X

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.
ICI India: Can it grow? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • May 24, 2002

    ICI India: Can it grow?

    After languishing for almost a decade, ICI India's restructuring initiative of exiting from identified non-core businesses has paid rich dividends for the fiscal year ended 2002. While turnover has declined noticeably due to sale of some of its divisions, profits have risen 16% on the back of profit on sale of the same. But the key positive from its performance is the management's willingness to speed-up the restructuring process and the consequent improvement in margins.

    (Rs m) FY01 FY02 Change
    Sales 8,356 6,431 -23.0%
    Other Income 51 99 94.1%
    Expenditure 7,736 5,788 -25.2%
    Operating Profit (EBDIT) 620 643 3.8%
    Operating Profit Margin (%) 7.4% 10.0%  
    Interest 35 17 -50.7%
    Depreciation 231 230 -0.6%
    Profit before Tax 405 496 22.3%
    Extraordinary item 464 576 24.2%
    Tax 178 267 50.0%
    Profit after Tax/(Loss) 691 805 16.4%
    Net profit margin (%) 8.3% 12.5%  
    No. of Shares (m) 40.9 40.9  
    Diluted Earnings per share 16.9 19.7  
    P/E (x)   4.3  

    First a brief look at the restructuring exercise in the current fiscal. The pharmaceutical business was transferred to Nicholas Piramal India in March 2002 for a gross consideration of Rs 700 m. This division contributed to 8% of sales in FY01. Besides, the motors and industrial paint division, which was transferred into a 50:50 joint venture with Berger Paints at the beginning of the year, was transferred to Berger completely towards the end.

    The company acquired a majority stake in Quest international India, a joint venture with Quest International BV and Hindustan Lever, for a consideration of Rs 1,520 m, which is in line with ICI's parent company operations. In order to strengthen its presence in the adhesives business, the company acquired adhesives business of HLL for Rs 79 m. Furthermore, the nickel catalyst division of HLL was also acquired in FY02 for Rs 197 m. After all these adjustments, sales during FY02 was lower by 23%.

    The spurt in other income is understandable keeping surplus cash with the company in mind. The rise in operating margins is on account of benefits derived from exiting cash consuming businesses. Margins have been steadily declining over the last four years of operations. Though operating profits grew at a slower rate, the sharp fall in interest expenses and a 24% increase in extraordinary items has enabled ICI to post a 16% growth in net profits. Extraordinary items include profit from sale of polyurathanes, pharmaceuticals and industrial paints divisions to the tune of Rs 429 m, Rs 4 m and Rs 28 m respectively. But excluding benefits from restructuring exercise, profit growth was stagnant.

    Following the restructuring exercise, we expect the contribution from the decorative paint division to touch almost 60% of revenues, which offers huge growth potential in the long run. However, the segment is highly competitive with leaders like Asian Paints and Goodlass Nerolac dominating the scene. Though ICI's brands are well-recognised, the company is believed to be deriving a key portion of revenues from Eastern and Northern markets. Asian Paints has managed to extend its lead in the market through aggressive product launches and pricing strategy. Given this backdrop and keeping the current demand scenario in mind, growth in demand and in price realisations are unlikely in FY03.

    ICI currently trades at Rs 85 implying a P/E multiple of 4.3x FY02 earnings. After considering profits from operations (excluding extraordinary items), P/E multiple stands at 15x. The stock has been rising since August 2001. While the company's initiatives are encouraging, the challenge now is to grow its remaining businesses. ICI would continue to remain a diversified major with presence in fragrance, starch, chemicals and textile auxiliaries. The new ventures like Quest International would continue to consume cash in the near term. Consequently, growth in operating margins may be feeble despite benefits from the restructuring exercise.

     

     

    Equitymaster requests your view! Post a comment on "ICI India: Can it grow?". Click here!

      
     

    More Views on News

    Asian Paints: Destocking Ahead of GST Impair Sales Volumes (Quarterly Results Update - Detailed)

    Aug 17, 2017

    Asian Paints registers 20.1% YoY decline in profits during 1QFY18 with low single-digit volume growth in the decorative paints segment.

    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.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    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.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    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

    AKZO NOBEL SHARE PRICE


    Aug 21, 2017 10:26 AM

    TRACK AKZO NOBEL

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

    AKZO NOBEL - BERGER PAINTS COMPARISON

    Compare Company With Charts

    COMPARE AKZO NOBEL WITH

    MARKET STATS