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Asian Paints: Who is the target?

Jan 3, 2001

Asian Paints is amongst the top gainers on the bourses for the year 2000. The share price has appreciated 30% after touching its 52 week low of Rs 210. This re–rating has been led by creditable results which the company reported despite the 30% hike in oil prices during the year. There have been reports of the company firming up its acquisition plans. We take a closer look at the second aspect i.e. the company's two probable acquisition targets viz Jenson & Nicholson and Shalimar Paints.

(Rs m)Asian
Paints
Jenson &
Nicholson
Shalimar
Financial Data     
CMP (Rs) 275 12 59
Market Cap 18,398 50 223
Sales 12,408 1,640 1,353
PAT 973 49 - 12
Net worth 3,515 903 205
NFA 3,293 1,186 149
EPS (Rs) 14.5 11.8 - 3.2
CEPS (Rs) 31.2 29.0 0.9
P/E 19.0 1.0 - 18.6
GPM (%)14.3%11.8%4.3%
NPM (%)7.8%3.0%-0.9%
Capacity Data   
Paints (THTPA) 162.1 32.7* 19.7
No. of employees 3,000 1,000 NA
*TMTR   

Asian Paints has been eyeing the Rs 45 bn O P Jindal group controlled Shalimar Paints, where the Jindals and Mr. Jhunjunwala together holds 62% stake in the company. The management of Shalimar Paints had plans to exit from the paint business. Infact, early last year, it held negotitations with the South African paint major, Barlow, which failed to take off. The company has two plants at Hoaro (West Bengal) and Nashik (Maharastra) having an installed capacity of 19.7 THTPA (thousand tonnes per annum). Out of the total production of Shalimar Paints, 75% constitutes decorative paints and the rest comprise industrial paints as well as marine coating.

Jenson & Nicholson, on the other hand, has a significant presence in the industrial paint segment. The company has three manufacturing divisions viz. Bulandshah (Uttar Pradesh), Parganas (West Bengal) and Raigarh (Maharashtra) with an aggregate installed capacity of 32.7 TMTR. The company has technical tie-up with Chugoku of Japan. The company also has subsidiaries in Bangaladesh and Nepal (the Nepal subsidiary was taken over by Berger Paints).

However, higher base raw material prices and competition have pressurised margins of both these companies in the current year. Severe floods in Eastern India (both these companies have significant presence in this region) only added to their woes. The result: a slowdown in volumes in the current year.

Asian Paints has targeted a sales turnover of Rs 21 bn by FY03 (Rs 12 bn in FY00). We expect the company to report a turnover of Rs 14 bn in FY01. The acquisition of Jenson & Nicholson and Shalimar Paints would increase sales turnover of Asian Paints by over 25%. This would enable Asian Paints, to become one of the top five decorative paint companies in the world by FY05. An emerging multinational!


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