Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Asian Paints: Reasons for underperformance? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 25, 2004

    Asian Paints: Reasons for underperformance?

    In contrary to what had been observed, Asian Paints has under performed both Goodlass Nerolac and Berger Paints on the stock market over the last one year. We analyse in brief the reasons for the same and how the company is placed to capitalize on the long-term growth opportunity.

    If one were to consider the performance of Asian Paints with the peers, clearly, the company has outperformed other on a point-to-point basis, as is evident from the graph below. One of the reasons why the company was able to outperform was the fact that new products introduced in the last five to six years, especially exterior paints and wood finishes, contribute to an estimated 15% of revenues. In fact, the company achieved market leadership in the exterior paint segment last year.

    However, consider another graph that highlights the YoY sales growth of Asian Paints and its peers over the last seven quarters. As is evident, Goodlass and Berger have managed to outgrow Asian Paints at the topline level consistently. However, it has to be mentioned that on parameters like operating margins and return ratios, Asian Paints ranks higher. Goodlass, as the dominant player in the automotive paint segment, has reaped the benefits of the upturn in automotive demand. Though Asian Paints also has presence in this segment, it is a 50:50 joint venture with PPG of USA and it does not reflect in the standalone numbers. So, the underperformance at the topline level has to be viewed in this context, which to us is not a cause of concern from a long-term perspective.

    Another important factor that has played its part in the company under performing in the stock market is due to input costs related pressure. Crude prices have traded strong right before the Iraq war and more recently, the prices had shot up. So, this has had a negative impact on operating margins, as is seen from the graph below. Considering the hardening of prices, we expect margins to continue to remain under pressure for the next six months.

    According to us, the more important reason is the company's presence in the overseas market. Post the acquisition of Berger International and SCIB, Asian Paints has significant exposure in the international market, which we believe, will take time to reflect in terms of higher profitability. After the takeover of Berger, one is already seeing a marked improvement. In fact, we believe that the subsidiaries could outgrow the parent major in the long-term. One has to also remember that the company has strong growth prospect in the domestic market as well.

    The stock currently trades at Rs 312 implying a P/E multiple of 15.5x our estimated FY05 earnings. Perhaps the big area of concern is the raw material related pressure and the magnitude of impact this factor is likely to have on the profitability of the company remains to be seen. To that extent, the risk profile of the stock increases.



    Equitymaster requests your view! Post a comment on "Asian Paints: Reasons for underperformance?". Click here!


    More Views on News

    Asian Paints: Good Performance Across Segments (Quarterly Results Update - Detailed)

    May 18, 2017

    Asian Paints registers 10.4% YoY growth in profits during 4QFY17 with double-digit volume growth in the decorative segment.

    Asian Paints: Volumes Weighed by Notebandi (Quarterly Results Update - Detailed)

    Feb 17, 2017

    Asian Paints has reported a 2.6% YoY increase in the topline and a 0.6% YoY decline in the bottomline during the quarter.

    Asian Paints: Prolonged Monsoon Impacts Volume (Quarterly Results Update - Detailed)

    Oct 28, 2016

    Asian Paints has reported a 10.2% YoY increase in the topline while the bottomline has grown by 18% YoY

    Asian Paints: A Robust Performance (Quarterly Results Update - Detailed)

    Aug 3, 2016

    Asian Paints has reported a 9.1% YoY increase in the topline while the bottomline has grown by 17.9% YoY.

    Asian Paints: Volume growth drives topline (Quarterly Results Update - Detailed)

    May 18, 2016

    Asian Paints has reported a 12.3% YoY rise in the topline while the bottomline has grown by 20% YoY.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 16, 2017 (Close)


    • Track your investment in ASIAN PAINTS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Detailed Quarterly Results With Charts