Asian Paints has reported a 12% rise in sales for FY01 to Rs 11,965 m. Though this is higher than our expectations (around 11%), the growth in sales has waned in the fourth quarter of FY01 primarily on account of a slowdown in the economy and the earthquake in Gujarat.
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Though overall paint volumes grew only by 11.8% in FY01, in value terms the growth is 12.4%. The company’s exterior and wood finish segment grew by 38.0% and 13.0% respectively, which primarily aided the growth of the company. Infact, within four years of launch, Asian Paints has become the market leader in the exterior paint segment.
Other income for FY01 has gone up substantially on account of lease rentals from the installation of dealer tinting machines at the dealer centres. Almost 50% of other income was accounted for by lease rentals. However, operating margins have come down from 16.7% in FY00 to 16.0% in FY01 primarily on account of lower sales growth and higher advertisement expenses. The company has passed on the rise in input costs to the consumers in the third and the fourth quarters'.
Interest costs have also gone up because of increased borrowings to fund the 'Colour World' expansion plans. Since these machines are booked in the company's account, depreciation is also on the higher side. But the company has plans to shift the incremental dealer tinting machines to the dealer's book, thus ensuring higher profitability in future.
Net profit for FY01 has gone up from Rs 973 m in FY00 to Rs 1,064 m in FY01, a growth of 9.3%. But if one were to consider the adjustment of change in accounting standards for inventory in FY00, net profit has actually increased by around 16%.
The scrip is currently trading at Rs 253 at a P/E multiple of 15.2x the FY01 earnings. Except for the higher sales growth, performance is in line with our projections. The company has declared a final dividend of 40% (30% interim dividend), thus resulting in a dividend yield of 2.7%. As per our FY02 projections, the company trades at a P/E multiple of 14.1x.
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