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Robust Supply Chain Management continues to play a significant role:

The consistent, innovation and embracing the best of technology has led the company to one of the most efficient supply chain management models. Over the decades, the largest paints company of the country has focused on one mantra of ‘ensuring the right product at the right time at the right place’. Today, the company distributes its products through 70,000+ dealers much higher than the next ranked players.

Dominant market share in the growing industry:

The company commands a leading market in the Indian paints industry – in the decorative segment, the company holds nearly 50% market share, and in the industrial segment, it commands nearly 20% market share. Overall, in the entire gamut of paints the company commands a market share of ~39% which is more than 3x of its closest two peers. The company is the 3rd largest paint company in Asia and 9th largest paint company in the world.

Unorganized to organized shift and other industry trends:

The Indian paints sector is estimated to be Rs.50,000 cr, of which, nearly one-third is estimated to be captured by unorganized sector. The share of unorganized sector in the Indian paints industry is consistently shrinking following the demonetization and implementation of Goods & Services Tax.

Consistent capacity expansion and robust fundamentals:

The company steadily invests in new capacities to support the topline growth and retaining market share. On an average, the company has been doubling its capacities every 4-6 years. Accordingly, the installed capacities have steadily increased from 4.44 lakh kilolitres in FY10 to 17.3 lakh kilolitres in FY20 following the new plants established in Mysuru and Vishakhapatnam.

OUTLOOK & VALUATION

APL is India’s leading paints company and commands 39% market share – 50% in decorative paints and 20% in industrial paints. The company with presence in 26 countries also boasts of one of the most efficient supply chain including 70,000+ dealers. Leveraging the expertise in the segment and wide reach, APL has forayed into other relevant segments such as Home Improvement which is quite scalable.

Further, the strong fundamentals including consistent growth, virtually debt-free status, robust cash position, relatively high margins, working capital management alongwith strong brand equity plays a key role. Going forward, we expect the company to deliver an EPS of Rs.44.9 in FY23; assigning a target multiple of 70x we arrive at a target price of Rs.3,140 showcasing an upside potential of 20.0% from current levels with an investment horizon of 18-24 months

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