Asian Paints is an Indian multinational company with the maximum market share in paint manufacturing and distribution. As the name suggests, the company has a significant impact on Asian business.
As of date, they have almost 2,200 colors in a wide range. Nearly 20 innovations are invented every year. Despite all the challenges, the company has achieved decent revenue growth.
The company reported a net profit of Rs. 830 Cr in Q2 2021. This was up 0.85% from the previous year and 280% from Q1 2021.
In terms of revenue, the company has grown by 5.2% compared to Q2’2020.
History of Asian Paints Share:
The idea sparked during World War 2 when the import of paints was banned. Four youngsters found this an opportunity to establish their service in the color industry.
Champaklal, with his three friends, started manufacturing decorative paints. At that time, paints were available only in bulk. Asian Paints was the first to introduce paint in limited quantities. This strategy was the turning point in their business growth.
The company was started in a small garage as Asian Oil and Paint Company Pvt Ltd. In 1965, it became a public company and changed its name to Asian Paint Limited. Later, in 1982, it entered the stock market with an IPO of Rs. 10 per share.
Even in the 1970s-80s, the company strongly believed in technology. It invested in premium systems and data analytics to prepare techno paints and emulsion systems.
Business Overview – Asian Paints Share:
They are India’s largest paint and color manufacturer, with a market share of 63.38%. The company is also the third largest manufacturer of paints and chemicals in Asia.
It operates in more than 65 countries and has 27 manufacturing sites across the globe.
Over the last 75 years, the company has deeply dominated Home decor. The company offers services like
- Home Painting Services.
- Interior Design Services.
- Experience Retail stores.
- Color Consultancy.
- Projects and Sanitization Services.
Apart from Paints, they also have a strong footprint in various other products like,
- Chemicals.
- Wall Covering.
- Texture painting aid.
- Waterproofing solutions.
- Wall Stickers.
- Mechanical Tools.
- Kitchen Fittings.
- Bath fittings and Sanitaryware.
- Sanitizer and Surface disinfectants.
- Adhesives.
- Kitchen and Wardrobes.
As we have stated earlier, their business is well-dominated in the Asian market in terms of revenue. The Revenue split across geographies is,
- Asian – 44%
- Middle East – 27%
- Africa – 24%
- South Pacific – 5%
When you see the segment revenue split up,
- Decorative Coatings – 83.7%
- International Operations – 11.6%
- Industrial Coating – 2.4%
- Home Improvement Business – 2.3%
Decorative Coatings:
The company develops more than 20 new products every year, and this segment contributes a high share of company revenue.
Decorative Coating primarily focuses on four segments: Interior walls, Exterior walls, wood finishes, and metal finishes. They also introduced new ranges, such as waterproofing, wall coverings, painting tools, implements, adhesives, and Sanitizers.
They always consider changing environments and customers’ needs. They consistently work on strengthening their brand value and entering many emerging markets.
International Operations:
The operation covers 65 countries and has a handful of Brands. These are Asian paints, Causeway paints, Asian paints Berger, KADISCO, SCIB paints, APCO, and Taubmans.
The key focus is on Africa and Indonesia. Also, out of 14 countries, they are back in third place in 12 countries.
Industrial Coating:
The main focus is on automobile coatings, refinishes, protective coatings, floor coatings, and powder coatings. They are the market leader in the auto refinish segment and the second-largest player in the automotive OEM segment. Their industrial coating manufacturing capacity is steadily increasing due to the growth of OEM demand.
Home Improvement Business:
This segment is growing at a high rate, and the company has many plans for future development in this area.
The primary categories are
- Kitchens and Wardrobes.
- Bath Fitting and Sanitaryware.
The top brands are Sleek, Essess, Bathsense, and ap royale.
Key Business Strengths:
- 9th Largest company in the world for paint manufacturing.
- 50+ years of holding leadership in India.
- 75+ years of innovation in the paint industry.
- 200+ Scientists in research and technology development
- 70000+ Distribution Channels.
- 10 AP homes stores across the Nation.
- 26 paint manufacturing centers
- 7500+ talents work in bringing innovation and adaptability to customers.
- 430+ Colour Ideas stores in India
Industrial Opportunities and Threats:
- Paint’s base product is Crude Oil, so crude oil plays a crucial role in the price of paint. As the price increases, demand will come down.
- This industry is completely aligned with the construction and automobile industries. Both these industries’ demands have been coming down in the last few years, and this might impact the paint businesses.
- The main opportunity lies in individual house painting as a renovation work.
- The company has to focus on a more innovative way to stand out from the competition by,
- Anti Bacterial Paints.
- Erasable paints for children.
- Safe painting services during the pandemic time
- The domestic Paint industry is expected to be at Rs. 50000 Cr by 2020-21.
- The domestic paint industry has faced a huge challenge in the last two financial years.
- As the COVID pandemic has shortened, the festival period has been greatly impacted.
- More players have started splitting the market shares.
- The biggest opportunity lying behind is focusing on emerging markets like Africa and Pacific countries.
- The home improvement business is fast-growing, and the company has focused on the right direction to increase market share.
Asian Paints Stock Performance
The above image has demonstrated the financial performance over the last 5 years.
- Revenue has grown by 6.18% in the last 5 years, which is lower than the industry average of 6.68%.
- EBITA has grown at a CAGR of 13.98% in the last 5 years.
- Net Profit has grown at a CAGR of 14.16% in the last 5 years. The industry average has grown at a CAGR of 15.04%.
- The market share in the last 5 years has decreased from 64.89% to 63.38%.
Now, we can look at the share price growth in the last 5 years.
Share Price on 29th October 2015 – Rs. 845 per share
Share price on 29th October 2020 – Rs. 2225.45 per share.
The share price has grown at a CAGR of 21.45% over the last 5 years.
Quarterly Results:
- In the last 4 quarters, the revenue fell completely down in Q4’2020 and Q1’2021 quarters.
- It was good to see that the revenue has grown compared to Q3’2020 and Q2’2021.
- The EPS in Q2’2021 is the highest over the last 8 quarters.
- This is a positive sign for the company. As revenue and profit have started growing.
Fundamental Analysis of Asian Paints
Number of Equity Shares – 95.92 Cr shares
Market Capitalization – Rs. 213464.72 Cr
Valuation Ratio:
The basic and foremost step in fundamental analysis is to calculate the valuation ratios. Come let have a quick snap,
- Book Value – Rs. 105.61
- Price to Book Value (P/B) – 21.07 times
- Earnings Per Share (TTM) – Rs. 24.10 per Share
- Price to Earnings (P/E) – 92.34 (Highly overvalued)
- Industry P/E – 22.86
- Dividend Yield – 0.53%
- Debt to Equity Ratio – 0.04 (Continuously decreasing)
- Current Ratio (Assets/Liabilities) – 1.73 (Continuously increasing, still behind threshold)
- Interest Coverage Ratio – 34.16
- Pledged Shares – 6.3% (Negative Sign – When promoters pledge their shares)
- Net Profit Margin (FY2019-20) – 13.15%
- Average Net Profit Margin – 11.70%
- Return on Equity (FY2019-20) – 26.7%
- Average Return on Equity – 25.89%
- Free Cash Flow – Rs. 2254 Cr
- Free Cash Flow Growth rate – 24.62%
- EV/EBITDA – 48.37 (Highly Overvalued)
Shareholders Pattern:
- Promoters – 52.79%
- FII – 19.84%
- Insurance Company – 3.78%
- Mutual Funds – 3.2%
- Other DII – 8.48%
- Retail Investors – 11.9%
Excess Liquid Cash Per Share:
Total Liquid Asset:
- Fixed Asset:
- Investments: Rs. 1049.74 Cr
- Other financial assets: Rs. 248.09 Cr
- Current Asset:
- Investments: Rs. 512.48 Cr
- Cash and Cash Equivalents: Rs. 563.83 Cr
- other financial assets: Rs. 781.65 Cr
Total Liquid Assets: Rs. 3155 Cr
Total Liabilities: Rs. 5620 Cr
Excess Liquid Cash: -Rs. 2465 Cr
Excess Liquid Cash per share: -Rs. 25.7 per share.
Long Term Investor Benefits in Asian Paints Share Investment:
As we always prefer long term investment in shares. Also, we educate people to choose any company by analyzing business values and not by the share price.
Here we will be giving small glimpses of how your wealth would have grown over from IPO to the current day.
If you just calculate the share price over the last 38 years, the share price has grown from Rs. 13 to Rs. 2225.45 at a CAGR of 14.5% in the last 38 years.
The wealth has grown by 222.5 times in 38 years.
Bonus and Splits Benefit:
But, there are other benefits with long term investments like a bonus, split, and dividend.
If you have invested Rs. 10000 in 1982, you would be entitled to get 769.23 Shares (Rs. 13 per Share)
Let us have a look at the bonus and splits the company has provided.
1985 – 3:5 Bonus (For Every 5 shares, You will be getting 3 Shares) – Total shares will be 1230.76 Shares.
1987 – 1:2 Bonus (For Every 2 Shares, you will be credited by 1 share) – Total share will be 1846.15 Shares.
1992 – 3:5 Bonus (For Every 5 Shares, you will be credited by 3 shares) – Total share will be 2953.84 Shares.
1996 – 1:1 Bonus (For Every share, you will be credited with an additional share – Total share will be 5907.68 Shares.
1996 – 1:25 share issues on merger with Pentasia Investments Ltd – Total Share will be 6144 Shares.
2000 – 3:5 Bonus (For Every 5 Shares, you will be credited by 3 shares) – Total Share will be 9830 Shares.
2003 – 1:2 Bonus (For Every 2 Shares, you will be credited by a share) – Total share will be 14746 Shares.
Asian paints share split history
2013 – 1:10 Split (the FV 10 is converted to FV 1.
So, for every share, you will be credited with 10 shares) – Total Share will be 147460 shares.
So, Currently, you will have a total of 147460 Shares.
When calculating, the number of shares with the current market price of a share, the total amount will be Rs. 32.81 Cr.
Just Imagine over 38 years, Your Rs. 10000 has grown to Rs. 32.81 Cr. Your wealth has grown at a CAGR of 38.4% in the last 38 years.
The wealth has grown by 32816 times in the last 38 years.
Asian paints share dividend history
In terms of dividend payout, we don’t have much data. We have data for the last 8 Years
Oct 2012 – Rs. 9.5 per Share (14746 Shares) – Rs. 140087
May 2013 – Rs. 36.5 per Share (14746 Shares) – Rs. 538229
Sep 2013 – Rs. 1.1 per share (147460 Shares) – Rs. 162206
May 2014 – Rs. 4.3 per share (147460 Shares) – Rs. 634078
Aug 2018 – Rs. 1.8 per share (147460 Shares) – Rs. 265428
May 2015 – Rs. 4.3 per share (147460 Shares) – Rs. 634078
Oct 2015 – Rs. 2.2 per share (147460 Shares) – Rs. 324412
May 2016 – Rs. 5.3 per share (147460 Shares) – Rs. 781538
Oct 2016 – Rs. 2.65 per share (147460 Shares) – Rs. 390769
May 2017 – Rs. 7.65 per share (147460 Shares) – Rs. 1128069
Sep 2017 – Rs. 2.65 per share (147460 Shares) – Rs. 390769
May 2018 – Rs. 6.05 per share (147460 Shares) – Rs. 892133
Oct 2018 – Rs. 2.85 per share (147460 Shares) – Rs. 420261
May 2019 – Rs. 7.65 per share (147460 Shares) – Rs. 1128069
Oct 2019 – Rs. 3.35 per share (147460 Shares) – Rs. 493991
Feb 2020 – Rs. 7.15 per share (147460 Shares) – Rs. 1054339
Jun 2020 – Rs. 1.5 per share (147460 Shares) – Rs. 221190
Oct 2020 – Rs. 3.35 per share (147460 Shares) – Rs. 493991
The total dividend payout in the last 7 years is Rs. 10093637 (1.1 Cr) for the investment of Rs. 10000 done on the Asian paint share in 1982.
This is the real power of a long-term investment.
Intrinsic value of Asian paints
The 5 years EPS growth is 14.16. Let us expect a growth of 15% in profit for the next year
EPS (TTM) is Rs. 24.1 per share.
As it is an established company. We can keep a minimum Margin of the safety of 10%.
Considering all the above criteria, the intrinsic value should be less than Rs. 518.9 per share.
The current share price is traded at 3.29 times higher than the intrinsic value.
Insights to Investor:
- A company which is dominating in Paint and color industry for more than 50 years with its innovation and strategy.
- One of the handpick companies in India, which has a clear projection of business and revenue.
- Strong manufacturing and client base. With this have strong talents and scientists working together for innovation.
- The stock has been a great example of Long term investing where Rs. 10000 invested in 1982 will be Rs. 32.81 cr. This means the invested amount has grown by 32816 times.
- The company is offering a good dividend payout from its profit.
- Even then, the current price of the stock is trading at 3.29 times higher than intrinsic value.
- As a value investor, you should wait for the opportunity and buy under the intrinsic value.
- Finally, a fundamentally strong company in both qualitative and quantitative aspects.