Goodlass Nerolac, the number two player in the Indian paint industry, has reported a 31% rise in profits and a 5% growth in sales for the third quarter ended December 31, 2001. But the performance of the company is below our expectations.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (m)
Diluted Earnings per share*
Sales have increased by 5% to Rs 1,556 m in 3QFY02 and for the first nine months of the current fiscal, topline growth is lacklustre. One of the key factors that could have affected sales growth is the slowdown in the economy. Mr. Bharuka, the Managing Director of the company, expressed his concerns on the weakness in the industrial production front during our meeting earlier this fiscal. Paint demand in the current fiscal is estimated to have slowed down to around 7%-8% as against 11%-12% growth last year. Being one of the key supplier's of automotive paints to domestic majors like Telco and Maruti and multinationals like Mitsuibishi, we were expecting a higher sales growth given the rise in auto sales in recent months. Also, with the festive season demand, growth in sales seems to be on the lower side.
The third quarter trend–Highly volatile…
Operating profit margin (%)
Margins have increased by 100 basis points to 9% in 3QFY02 and the expansion in operating margins is in line with our expectations. Lower raw material costs, which as a percentage of sales stood at 62% in 3QFY02 as against 63% in 3QFY01, has benefited Goodlass. Titanium dioxide prices have fallen notably in the current fiscal due to weak crude prices. Depreciation charges have increased sharply in 3QFY02, which has been the case over the last six quarters, in light of the ongoing expansion in dealer tinting machines. The effective tax rate has remained stagnant as the company has received a rebate of Rs 17.5 m for the first nine months of the current fiscal.
Goodlass is currently trading at Rs 94 implying a P/E multiple of 4.7x annualised 9mFY02 earnings. The company is expected to report a net profit of Rs 309 m for FY02.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407