,659
17,345
23,931
29,227
36,533
Total current assets
69,740
77,066
89,846
1,07,249
1,20,690
Creditors
23,943
21,366
21,950
26,163
27,320
Other current liabilities &
provisions
21,935
19,292
18,409
19,524
20,264
Total current liabilities
45,878
40,658
40,359
45,688
47,584
Net current assets
23,863
36,408
49,487
61,561
73,106
Total assets
1,16,611
1,20,722
1,37,834
1,51,994
1,68,341
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 59: Cash flow
Y/E March (Rsmn)
FY19
FY20
FY21E
FY22E
FY23E
PAT
23,226
26,175
27,259
35,995
41,922
Depreciation
6,256
7,819
8,059
8,255
8,549
Other income
-690
-305
-1,965
-3,433
-4,521
(Inc.)/dec. in working capital
-4,097
-7,371
-9,632
-6,650
-9,425
Cash flow from
operations
24,695
26,319
23,720
34,166
36,525
Capital expenditure (-)
-11,543
-3,771
-3,200
-3,500
-5,500
Net cash after capex
13,152
22,548
20,520
30,666
31,025
Inc./(dec.) in investments
-1,575
5,484
-5,251
-9,805
-10,814
Cash from investment
activities
-13,119
1,713
-8,451
-13,305
-16,314
Dividends paid (-)
-10,487
-21,207
-15,155
-20,239
-23,980
Others
-688
-3,445
3,333
4,801
5,890
Cash from financial
activities
-11,175
-24,652
-11,822
-15,438
-18,090
Opening cash balance
4,047
4,449
7,828
11,275
16,699
Closing cash balance
4,449
7,828
11,275
16,699
18,819
Change in cash balance
402
3,380
3,447
5,423
2,120
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 61: Key ratios
Y/E March
FY19
FY20
FY21E
FY22E
FY23E
Per share (Rs)
EPS
22.5
28.2
28.1
37.0
43.1
Book value
98.7
105.6
124.8
140.7
158.8
DPS
12.3
15.7
15.8
21.1
25.0
Valuation (x)
EV/sales
9.4
9.0
9.2
7.6
6.8
EV/EBITDA
48.1
43.5
42.4
33.9
29.8
P/E
84.5
67.3
67.6
51.3
44.1
P/BV
19.2
18.0
15.2
13.5
12.0
Return ratios (%)
RoCE
22.8
26.3
23.7
27.2
28.2
RoE
24.1
27.6
24.4
27.9
28.8
RoIC
29.5
29.3
27.7
35.2
39.4
Profitability ratios (%)
Gross margin
41.5
43.7
44.9
45.0
45.2
EBITDA margin
19.6
20.6
21.6
22.6
22.9
EBIT margin
16.3
16.7
17.5
19.0
19.7
PAT margin
11.2
13.4
13.7
15.1
15.8
Liquidity ratios (%)
Current ratio
1.5
1.9
2.2
2.3
2.5
Quick ratio
0.8
1.1
1.4
1.5
1.7
Solvency ratio (%)
Debt to Equity ratio
0.1
0.0
0.0
0.0
0.0
Turnover ratios
Total asset turnover ratio (x)
1.6
1.7
1.4
1.5
1.6
Fixed asset turnover ratio (x)
2.4
2.4
2.3
2.6
2.8
Inventory days
94
105
116
103
99
Debtors days
35
34
35
34
34
Creditor days
74
73
73
68
68
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
62
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In s titu tio n a l E q u itie s
Initiating Coverage
Reuters: BRGR.NS; Bloomberg: BRGR IN
Berger Paints India Ltd.
Strong second and gaining ground
Incorporated in the year 1923, Berger Paints India Ltd. (BRGR) is one of India’s oldest
paint companies. It is India’s second largest paint company, commanding ~12% market
share of the overall paint industry. It is also the second largest player in the domestic
decorative paints segment with ~20% market share. It is the market leader in the
protective coatings industry and also has presence in the automotive, general industrial
and powder coatings segments. On a consolidated basis, decorative paint segment
contributes a bit over ~80% to the revenue and the balance ~20% is contributed by
industrial paints. It also caters to overseas markets such as Nepal, Poland and Russia
through its subsidiaries. Over the years, the company has established a strong position in
the paints industry, led by strong brands, well-spread distribution network (still way below
the market leader) and expanding product portfolio. In terms of performance, over the last
decade, the company has improved its operating performance. It grew its sales at a CAGR
of 12.9% and PAT at a CAGR of 18.5% over a period of 10 years. This was led by
expanding distribution network, innovations across portfolio, capacity additions and
improvement its geographical presence in Western and Southern regions. After a washout
in April, good demand was seen in May and the same improved further in June. The
company has seen a decent recovery in decorative and subsidiary businesses and
believes that there is a high probability of demand extending all the way up to July-
September on the back of agri-reforms and recovery in rural markets post a good
monsoon. Even protective paints is expected to do reasonably well going forward.
However, automotive paints category might remain a mixed bag in the near term as two-
wheeler and car segments are coming back to last year’s levels but the CV segment is still
substantially down. There is still some uncertainty about the overall business operations
due to the sporadic lockdowns but we think that the business should do well overall
progressively. Over FY20-23E, we expect BRGR to deliver 10.4%, 16.3% and 18.3% CAGR
growth in Revenue, EBITDA and PAT, respectively, led by (a) strong growth witnessed by
the organized decorative paints industry from tier II/III/IV cities & rural areas (especially for
lower end products) where company has a higher exposure than the industry, (b) portfolio
& distribution expansion, (c) high growth in premium decorative products, (d) pick-up in
GDP growth beyond FY21 (we expect real/nominal GDP growth rate of 6.0%/9.7% in FY22)
and (e) non-decorative segments growing in tandem or even higher going forward. We
also expect operating margins to improve due to benign input prices in the near term,
better mix and cost rationalization across line items. The company has deferred its capex
plans for FY21 but when it is completed it will lead to some savings in logistics cost as
well. At CMP, the stock trades at 57x/48x FY22E/FY23E EPS of Rs9.5/Rs11.2. We believe
that even though earnings performance of BRGR has been ahead of the market leader
over 3-year/5-year/10-year period and also expected to be ahead over FY20-23E, the leader
still commands a premium because of the sheer size of the business, market share
difference and higher reach. We therefore assign a multiple of 48x on September’22 EPS
and initiate coverage on BRGR with Sell rating with a target price (TP) of Rs500, implying
a downside of 7% from current market price (CMP).
SELL
Sector: FMCG
CMP: Rs538
Target Price: Rs500
Downside: 7%
Vishal Punmiya
Research Analyst
vishal.punmiya@nirmalbang.com
+91-22-6273 8064
Key Data
Current Shares O/S (mn)
971.2
Mkt Cap (Rsbn/US$bn)
522.2/7.1
52 Wk H / L (Rs)
597/357
Daily Vol. (3M NSE Avg.)
1,720,460
Shareholding (%)
3QFY20
4QFY20
1QFY21
Promoter
75.0
75.0
75.0
Public
25.0
25.0
25.0
Others
-
-
-
One -Year Indexed Stock Performance
60
70
80
90
100
110
120
130
140
150
160
170
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
BERGER PAINTS
Nifty 50
Price Performance (%)
1 M
6 M
1 Yr
Berger Paints
7.8
(0.7)
53.6
Nifty Index
2.3
3.2
4.6
Source: Bloomberg
FY19 Annual Report
1QFY21 Result and press release
Financial Summary
Y/E March (Rs mn)
FY19
FY20
FY21E
FY22E
FY23E
Net sales
60,619
63,658
63,342
76,699
85,662
YoY growth (%)
17.3
5.0
-0.5
21.1
11.7
EBITDA
9,355
10,610
11,275
14,419
16,704
EBITDA margin (%)
15.4
16.7
17.8
18.8
19.5
Adj. PAT
4,943
6,578
6,852
9,196
10,878
EPS
5.1
6.8
7.1
9.5
11.2
YoY change (%)
7.3
33.1
4.2
34.2
18.3
ROCE (%)
18.9
22.8
21.3
24.9
25.8
ROE (%)
21.3
25.8
23.9
27.4
27.5
ROIC (%)
22.8
27.3
26.0
32.8
36.7
P/E (x)
105.6
79.4
76.2
56.8
48.0
P/B (x)
21.4
19.6
17.0
14.4
12.2
EV/EBITDA (x)
56.1
49.5
46.4
36.1
31.0
Source: Company, Nirmal Bang Institutional Equities Research
1 September 2020
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
64
About the company
BRGR is India’s second largest paint company commanding ~12% market share of the overall paint industry
and over 20% market share of the domestic decorative paints segment. On a consolidated basis, decorative
paint segment contributes a bit over ~80% to the revenue while the balance 20% is contributed by industrial
paints. The company has 16 manufacturing plants in India (4 outside India) with total capacity of ~609,247 KL.
The company also caters to overseas markets such as Nepal, Poland and Russia through its subsidiaries.
Key subsidiaries include:
Berger Jenson & Nicholson (Nepal) Pvt. Ltd. (BJN Nepal): BRGR entered Nepal by acquiring Jenson
& Nicholson in 2000. BJN Nepal is engaged in manufacturing and marketing of decorative paints.
Revenue (till FY19) has grown at a 5-year CAGR of 20% while profit has grown at a CAGR of 27% during
the same duration. The subsidiary grew its topline and profit at a steady pace in FY20. However,
operations in FY21 would be affected since Nepal was under lockdown for more than two months since
the start of the fiscal. The company has since recovered post the withdrawal of lockdown.
SBL Specialty Coatings Pvt. Ltd. (Erstwhile Saboo Coatings Ltd.): During FY18, BRGR acquired 100%
of SBL Specialty Coatings Pvt. Ltd. (SBL Specialty Coatings), which is in the business of liquid coatings
for various industrial segments. Since the acquisition, this subsidiary has been recording strong growth in
topline and bottomline. While FY21 operations have been affected due to the lockdown, BRGR expects
the subsidiary’s performance to significantly improve going ahead.
Bolix S.A: BRGR entered Poland by acquiring Bolix S.A. in 2008. The company is engaged in the
business of External Insulation Finishing Systems (EIFS), which is a comprehensive solution for meeting
both the insulation and decorative requirements of external walls of buildings. Bolix S.A.’s products,
manufactured in-house include adhesives, mortars, plasters, primers and paints. In FY20, operations
improved both on topline and profitability front.
Beepee Coatings Pvt. Ltd.: This subsidiary, with its entire manufacturing facilities dedicated to
processing BRGR’s products, has been growing at a steady pace. Revenue and PAT have grown at a 5-
year CAGR of 4% and 5%, respectively. In FY18, BJN Paints India Pvt. Ltd.,a wholly owned subsidiary of
Beepee Coatings Pvt. Ltd., was amalgamated with BRGR for bringing in better efficiencies and improving
various operating parameters.
Exhibit 1: Performance of key subsidiaries
Revenue
FY14
FY15
FY16
FY17
FY18
FY19
BJN Nepal
787
963
1,022
1,353
1,708
1,972
% growth
19.0
22.4
6.0
32.5
26.2
15.4
SBL Specialty Coatings
-
-
-
-
715
1,063
% growth
-
-
-
-
-
48.6
Bolix S.A
1,560
1,657
1,578
1,897
1,992
2,479
% growth
-6.4
6.2
-4.8
20.2
5.0
24.5
Beepee Coatings Pvt. Ltd.
204
216
232
249
244
249
% growth
16.0
6.0
7.3
7.2
-1.8
1.8
PAT
FY14
FY15
FY16
FY17
FY18
FY19
BJN Nepal
122
141.2
172.9
278.7
359.4
403.2
% growth
29.1
15.7
22.5
61.2
29.0
12.2
SBL Specialty Coatings
-
-
-
-
31.9
93.2
% growth
-
-
-
-
-
192.2
Bolix S.A
57.8
6.8
43.5
84.8
61.8
87.8
% growth
50.1
-88.2
539.7
94.9
-27.1
42.1
Beepee Coatings Pvt. Ltd.
21.5
16.7
20
27.9
23.9
27.3
% growth
726.9
-22.3
19.8
39.5
-14.3
14.2
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
65
Growing on a two-pronged approach
For the past few years, demand in smaller cities and towns has been growing at a faster pace than metro and
urban areas. Rise in disposable income, incremental consumption expenditure, increase in awareness,
development of rural markets and various launches have fueled the paint industry’s growth. Increased
awareness among rural households about applying lower-coat (putty and primer) before applying final coat
(distempers) has aided demand of low-end products.
Shift from unorganized to organized, led by GST and better consumer awareness has driven growth in low-
end product offerings like putty and distemper.
We expect the company to continue following this two-pronged approach – boosting margin through
premiumization and driving volume growth & market share through its low-end offerings.
While BRGR had been focusing on the bottom of the pyramid till the early 2010s, it has been focusing on
improving its product mix during the recent years by expanding its premium-end portfolio.
In the recent years, BRGR has been focusing on offering differentiated products, especially revolving around
consumer’s comfort and well-being. In FY19, the company launched ‘WeatherCoat Anti Dust’ an exterior
emulsion, developed keeping in mind the dry and dusty regions of India where rainfall in sparse, doesn’t
allow dust to settle on exterior walls. The company’s ‘Easy Clean Fresh’ interior emulsion, also launched in
FY19, absorbs unwanted odour coming from cigarette smoke, musty carpets, kitchens, dustbins etc. in
homes. The outbreak of Covid-19 prompted the company to launch ‘Silk Breathe Easy Emulsion’ (positioned
as Ghar ka Sanitiser) under its home health & hygiene category, which significantly reduces pollution and
kills bacteria. These innovative and differentiated products, focusing on bridging the gap between unidentified
consumer needs and availability, are helping BRGR strengthen its brand presence and top-end premium
portfolio, drive demand and result in stronger sales with higher margins.
Exhibit 2: Product offerings in the top-end segment
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 3: Price range of paints, putty, distemper
BRGR
Interior
Price Range
Exterior
Price Range
Top end/Luxury
Silk/Easy Clean
360-1000
WeatherCoat/Florentina
320-450
Mid-segment
Rangoli
250-270
WeatherCoat
270-300
Bottom of pyramid/Economy/
Value for money
Bison/Commando
65-180
Walmasta/Bison
30-200
Source: Aapkapainter, Colourdrive, Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
66
Exhibit 4: Product offerings in the low-end segment
Source: Company, Nirmal Bang Institutional Equities Research
Project/institution business
BRGR’s projects division ‘Prolinks’ is a solution provider for big projects like housing. The process starts with
pre-painting audit, recommending appropriate painting system (keeping in mind the wall surface and climatic
conditions), suggesting the kind of primer, topcoat, pre-primer coat (if any) etc. that should be used, product
and shade development, technical services to provide solutions to overcome typical problems and on-site
supervision, recommending panel of contractors to undertake quality jobs, ensure on-time delivery and post-
application maintenance.
Foraying into adjacencies
I. Waterproofing and construction chemicals
BRGR entered the construction chemical market in FY12 with a product portfolio of ‘Cementmix Plus’
(waterproofing compound), ‘Crackfill Paste’ (ready to use flexible putty for filling the cracks on plastered
surfaces), ‘Crackfill Powder’, ‘Super Latex Plus’ and ‘Latex Plus’ (liquids for waterproofing and multi-purpose
repair work) and ‘Tile Adhesive Plus’ and ‘Tile Adhesive’ (used for bonding of tiles with cement surfaces).
Over the years, it has increased the number of offerings under this space, which has in turn spurred growth.
To boost its existing business, BRGR acquired a 91.9% stake in STP Ltd. (formerly known as Shalimar Tar
Products Ltd.) out of the planned 95.5% stake. STP Ltd. is engaged in the manufacture and supply of
construction chemicals, concrete admixtures, waterproofing chemicals, flooring compounds, bitumen and
coal tar-based products, sealants and adhesives, protective and anti-corrosive coatings.
Exhibit 5: Waterproofing and construction chemicals offerings
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
67
II. Express painting services
Launched during FY15, BRGR pioneered in providing ‘Express Painting’ service to change the process of
painting by offering a faster, cleaner, better way to paint homes using automated tools and completing the
painting process in 40% lesser time. The service involves technical evaluation of painting requirements,
providing accurate quotation, furniture shifting and covering, painting by specially trained painters with XP
automatic tools and many other customer-centric and hassle-free approaches. It further beats conventional
manual painting by cutting down on time and providing a dust free environment and that too at no extra cost.
As per the company, 90% of customers are satisfied with the service. The company is providing this service in
25+ cities across India.
In response to the Covid-19 pandemic, the company has upgraded its process and approach taken under this
service. It has launched an ‘Express Painting App’ through which consumers can get cost estimates, book the
painting service, track work progress, monitor health and body temperature of painters and complete all
transactions digitally.
Exhibit 6: Express Painting during its launch in 2014; from ‘Faster, Cleaner, Better’ to….
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
68
Exhibit 7: …‘Faster, Cleaner, Safer’: Express painting modified in response to COVID
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 8: Express Painting modified in response to COVID
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
69
III. Home hygiene
Due to the outbreak of Covid-19, BRGR has ventured into the ‘home hygiene and safety’ space under the
brand name ‘Breath Easy+’ through the launch of:
Breathe Easy+ Virus Guard Hand Sanitizer (80% alcohol content)
Breathe Easy+ Hand Sanitizer (70% alcohol content)
Breathe Easy+ floor cleaner, which is a non-acidic specialized cleaning solution that removes 99.9%
germs from the floor. It also removes tough stains, including dried paint drips.
The above offerings are in addition to Silk Breathe Easy Emulsion (positioned as Ghar ka Sanitiser), which
significantly reduces pollution and kills bacteria.
Exhibit 9: Home hygiene - Sanitization
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
70
Revival in industrial paints is material to overall growth trajectory
Industrial coatings have been affected not just by the pandemic but also due to general slowdown faced in
the last 2 years. The company is present in the industrial paints segment on a standalone basis (~20%
contribution) as well as through its subsidiaries and JVs (18-20% contribution on a consolidated basis).
BRGR is present in the protective coatings, automotive coatings, general industrials and powder coatings
space.
Protective coatings: This category contributes ~9-9.5% to BRGR’s total revenue. The company is a leader
in high performance protective coatings in India for over 45 years and supplies this range of products under
the name ‘Berger Protection’. This business serves various sectors, including OEMs, contractors, dealers,
fabricators etc. wherein the company is able to command premium given its experience in the field. In FY17,
the company entered into two Memorandums of Understanding (MoUs):
One with Promat International Limited NV (US$3bn+ company headquartered in Belgium) for co-
operation in the field of passive fire protective coatings and high-performance insulation coatings in India
and neighboring countries. The MOU envisages production, distribution and supply of specialized fire-
resistant coatings, which may range from lightweight and thin films to cement based wet mix products
suitable for steel and concrete, offering various degrees of efficiency in fire resistance. BRGR continues
to supply fire proof coatings through itself and Promat.
The other with Chugoku Marine Paints Limited of Japan (established in 1917) for co-operation and
collaboration in the field of marine and related industrial paints in India. The MOU envisages joint efforts
in marketing, supplying and purchasing marine related industrial paints. BRGR has started supplying
marine coatings to its clients in terms of the MoU.
Powder coating: This category contributes less than 2% to the company’s topline. Powder coating in India is
a much smaller segment than liquid paints. The company’s main customers include manufacturers of white
goods, furniture, luminaries, hospital items, garden tools, power solutions (generators), invertors, batteries,
control panel manufacturers, aluminum extrusions used in real estate etc.
General industrial and automotive: The company has a joint venture with Nippon Paint Automotive
Coatings Co., Limited of Japan (NPAU) in the form of Berger Nippon Paint Automotive Coatings Private
Limited (BNPAC). BNPAC deals with coatings for 4-wheeler passenger cars and SUVs, three wheelers and
related ancillaries and automotive plastic parts. In FY18, BRGR acquired 100% of SBL Specialty Coatings
Pvt. Ltd. (erstwhile Saboo Coatings Ltd.), which is in the business of liquid coatings for various industrial
segments. Since the acquisition, this subsidiary has been recording strong growth in topline and bottomline.
While FY21 operations have been affected due to the lockdown, the company expects the subsidiary’s
performance to significantly improve going ahead. General industrial and automotive account for ~8% of the
company's revenue.
Exhibit 10: Clientele in general industrial segment
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
71
Exhibit 11: Clientele in general automotive segment
Source: Company, Nirmal Bang Institutional Equities Research
Auto refinish: The company is already present in all areas of automotive paints in India. However, in FY17,
it entered into a MoU with Rock Paint Co. Ltd. (Rock Paint) of Japan for marketing of automotive refinish
paints in India and launched the products in May 2017. In FY19, BRGR subscribed to 51% stake in Berger
Rock Paints Pvt. Ltd. upon its incorporation in September 2018 while the balance 49% was subscribed by
Rock Paint. Berger Rock, a beneficiary of market knowledge and infrastructure of BRGR and technical
expertise and high-end products from Rock Paint, has started selling automotive refinish paints.
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
72
Network distribution and expansion
Although APNT has expanded its network at an unmatched pace, BRGR has also been scaling up its
distribution aggressively. While it is the second largest players it is still far behind the leader in terms of
number of dealers. It has been growing its total dealer base by 10-12% annually for the last 2-3 years and
expects to continue growing it at a similar pace for the coming years, which would help drive the growth going
ahead. The active dealer base is estimated at 29,000 with a penetration of tinting machines over 80%. Even
the depot network has been expanded and located in a way to address quick servicing and order fulfilling.
While 10-12% growth in dealer base may not be possible in FY21, BRGR will continue to focus on proactively
augmenting its dealer base by consolidating its positions in stronger markets and simultaneously gaining
market share in its weaker markets over the long term.
Exhibit 12: 2,000-3,000 dealers added every year
Exhibit 13: No. of supply depots increased from FY17 to FY19
25,000
27,000
30,000
22,000
23,000
24,000
25,000
26,000
27,000
28,000
29,000
30,000
31,000
FY18 FY19 FY20
156
167
162
145
150
155
160
165
170
175
FY17 FY18 FY19
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 14: Depots and manufacturing unit pan-India
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
73
Research and Development
With its dedicated team of scientists and technologists, BRGR continues to invest in R&D in terms of
manpower, equipment, facilities etc. Majority of the company’s research is focused on the near term i.e.
towards offering new solutions, lowering costs, providing alternate raw material and enhancing customer
product services. For the long term, the company’s aim is to build up strength on futuristic applications in
order to get new insights in the area of coatings and construction chemicals.
The company’s R&D facility at Howrah, West Bengal focuses on:
Development of new products and upgradation of existing products
Development of new resins and emulsions
Development of eco-friendly products
Collaborative work with academic institutes and vendors
Reformulation of cost optimization without compromising quality
Exhibit 15: R&D expenses as a % of sales
15
21
37
11
35
14
38
55
65
93
98
130
145
157
0.2
0.2
0.3
0.3
0.4
0.3
0.3
0.0
0.1
0.1
0.2
0.2
0.3
0.3
0.4
0.4
0
20
40
60
80
100
120
140
160
180
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Capital
Recurring
R&D as a % of net revenue
(Rsmn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 16: Breakdown of R&D expenses
FY16
FY17
FY18
FY19
Employee Benefit Expenses
67
91
101
110
Materials and Stores & Spares consumption
8
10
10
12
Power and Fuel
3
4
4
4
Depreciation
13
18
20
20
Others
8
8
12
11
Total recurring expenses
98
130
146
157
Capital Expenditure
11
35
14
38
Total R&D expenses
109
165
160
195
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
74
Expanding footprint
BRGR has been growing organically and inorganically in order to meet the increasing customer demand and
foray into lucrative markets.
I. Capacity expansion
BRGR has been significantly ramping up its capacities in the last few years to cater to the increasing
demand. The company commercialized its paint and putty plants at Naltali, Assam in FY17, which has an
annual capacity of 48,000 KL/MT for water-based paints, 24,000 KL for solvent based paints, 14,000 MT for
resin and 24,000 MT for wall putty. In the same year, the British Paints division of the company commenced
commercial production of its distemper and putty manufacturing facility in Nalbari, Assam with a capacity of
6,600 KL/MT and 7,200 MT per annum, respectively. In FY19, the effective capacity of the Hindupur water-
based plant was increased to 109,200KL and the first phase of emulsion plant with final capacity 44,160MT
in Rishra was completed.
Installation of BRGR’s holistic coatings facility at Sandila Industrial Area, Uttar Pradesh at an estimated cost
of Rs2.5bn is on track for completion in 2021.
Exhibit 17: Capex over the years
1.0
1.3
2.1
2.4
1.6
1.2
2.6
2.9
2.9
4.3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Capex (Rsbn)
(Rsbn)
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 18: Manufacturing locations in India
Sr. no.
Location of plants
1
Howrah, West Bengal
2
Sikandrabad, Uttar Pradesh
3
Pudducherry
4
Jammu, Jammu & Kashmir
5
North Goa, Goa
6
Rishra, Hooghly, West Bengal
7
Surajpur, Noida, Uttar Pradesh
8
Jejuri, Pune, Maharashtra
9
Industrial Growth Centre, Hindupur, Andhra Pradesh
10
APIIC Industrial Park, Hindupur, Andhra Pradesh
11
Nalbari, Assam
12
Naltali, Assam
13
Taloja, Raigad, Maharashtra
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
75
II. Inorganic growth
In order to bolster presence in the existing segments and to venture into newer segments, the company has
undertaken inorganic routes, including following acquisitions in the last decade:
BRGR acquired 51% of the paid-up equity share capital of (1,03,03,580 equity shares) of Saboo
Hesse Wood Coatings Private Limited (SHWCPL), in FY19 for a cash consideration of Rs15mn.
SHWCPL manufactures, imports and sells a wide variety of wood coatings, including alkyd PU,
pigmented PU, UV coatings, water-based wood coatings etc. which supplemented BRGR’s existing
wood coatings business. The balance 49% is held by Hesse Shares GmbH of Germany, a leading
wood coatings manufacturer.
The company also acquired 51% stake in Berger Rock Paints Pvt. Ltd. in FY19 for a cash
consideration of ~Rs41mn, which sells automotive refinish paints.
In FY18, BRGR acquired 100% of Saboo Coatings Pvt. Ltd., which is in the business of liquid
coatings for industrial segments, for a cash consideration of ~Rs826mn. The name of this company,
which is now a subsidiary, has been changed to SBL Specialty Coatings Private Limited w.e.f. 6th
May 2019.
In November 2019 (FY20), BRGR acquired a 91.9% stake in STP Ltd. (formerly known as Shalimar
Tar Products Ltd.) for a consideration of Rs1.3bn out of the planned 95.5% stake. STP Ltd is engaged
in the manufacturing of construction chemicals, waterproofing chemicals, construction admixtures and
tar-based products.
CSR initiatives
BRGR imparts training, revolving around decorative painting and wood polishing, to the unskilled and semi-
skilled painters through its “iTrain” centres. BRGR also started “mobile iTrains” in FY18, which comprise vans
with essential training equipment and facilities. As on FY19, the company had 26 iTrain centres and 13
mobile iTrain vans across the country. From inception of iTrain till the end of FY19, 43,000 painters have
been trained under this initiative.
In the wake of Covid-19, BRGR has come to the aid of the painter and contractor community by providing
financial aid and assistance. The company has transferred money directly into the bank account of over
20,000 contractors who have been associated with the company. Since, during this time, most painters are
struggling to make ends meet, one of the first steps taken towards helping the painter community was to
accelerate its cash rewards program. In the pre-pandemic times, when a painter purchased paint from the
comapny, there was a long process to get rewards. Because cash is of the essence to survive the pandemic
and maintain social distancing norms, BRGR moved to a digital model of rewards and benefits. The company
is helping the painters open bank accounts and earned rewards are being credited to their accounts in a
matter of few days to enable them to enjoy liquidity once the market resumes. With this initiative, the
company has helped over 25,000+ painters and their families with immediate needs and essentials.
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
76
Financial story in charts
BRGR has delivered a revenue growth of 8.1% over FY15-20 on consolidated basis. Going forward, we
expect gradual growth in volumes over the coming quarters of FY21E followed by rebound in FY22E and
build in consolidated revenue growth of 10.4% over FY20-23E.
Exhibit 19: We expect volume growth to remain flat for FY21E led by lack of consumption due to the
pandemic, after which positive growth trajectory should resume
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Domestic decorative volume growth
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 20: Standalone revenue expected to grow 9.1% over
FY20-FY23E which will aid…
Exhibit 21: …10.4% consolidated sales growth over the same
period
33.8
38.1
38.6
42.3
47.2
55.2
56.9
55.1
66.8
74.0
11.9
12.5
1.3
9.5
11.8
16.8
3.2
-3.2
21.3
10.8
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
0.0
20.0
40.0
60.0
80.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Standalone revenue (Rsbn) Growth (%)
(Rsbn)
(%)
38.7
43.2
42.2
45.5
51.7
60.6
63.7
63.3
76.7
85.7
15.6
11.7
-2.3
7.8
13.5
17.3
5.0
-0.5
21.1
11.7
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
0.0
20.0
40.0
60.0
80.0
100.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Consolidated revenue (Rsbn) Growth (%)
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
We expect gross margin to expand by 203bps over FY20-23E primarily on account of benign material cost in
the near term. EBITDA margin is likely to expand by 283bps primarily driven by benign input costs in the near
term, better mix and cost rationalization across line items.
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
77
Exhibit 22: Consolidated gross margin to expand ~203bps
over FY20-23E
Exhibit 23: Employee cost expected to increase 9.3% CAGR…
39.4
41.4
41.5
43.1
41.7
39.0
41.5
42.5
43.0
43.5
36.0
38.0
40.0
42.0
44.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Gross margin (%)
(%)
2.3
2.5
2.7
3.1
3.6
4.1
4.5
4.9
5.4
5.9
20.4
12.4
8.0
12.1
16.3
14.6
10.8
9.2
10.2
8.5
0.0
5.0
10.0
15.0
20.0
25.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Employee expenses (Rsbn) Growth (%)
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 24:… Other expenses expected to increase 9.1%...
Exhibit 25: ….leading to EBITDA growth of 16.3% over FY20-23E
8.7
10.3
8.3
9.3
9.9
10.2
11.3
10.7
13.1
14.6
19.0
18.3
-19.1
12.6
6.2
2.6
10.6
-5.0
22.5
11.7
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
0.0
5.0
10.0
15.0
20.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Other expenses (Rsbn) Growth (%)
(Rsbn)
(%)
4.3
5.1
6.5
7.2
8.1
9.4
10.6
11.3
14.4
16.7
16.2
18.4
27.1
10.7
12.3
15.9
13.4
6.3
27.9
15.8
0.0
5.0
10.0
15.0
20.0
25.0
30.0
0.0
4.0
8.0
12.0
16.0
20.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
EBITDA (Rsbn) Growth (%)
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 26: EBITDA margin to expand by ~283bps due to
benign input costs, better mix and cost savings
Exhibit 27: Adj. PAT to grow at a CAGR of 18.3% over FY20-
23E
11.1
11.8
15.4
15.8
15.6
15.4
16.7
17.8
18.8
19.5
0.0
5.0
10.0
15.0
20.0
25.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
EBITDA margin (%)
(%)
2.5
2.6
3.7
4.3
4.6
4.9
6.6
6.9
9.2
10.9
14.2
6.1
39.4
16.4
7.3
7.3
33.1
4.2
34.2
18.3
0.0
10.0
20.0
30.0
40.0
50.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Adj. PAT (Rsbn) Growth (%)
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
BRGR has reported a strong 5 year CAGR of 20.0% in adjusted profit. We build in earnings CAGR of 18.3%
over FY20-23E along with PAT margin expansion of 237bps. Accordingly, RoE and RoCE will expand by
176bps and 301bps, respectively over the same period.
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
78
Exhibit 28: Adj. PAT margin to expand by 237bps leading to…
Exhibit 29: ….improvement in return ratios i.e. RoE/RoCE by
176/301bps respectively
6.4
6.1
8.7
9.4
8.9
8.2
10.3
10.8
12.0
12.7
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
PAT margin (%)
(%)
24.1
22.2
26.1
24.8
22.5
21.3
25.8
23.9
27.4
27.5
17.4
16.5
20.4
21.5
19.3
18.9
22.8
21.3
24.9
25.8
0.0
5.0
10.0
15.0
20.0
25.0
30.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
RoE (%) RoCE (%)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 30: Cash conversion cycle (CCC)
No. of Days
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Inventory days
63
60
63
67
69
67
72
76
68
65
Debtor days
42
43
47
45
45
41
40
43
40
40
Creditor days
36
37
41
47
57
59
59
63
56
54
On average sales basis
69
66
68
65
57
50
53
56
53
51
Inventory days
104
102
107
117
118
111
123
132
120
115
Debtor days
42
43
47
45
45
41
40
43
40
40
Creditor days
60
63
71
82
97
96
101
110
98
95
On average COGS/sales basis
86
82
83
80
65
55
62
65
62
60
Inventory days
66
61
63
75
71
74
73
78
72
65
Debtor days
46
45
47
46
49
40
41
45
43
42
Creditor days
41
37
45
52
67
60
61
65
58
55
On year-end sales basis
70
69
65
69
53
55
53
58
57
51
Inventory days
108
104
108
132
122
122
125
136
127
115
Debtor days
46
45
47
46
49
40
41
45
43
42
Creditor days
68
63
77
91
116
99
104
113
102
98
On year-end COGS/sales basis
86
86
78
87
55
64
62
68
68
59
Source: Company, Nirmal Bang Institutional Equities Research
The company has deferred its capex plans for FY21E which will lead to a sharp increase in FCF for the
current year. From FY22E we expect a steady increase in cash flow from operations and FCF.
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
79
Exhibit 31: Cash flow from operations to grow at a steady pace from FY22E
3.1
4.1
5.9
3.9
4.2
6.1
7.2
7.3
9.9
11.6
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Cash flow from operations
(Rsbn)
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 32: Sharp increase in FCF in FY21E on account of deferment of capex spends
0.7
2.5
4.8
1.3
1.3
3.2
2.9
6.0
7.4
8.6
0.1
0.5
0.9
0.2
0.2
0.6
0.5
1.1
1.3
1.6
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FCF (Rsbn) FCF yield
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
80
Historical cost line items and cost savings over the years
Exhibit 33: Common size P&L (as a % of consolidated net revenue)
(as a % of Revenue)
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Revenue
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
RM cost
63.1
62.7
63.6
61.5
60.6
58.6
58.5
56.9
58.3
61.0
Gross margin
36.9
37.3
36.4
38.5
39.4
41.4
41.5
43.1
41.7
39.0
Employee expenses
6.6
6.1
5.6
5.6
5.8
5.9
6.5
6.7
6.9
6.7
Advertisement expenses
4.5
4.8
5.1
5.5
5.6
6.6
4.9
5.3
4.8
3.3
Rent, rates and taxes
0.8
0.8
0.8
0.8
1.0
0.9
1.2
1.3
1.2
1.1
Travel expenses
0.9
0.9
0.9
0.9
0.9
0.9
1.0
1.1
1.0
0.9
Freight cost
5.3
5.5
5.6
5.6
6.0
6.2
6.9
7.0
6.4
6.3
Other operating expenses
8.2
8.4
8.2
9.0
9.0
9.1
5.6
5.8
5.8
5.2
EBITDA margin
10.5
10.7
10.3
11.1
11.1
11.8
15.4
15.8
15.6
15.4
Depreciation / Amortization
1.9
1.7
1.6
1.7
1.8
2.1
2.3
2.4
2.4
3.0
Interest & Finance Charges
0.9
1.0
1.1
1.1
1.2
1.2
0.6
0.4
0.5
0.8
Other Income
1.4
1.3
1.0
0.9
0.9
0.8
0.8
1.4
0.9
1.0
Taxes
2.7
2.8
2.5
2.7
2.6
3.2
4.5
5.0
4.7
4.5
Minority interest
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Adj. PAT
6.4
6.4
6.1
6.5
6.4
6.1
8.7
9.4
8.9
8.2
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 34: Employee expenses have hovered around 6.5-
6.9% as a % of net consolidated sales
Exhibit 35: Freight cost have been reducing since FY17
1.2
1.4
1.6
1.9
2.3
2.5
2.7
3.1
3.6
4.1
6.6
6.1
5.6
5.6
5.8
5.9
6.5
6.7
6.9
6.7
0.0
2.0
4.0
6.0
8.0
0.0
1.0
2.0
3.0
4.0
5.0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Employee expenses as a % of net revenue
(Rsbn)
(%)
1.0
1.3
1.7
1.9
2.3
2.7
2.9
3.2
3.3
3.8
5.3
5.5
5.6
5.6
6.0
6.2
6.9
7.0
6.4
6.3
0.0
2.0
4.0
6.0
8.0
0.0
1.0
2.0
3.0
4.0
5.0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Freight cost as a % of net revenue
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 36: Ad spends as a % of net consolidated revenue
declining since FY17
Exhibit 37: Rent, rates and taxes have been hovering around 1.1-
1.3% during the recent years
0.9
1.1
1.5
1.8
2.2
2.8
2.1
2.4
2.5
2.0
4.5
4.8
5.1
5.5
5.6
6.6
4.9
5.3
4.8
3.3
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Advertisment expenses as a % of net revenue
(Rsbn)
(%)
0.2
0.2
0.2
0.3
0.4
0.4
0.5
0.6
0.6
0.7
0.8
0.8
0.8
0.8
1.0
0.9
1.2
1.3
1.2
1.1
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Rent, rates and taxes as a % of net revenue
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
81
Exhibit 38: Travel spends as a % of net consolidated revenue
have been reducing in the recent years
Exhibit 39: Other operating expenses <6.0% during the recent
years
0.2
0.2
0.3
0.3
0.4
0.4
0.4
0.5
0.5
0.5
0.9
0.9
0.9
0.9
0.9
0.9
1.0
1.1
1.0
0.9
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0.0
0.1
0.2
0.3
0.4
0.5
0.6
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Travel expenses as a % of net revenue
(Rsbn)
(%)
1.6
2.0
2.4
3.0
3.5
4.0
2.4
2.7
3.0
3.1
8.2
8.4
8.2
9.0
9.0
9.1
5.6
5.8
5.8
5.2
0.0
2.0
4.0
6.0
8.0
10.0
0.0
1.0
2.0
3.0
4.0
5.0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Other operating expenses as a % of net revenue
(Rsbn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
82
Valuations
1QFY21 performance of the paints industry and for BRGR was impacted by the nationwide lockdown in the
initial months. The month of April, which normally contributes ~45% of 1Q sales for BRGR, was a washout in
1QFY21. The company has seen a decent recovery so far, with May seeing 90% recovery YoY and June
seeing double digit growth both in volume and value terms. Overall July and August are also expected to be
in double digits both volume and value. For the ongoing quarter, the company is eyeing an overall double-
digit volume growth and high single-digit value growth led by growth in the upcountry markets for decorative
paints. For the rest of the business, auto sector remains a mixed bag with two-wheeler and cars coming back
to last year levels. However, commercial vehicles (CV) are still substantially down. BJN-Nepal business is
already seeing a strong comeback in the current quarter after getting impacted in 1QFY21 by lockdown. Bolix
(Polish subsidiary) is already doing well, STP Ltd. is also on an upswing and performance of SBL Specialty
Coatings is also improving significantly. On cost front, raw material cost is benign and company has also
done rationalization exercise across cost line items. Some part of rental and travel cost will permanently go
down. In the immediate quarter, margins are expected to be better.
Over FY20-23E, we expect BRGR to deliver 10.4%, 16.3% and 18.3% CAGR growth in Revenue, EBITDA
and PAT, respectively, led by (a) strong growth witnessed by the organized decorative paints industry from
tier II/III/IV cities and rural areas (especially for lower end products) where company has a higher exposure
than the industry, (b) portfolio & distribution expansion, (c) high growth in premium decorative products, (d)
pick-up in GDP growth beyond FY21 (we expect real/nominal GDP growth rate of 6.0%/9.7% in FY22) and (e)
non-decorative segments growing in tandem or even higher going forward. We also expect operating margins
to improve due to benign input prices in the near term, better mix and cost rationalization across line items.
The company has deferred its capex plans for FY21 but when it is completed it will lead to some savings in
logistics cost as well.
At CMP, the stock trades at 56.8x/48.0x FY22E/FY23E EPS of Rs9.5/Rs11.2. We believe that even though
earnings performance of BRGR has been ahead of the market leader over 3-year/5-year/10-year period and
also expected to be ahead over FY20-23E, the leader still commands a premium because of the sheer size of
the business, market share difference and reach. We therefore assign a multiple of 48x on September ‘22
EPS and initiate coverage on BRGR with Sell rating with a target price (TP) of Rs500, implying a downside of
7% from current market price (CMP).
Exhibit 40: One year forward P/E
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
Aug-15
Nov-15
Feb-16
May-16
Aug-16
Nov-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
May-18
Aug-18
Nov-18
Feb-19
May-19
Aug-19
Nov-19
Feb-20
May-20
Aug-20
Forward PE
5 yr Median
SD -1
SD +1
(x)
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
83
Exhibit 41: Average P/E
68.0
57.8
51.9
39.1
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
1yr 3yr 5yr 10yr
Avg. PE (x)
(x)
Source: Company, Nirmal Bang Institutional Equities Research
Shareholding
Exhibit 42: Shareholding
12%
3%
76%
10%
Foreign portfolio investors
Domestic institutional investors
Promoters
Public & Others
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 43: Top 10 shareholders
Name of the shareholder
%
Nalanda India Fund Ltd.
4.0
Vanguard Group Inc.
0.9
BlackRock Inc.
0.7
Investor Education Protection Fund.
0.6
Wasatch Advisors Inc.
0.6
Capital Group Cos Inc.
0.5
UTI Asset Management Co. Ltd.
0.4
Dimensional Fund Advisors L.P.
0.4
L&T Mutual Fund Trustee Ltd.
0.4
L&T Investment Management Ltd.
0.1
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
84
Board of directors and KMP
Name
Designation
Description
Mr. Kuldip Singh Dhingra
Chairman
Mr. Kuldip Singh Dhingra, a promoter of BRGR, has been a
director of the company since 1991. He is the fourth
generation of his family which has been continuously in the
paint business since 1898.
Mr. Gurbachan Singh Dhingra
Vice-Chairman
Mr. Gurbachan Singh Dhingra, a promoter of BRGR, has been
a director of the company since 1993. He is the fourth
generation of his family which has been continuously in the
paint business since 1898.
Mr. Abhijit Roy
Managing Director & CEO
He started his career with Asian Paints Limited and prior to
joining BRGR was associated with L'Oreal. He was appointed
as the Managing Director & CEO w.e.f 1st July, 2012.
Mrs. Sonu Halan Bhasin
Director
She has been the COO of Tata Capital Ltd. and has worked
with Yes Bank, ING Barings Pvt. Bank and ING Vysya Bank
and Tata Administrative Services in senior positions. She is
currently an Independent Director of a number of companies.
Mr. Pulak Chandan Prasad
Director
He was the Managing Director and co-head of the India office
of Warburg Pincus and a Management Consultant with
McKinsey & Company, USA and South Africa prior to that.
Mr. Naresh Gujral
Director
He is the founder of Span India Group, which is one of the
leading exporters of high-end fashion garments to Europe from
India. He is an eminent industrialist and Social Activist.
Mr. Kanwardip Singh Dhingra
Executive Director
Prior to joining BRGR, Mr. Dhingra worked in the field of paints
and specialty coatings in The Rohm & Haas Company, Texas,
USA and The Sherwin Williams Company, Ohio, USA.
Mrs. Rishma Kaur
Executive Director
She has been associated with the company since many years
and assumed the position of Director, National Business
Development Manager – Retail from Dec 2014. She has led
business development efforts in respect of retail business in
addition to providing guidance and handling various other
matters such as marketing and corporate affairs.
Mr. Anoop Hoon
Director
He was associated with Century Plyboards (India) Ltd. from
2008 to 2015. He was also earlier associated with Bells
Control Ltd., BOC Gases Ltd., Fortis Health Care Ltd., The
Gramophone Co. of India (HMV) Ltd. (CEO), Dunlop Tyres,
Asian Paints Ltd.
Dr. Anoop Kumar Mittal
Director
Dr. Mittal was associated with NBCC (India) Ltd. since 1985
and was CMD of NBCC from March 2013 to March 2019. He
has an experience of more than 35 years in fields of Civil
Engineering, Consultancy of Real Estate Development, Merger
& Acquisition and Project Management.
Mr. Srijit Dasgupta
Director - Finance & CFO
Mr. Dasgupta has over 29 years of work experience and
started his career with Machinery Manufacturers Corporation
Limited and prior to joining BRGR was associated with the
same organization.
Mr. Arunito Ganguly
Vice President and
Company Secretary
Mr. Ganguly has 16 years of experience in handling secretarial
and legal matters including 14 years of experience as
Company Secretary/Deputy Company Secretary in large listed
companies. Mr. Ganguly has been associated with Bata India
Ltd. and Exide Industries Ltd.
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
85
Financials (Consolidated)
Exhibit 44: Income statement
Y/E March (Rsmn)
FY19
FY20
FY21E
FY22E
FY23E
Net Sales
60,619
63,658
63,342
76,699
85,662
% Growth
17.3
5.0
-0.5
21.1
11.7
COGS
36,996
37,258
36,421
43,718
48,399
Staff costs
4,085
4,525
4,941
5,446
5,911
Other expenses
10,182
11,265
10,705
13,115
14,648
Total expenses
51,263
53,048
52,067
62,279
68,958
EBITDA
9,355
10,610
11,275
14,419
16,704
EBITDA margin (%)
15.4
16.7
17.8
18.8
19.5
% growth
15.9
13.4
6.3
27.9
15.8
Other income
600
685
633
767
857
Interest costs
472
470
482
437
347
Depreciation
1,823
1,910
2,176
2,362
2,575
Profit before tax (before
exceptional items)
7,661
8,915
9,250
12,387
14,639
Tax
2,713
2,271
2,328
3,118
3,685
Rate of Tax (%)
35.4
25.5
25.2
25.2
25.2
Share from
associates/NCI
5
66
69
73
76
Reported PAT
4,943
6,578
6,852
9,196
10,878
Adj PAT
4,943
6,578
6,852
9,196
10,878
Adj PAT margin (%)
8.2
10.3
10.8
12.0
12.7
% Growth
7.3
33.1
4.2
34.2
18.3
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 46: Balance sheet
Y/E March (Rsmn)
FY19
FY20
FY21E
FY22E
FY23E
Share capital
971
971
971
971
971
Reserves
23,467
25,630
29,810
35,328
41,746
Net worth
24,438
26,601
30,781
36,299
42,717
Minority Interest
35
71
71
71
71
Total debt
4,839
5,359
5,359
4,359
3,359
Other LT liabilities
775
483
483
483
483
Total liabilities
30,087
32,514
36,694
41,212
46,630
Gross block
18,000
23,142
25,220
27,275
29,937
Depreciation
4,866
6,776
8,952
11,314
13,889
Net block
13,134
16,366
16,268
15,961
16,048
Capital work-in-progress
1,699
1,785
1,007
1,451
1,790
Goodwill
2,693
2,790
2,790
2,790
2,790
Investments
3,949
3,152
4,152
5,652
7,652
Inventories
12,335
12,785
13,559
15,188
15,310
Debtors
6,715
7,141
7,783
9,027
9,748
Cash
2,385
2,199
4,591
6,039
7,580
Other current assets
2,657
2,778
2,776
4,117
4,097
Total current assets
24,092
24,903
28,709
34,370
36,736
Creditors
9,993
10,658
11,295
12,181
13,013
Other current liabilities &
provisions
5,487
5,823
4,936
6,831
5,373
Total current liabilities
15,480
16,481
16,231
19,013
18,385
Net current assets
8,612
8,422
12,478
15,358
18,350
Total assets
30,087
32,514
36,694
41,212
46,630
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 45: Cash flow
Y/E March (Rsmn)
FY19
FY20
FY21E
FY22E
FY23E
PAT
5,221
6,206
6,922
9,269
10,954
Depreciation
1,823
1,910
2,176
2,362
2,575
Other income
284
282
-151
-330
-509
(Inc.)/dec. in working capital
-1,220
-1,152
-1,664
-1,433
-1,451
Cash flow from operations
6,108
7,246
7,282
9,869
11,568
Capital expenditure (-)
-2,912
-4,310
-1,300
-2,500
-3,000
Net cash after capex
3,197
2,937
5,982
7,369
8,568
Inc./(dec.) in investments
-274
1,672
-367
-733
-1,143
Cash from investment
activities
-3,186
-2,638
-1,667
-3,233
-4,143
Dividends paid (-)
-2,105
-3,816
-2,672
-3,679
-4,460
Others
-483
-978
-551
-1,510
-1,424
Cash from financial activities
-2,588
-4,794
-3,224
-5,188
-5,884
Opening cash balance
2,050
2,385
2,199
4,591
6,039
Closing cash balance
2,385
2,199
4,591
6,039
7,580
Change in cash balance
335
-186
2,392
1,447
1,541
Source: Company, Nirmal Bang Institutional Equities Research;
Exhibit 47: Key ratios
Y/E March
FY19
FY20
FY21E
FY22E
FY23E
Per share (Rs)
EPS
5.1
6.8
7.1
9.5
11.2
Book value
25.2
27.4
31.7
37.4
44.0
DPS
1.9
2.2
2.8
3.8
4.6
Valuation (x)
EV/sales
8.7
8.3
8.3
6.8
6.0
EV/EBITDA
56.1
49.5
46.4
36.1
31.0
P/E
105.6
79.4
76.2
56.8
48.0
P/BV
21.4
19.6
17.0
14.4
12.2
Return ratios (%)
RoCE
18.9
22.8
21.3
24.9
25.8
RoE
21.3
25.8
23.9
27.4
27.5
RoIC
22.8
27.3
26.0
32.8
36.7
Profitability ratios (%)
Gross margin
39.0
41.5
42.5
43.0
43.5
EBITDA margin
15.4
16.7
17.8
18.8
19.5
EBIT margin
12.4
13.7
14.4
15.7
16.5
PAT margin
8.2
10.3
10.8
12.0
12.7
Liquidity ratios (%)
Current ratio
1.6
1.5
1.8
1.8
2.0
Quick ratio
0.8
0.7
0.9
1.0
1.2
Solvency ratio (%)
Debt to Equity ratio
0.2
0.2
0.2
0.1
0.1
Turnover ratios
Total asset turnover ratio (x)
2.0
2.0
1.7
1.9
1.8
Fixed asset turnover ratio (x)
3.1
2.6
2.4
2.7
2.7
Inventory days
111
123
132
120
115
Debtors days
41
40
43
40
40
Creditor days
96
101
110
98
95
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
Berger Paints India Ltd.
86
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In s titu tio n a l E q u itie s
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