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Goodlass: The auto effect

Jan 31, 2001

Goodlass Nerolac has reported a 48% drop in net profits for the third quarter ended 31st December 2000 to Rs 52 m. The slow down in automobile sales has had a clear impact on the company's sales in the third quarter (Goodlass is the main supplier to Maruti and Telco). While sales grew marginally by 4.7% in 3QFY01 to Rs 1,481 m, operating margin has declined sharply from 11.0% in 3QFY00 to 7.8% in 3QFY01.

(Rs m) 3QFY00 3QFY01 Change
Sales 1,416 1,481 4.7%
Other Income 39 29 -26.2%
Expenditure 1,260 1,366 8.4%
Operating Profit (EBDIT) 155 116 -25.6%
Operating Profit Margin (%) 11.0% 7.8%  
Interest 15 18 24.7%
Depreciation 35 53 50.9%
Profit before Tax 145 74 -49.2%
Tax 46 22 -52.4%
Profit after Tax/(Loss) 99 52 -47.8%
Net profit margin (%) 7.0% 3.5%  
No. of Shares (eoy) (m) 15.3 15.3  
Diluted number of shares 15.3 15.3  
Earnings per share* 25.8 13.5  
*(annualised)      

Though the company resorted for a marginal increase in paint prices, higher inflation coupled with a substantial rise in basic rutile titanium dioxide prices could not neutralise the effect at the operating level. But, if we were to consider the first nine months financial performance, things are not looking that ominous.

While net sales has gone up by 12.4% from Rs 3,880 m to Rs 4,361 m, operating margins declined marginally to 9.1% in the first nine months of the current year from 9.2% in the corresponding period of the previous year. Remember, the company posted a 100% rise in net profit in 2QFY01 with a sharp increase in operating margins.

The rise in depreciation is understandable as the company has been increasing the number of dealer tinting machines in the current year as a step towards increasing the contribution from decorative paint segment. However, lower tax provisioning has prevented the bottomline from a huge drop.

The stock is trading at Rs 134 at a P/E multiple of 7.2x the annualised first nine months earnings.

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