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Published on 14/04/2020 9:26:35 AM | Source: SAMCO Securities

Accumulate On Asian Paints Ltd by Samco Securities Ltd

Posted in Broking Firm Views - Long Term Report| #Asian Paints Ltd #Broking Firm Views Report #Paint #SAMCO Securities

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Posives

Leader in the true sense:

Having a 50% market share in the organised space, this company enjoys dominance in the decorave paints segment along with a 20% share in the automove industrial paints segment.

 

High Barriers to Entry:

Strong distribuon network of 60,000+ dealers enable access to the nooks and corners of India. Also, innovave idea of installing nng machines with dealers, instead of a common warehouse, has enabled to reduce storage space for paints at the dealer's end. This itself becomes a major entry barrier for a new entrant as he has to overcome the resistance of a dealer for yet another nng machine.

 

Industry Drivers:

80% demand is from repainng, hence there is limited dependence on new painng. Repainng cycle has shrunk from 7-8 yrs earlier to 5 yrs now which is a big posive. Moreover, house rentals in metropolitan cies aids the demand for paints (Short cycle of 3 yrs). Oligopolisc nature of the industry drives strong pricing power which improves the topline.

 

The OPEC+ Fail Impact:

The sudden slump in crude prices to sub $30/barrel levels bodes extremely well for this paint player as crude oil derivaves form 30-35% of its raw material costs.

 

Robust Strategies:

Strategizes on pursuing volume growth by pushing products in the lower end of its porolio and focuses on project sales that carry lower margins. On a 5-year basis over FY14-19, EBITDA margin has expanded mainly due to operang leverage as they reaped scale benefits due to capacity expansion.

 

Well Managed Books to Accounts:

Strong balance sheet with minimum leverage and high free cash flows to sales of 4.44% will enable Asian Paints to de through the pandemic. Addionally, it has the lowest cash conversion cycle in the industry compared to its competors. Since the last 5 years, it has maintained an interest coverage rao of over 50 and an asset turnover rao of around 1.5.

 

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