Friday, July 31, 2015

Asian Paints - Annual Report Analysis - Part 2

Market Ratio

As on 31st Mar
FY15
FY14
FY13
FY12
FY11
5 Year CAGR
Mkt Price
811.3
548.0
491.7
324.2
252.6
26.3%
P/E
59.0
45.0
45.1
32.4
31.2








EPS
13.8
12.2
10.9
10.0
8.1
11.2%
EPS growth
13.5%
11.3%
9.6%
23.6%









DPS
6.1
5.3
4.6
4.0
3.2
13.8%
Dividend Payout
44.2%
43.4%
42.2%
40.0%
39.5%








BV
44.1
37.5
31.5
25.9
20.6
16.4%
Price / BV
18.40
14.61
15.61
12.52
12.26
8.5%

  • P/E ratio has increased from 31.2 in FY11 to 59.0 in FY15. High P/E ratio is supported by strong growth in revenue and earnings. 
  • High P/E also indicates strong conviction among investor that earnings will be higher in future. 
  • Equity price has increased 26.3% over FY 11-15, adjusted for stock split in FY13 of 10:1.
  • Company has been able to continuously improve its EPS, with 5 years CAGR of 11.2%It has stable dividend payout policy, with payout of around 40% over 5 years.
Balance Sheet Analysis (Standalone)
Particular
FY15
FY14
FY13
FY12
FY11
Return on Equity (%)
31.4%
32.5%
34.7%
38.5%
39.2%
Return on Capital Employed (%)
49.9%
51.7%
54.0%
59.3%
62.1%
Debt/Equity (%)
0.9%
1.3%
1.5%
6.6%
3.1%






Sales/Working Capital (x)
9.4
11.7
9.9
11.4
12.8
Receivable Days
22.9
23.9
23.2
19.6
20.5
Inventory Days
12.7
6.9
1.5
(1)
(2)
Payable Days
82.9
89.2
84.3
87.2
186.5






Current Ratio (x)
1.5
1.4
1.3
1.3
1.5
Quick Ratio (x)
0.9
0.8
0.7
0.7
0.8
Asset turnover ratio
6.0
7.9
4.3
5.2
5.9

  • Return on Equity (ROE) has fallen over period from 39.2% in FY11 to 31.4% in FY15. The 5 year average ROE is 35.3%. Though, the ratio shows downward trend, profitability has increased. With improvement in profitability over FY11-FY15, shareholder's equity has improved resulting falling in ratio. This indicates that company has large quantum of reserves that could be effectively employed. Consistently, maintaining high ROE in mature industry along with low debt is commendable performance. 
  • Like ROE, Return on capital employed (ROCE) has also fallen. this highlights that company may increase its dividend to shareholders or may engage into new strategies for business expansion. Historically, company has maintained its consistent dividend payout and most of the acquisitions are internally funded. 
  • As of FY15, Asian Paints is almost debt free. It has reduced its debt / equity ratio from 6.6% in FY12 to 0.9% in FY15. 
  • Asian Paints has efficient working capital management in place. Its has average net sales to working capital of 10x. Further, it enjoys long credit period from its suppliers than its gives to its customer, thereby enjoying negative working capital. This highlights its bargaining power in industry and lowers the dependence on external funding. From the ratio analysis, it indicates, that Asian Paints has began maintaining inventory balance. Low inventory turnover ratio for FY11-FY13 highlights just in time inventory management policy. 
  • Asian paints has sufficient liquidity with its current asset 1.5x its current liability and quick ratio almost equal to quick liability. 
  • Asset turnover ratio has experienced wavy movement. If has fallen from 5.9 times in FY11 to 4.3 times in FY13, thereafter improved to 7.9 times in FY14. For FY15 ratio stood at 6 times. Over the period, its net sales has consistently improved. In FY14 & FY15, company's ability to generate sales from its given asset base has significantly improved.