Asian Paints, the market leader in the Indian paint sector, has extended its leadership even further. While turnover has risen 19% to Rs 3,747 m, a surprise expansion in operating margins, has resulted in a sharp rise in profits for the third quarter ended December 31, 2001.
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Given the fact that the festive season was spread across two quarters in the current year, we were expecting a topline growth of 20% against which it has reported a 19.5% growth. However, in view of the sluggishness on the economy front, this is a commendable performance. Just to put things in perspective, Goodlass Nerolac, the No. 2 in the paint industry, reported just a 5% rise in sales in 3QFY02. The performance of other paint companies has also been lackluster.
But full credit to its new product introductions combined with its expansion strategy on the dealer tinting machines front, turnover growth has been impressive. Since key raw material prices had fallen in 3QFY02, the company passed on the benefit to the customers by lowering prices in emulsion and enamel categories. This could also have enabled the company to post higher topline growth.
Operating profits have risen by 26% to Rs 599 m on the back of a 80 basis points rise in margins in 3QFY02. In an effort to expand horizon, the company together with its wholly owned subsidiary, Asian Paints Industrial Coatings Ltd., has acquired powder coatings business from Hawcoplast Chemicals in November 2001 for a consideration of Rs 160 m. Apart from this, the company also has to pay for Hawcoplast's net current assets, the value for which is to be determined on completion of due diligence process.
The stock currently trades at Rs 272 implying a P/E multiple of 12.7x annualised 3QFY02 earnings. Asian Paints is expected to report a net profit of Rs 1,299 m for FY02.
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