APL Holds Position As Industry Leader

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APL Holds Position As Industry Leader
Himali Patel - 26 March 2019

The industry leader in the decorative paints segment, Asian Paints (APL) posted a strong growth in its third quarter (Q3) Financial Year (FY) 2019. Being ranked among the Top 10 decorative coatings companies in the world, APL’s consolidated revenue grew by 24.1 per cent Year-on-Year (YoY) to Rs5,293.99 crore from Rs4,267.49 crore in Q3. APL is into manufacturing wide range of paints for decorative and industrial use through its subsidiaries and has operations in 16 countries across the world with 26 paint manufacturing facilities. An analyst tracking the company at ICICI direct said that the company has a dominant share in the decorative paint segment with 53 per cent market share and a dealer network of over 55,000 across India.

APL derives 89 per cent of its topline from the decorative segment while the rest comes from the industrial segment. Its net sales and profit after tax clocked a compound annual growth rate (CAGR) of six per cent and 10 per cent over FY2014-2018. For Q3, the company’s decorative business registered high double-digit volume growth of 21 per cent YoY, on the back of strong festive demand along with aggressive price hike, which boosted the APL’s topline. “We have increased our FY2019 and FY2020 earning per share by 6.9-6.7 per cent as the company has posted approximately 24 per cent volume growth in domestic decorative business, first 20 per cent growth number after Q3FY2011,” said an analyst from financial firm Prabhudas Lilladher.

However, as per the management, the price hike was insufficient to recover the entire impact of the raw material cost increases. An analyst at Equirus Securities claimed, “To counter the high raw material inflation, the company has taken a 2.35 per cent price hike from October 2018 and 1.7 per cent from December 2018 onwards, while further price hikes could come in if raw material prices stay elevated in the quarters ahead. We also expect gross margins to improve on Quarter-on-Quarter basis given the decline in the crude prices.” The company’s industrial business continues to grow well owing to the fact that its protective coatings and powder coating segment did good business. However, it continues to face pressure from rising raw material prices.

APL’s large part of the capex plans have been commissioned and completed, due to which its capex would be much lower in FY2020. As on February 6, 2019, the company in terms of its return has outperformed sensex by 23.99 per cent. What will work in the company’s favour going forward is additional demand that it will capture with the expansion in paints capacity in Andhra Pradesh and Karnataka. “We model revenue CAGR of ~17 per cent in FY2018-2021E led by volume CAGR ~14  per cent supported by sustained demand of decorative paints from Tier II and III cities and a shorter repainting cycle,” said the Analyst from ICICI direct.


Topline gets boost from all businesses

Diverse portfolio aids a double digit growth


One of the leading fast moving electrical goods (FMEG), Havells India, has transformed from being a mere switchgears company into a consumer durable giant, post its acquisition of Lloyd in 2017. And with that the company’s product portfolio has expanded from industrial and domestic switchgears, residential cables, pumps and motors to fans, lighting and fixtures, water heaters, air coolers and other domestic appliances, air-conditioners, TV and washing machines. Havells India with its most prestigious brands like Havells, Lloyd, Crabtree, Standard and Promptec boasts of a wide network of over 7,575 dealers and 40 branches in the country.

For the third quarter (Q3) Financial Year (FY) 2019, company’s net revenue registered a double digit growth of 28 per cent to Rs2,518 crore as against `1,966 crore in the corresponding quarter previous year. Net profit came at `196 crore as against Rs173 crore, seeing 13 per cent growth Year-on-Year (YoY). While its electrical consumer durables segment grew by 34 per cent to Rs555 crore in Q3 FY2019, its cable business witnessed growth of 31 per cent. Talking about the consumer durable market, the company has gained 13 per cent share in the AC segment in approximately seven years and is ranked among top three AC players in the country.

Its switchgear business grew by 21 per cent YoY and its lighting and fixtures business grew by 18 per cent. The switchgear segment being the most profitable business contributed ~40 per cent contribution margin. An analyst at ICICI direct said, “We believe a recovery in demand for industrial products led by higher government spending will improve power infrastructure spending leading the switchgear and cable and wire division sales to grow at CAGR of ~17 per cent each in FY2018-2021E.”

The launch of premium products in domestic markets along with scalability through acquisition is expected to reduce the impact of higher commodity prices. An analyst at Motilal Oswal said, “The company has built a strong business franchise, given its successful development of brand, distribution and product portfolio, demonstrated track record of accelerating growth via new launches, healthy dividend payout and robust return ratios.”

However if the analysts are to be believed then the key triggers for future growth would be topline growth from switchgear business and margin improvement in company’s Lloyd business. “With the introduction of FY2021E estimates, we expect Havells to record revenue, earning compound annual growth rate of ~20 per cent, ~21 per cent, respectively in FY2018-2021E supported by a change in product mix, revival in industrial and consumer products,” pointed out the analyst at ICICI direct. Motilal Oswal and ICICI direct remains positive on its long term prospect and has given ‘Buy’ call.


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