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Asian Paints: Efficiency shows

May 30, 2002

Asian Paints has reported a 8% rise in its net profits for the year FY02. The company reported a topline growth of 9%. While the topline has grown by nearly 11% YoY in the fourth quarter, the bottomline was however, down by nearly 4%. A higher tax rate of 40% has lowered bottomline in the fourth quarter.

(Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
Net Sales 2,853 3,178 11.4% 12,058 13,160 9.1%
Other Income 63 83 31.3% 93 156 67.9%
Expenditure 2,360 2,602 10.3% 10,054 10,938 8.8%
Operating Profit (EBDIT) 493 576 16.8% 2,003 2,222 10.9%
Operating Profit Margin (%) 17.3% 18.1%   16.6% 16.9%  
Interest 36 3 -90.8% 221 146 -34.1%
Depreciation 75 153 103.3% 316 418 32.3%
Profit before Tax 445 503 13.0% 1,559 1,814 16.4%
Extraordinary items   (10)   (8) (10)  
Tax (127) (187) 47.2% (495) (661) 33.5%
Profit after Tax/(Loss) 318 306 -3.8% 1,056 1,143 8.2%
Net profit margin (%) 11.1% 9.6%   8.8% 8.7%  
No. of Shares 64.2 64.2   64.2 64.2  
Diluted Earnings per share* 19.8 19.1   16.4 17.8  
P/E Ratio   15.7     16.9  
(* annualised)            

Paint sales (value terms) for the company recorded an 11.0% growth, while volume growth stood at 9.6%. In the paints segment, decorative coatings account for nearly 90% of the company's net sales while industrial coatings accounts for 3%. The company has clocked good growth in all product categories of the decorative segment. Infact, exterior segment recorded growth of more than 25%.

The company passed on the benefits of low raw material costs to the customers in the form of three price decreases during FY02. Despite the reduction in prices, Asian Paints managed to increase the operating margins by a marginal 0.3% to 16.9% in FY02. During the year the company incurred a capital expenditure of Rs 510 m. With a view to expand operations in the high growth powder coatings business, the company acquired Hawcoplast Chemicals for a total consideration of Rs 226 m.

New initiatives to reduce working capital and increase the productivity of assets and capital have generated considerable cash flows.The company was able to release nearly Rs 900 m from working capital. This cash was mainlly used to fund the acquisition and to retire debt. Consequently, interest costs of the company have reduced by nearly 34% to Rs 146 m. The reduction in working capital was achieved by longer credit period and lower inventory levels. To reduce the financial burden, Asian Paints roped in Citibank to fund the colour mixing machines at Colour World outlets. Depreciation burden on the company has increased due to setting up of a large number of Colour World outlets.

The company has provided Rs 63 m towards deferred taxation. Excluding this, the net profit has increased by 14.3% YoY.

The stock is currently trading at Rs 300 a P/E multiple of 17x the FY02 earnings. The company has declared a final dividend of 55% (interim dividend of 35%). Increased infrastructure spending and a healthy housing demand are likely to help the company maintain its topline. Higher crude prices will affect the raw material costs, putting pressure on the bottomline. Thrust on improved production norms, supply chain management and reduced overhead costs are likely to help the company maintain its operating margins going forward.


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