Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 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.
Goodlass: Back in colour - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Goodlass: Back in colour

Jun 6, 2003

The sharp upturn in the automobile sector coupled with the robustness in housing sector has benefited paint companies significantly in FY03. Goodlass Nerolac, the second largest player in the Indian paint sector, has taken advantage of the same. The results of the same are reflected in the FY03 performance of the company. While revenues have increased by 11%, net profit has risen by 46%.

(Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
Net sales 1,402 1,591 13.5% 5,879 6,534 11.1%
Other Income 34 42 25.2% 103 89 -13.7%
Expenditure 1,312 1,439 9.7% 5,324 5,803 9.0%
Operating Profit (EBDIT) 90 153 69.7% 555 730 31.6%
Operating Profit Margin (%) 6.4% 9.6%   9.4% 11.2%  
Interest 4 4 -7.0% 37 17 -55.8%
Depreciation 65 84 28.7% 247 241 -2.1%
Profit before Tax 54 107 97.4% 374 561 50.1%
Tax 10 21 105.0% 100 163 62.5%
Profit after Tax/(Loss) 44 87 95.7% 274 398 45.6%
Net profit margin (%) 3.2% 5.4%   4.7% 6.1%  
No. of Shares (m) 15.3 15.3   15.3 15.3  
Diluted Earnings per share (Rs) 11.6 22.6   17.9 26.0  
P/E ratio (x)         7.7  

As we mentioned earlier, the company's topline growth is a factor of recovery in the automobile sector. This is because of the fact that Goodlass generates an estimated 45% of its revenues from the automotive paint sales to OEMs (original equipment manufacturers). OEMs are typically automobile manufacturers like Maruti, Telco, Mitsubishi to whom Goodlass acts as a supplier of paint. Historically, it has been observed that revenue growth is more or less in line with the performance of the auto sector. That said, over the years, the company has been focusing on the decorative segment. The introduction of 'Suraksha', an exterior paint in FY02 and entry in to the wood finishes segment is directed at reducing the dependence on automotive paints segment.

This is of significance considering the fact that margins are lower in the automotive paint segment due to the lack of bargaining power. There has been a significant pressure on prices in the last two years for the company (CAGR drop of 3%). We expect the trend to have continued in FY03 as well. However, the company's performance at the topline and at the operating level is higher than our estimates. As against our estimate of Rs 6.3 bn, Goodlass has posted a net sales of Rs 6.5 bn in FY03. Given the increasing focus of the company on the decorative front, operating margins have also shown a marked improvement. This despite significant pressure on raw material costs is commendable. Prices of key raw materials like Titanium dioxide increased by 13% in the last one year in light of hardening crude prices in international markets.

Despite the higher incidence of tax, the company has posted a net profit growth of 46% for FY03, which is higher than our estimate by Rs 50 m. But operating margins at 11% in FY03 is in line with historical levels (as is evident from the graph above) and the improvement is magnified due to poor performance in FY02.

The stock currently trades at Rs 201 implying a P/E multiple of 7.7x FY03 earnings (7x FY04E earnings). Compared to the market leader Asian Paints that trades at 16.6x FY03 earnings, valuations are on the lower side. However, one needs to remember that Asian Paints has a superior operating margin and commands twice as much market share compared to Goodlass. Low floating stock also has been hampering valuations. Nevertheless, as the company increases its presence in the decorative segment, margins are likely to show further improvement. Given the strong backing from Kansai and its international relationship with auto majors, Goodlass will benefit. Besides, companies like Suzuki, Honda and Mitsubishi are looking at introducing new models in India. This will add to the revenue growth of the company.

Equitymaster requests your view! Post a comment on "Goodlass: Back in colour". Click here!


More Views on News

KANSAI NEROLAC Announces Quarterly Results (4QFY19); Net Profit Down 12.3% (Quarterly Result Update)

May 3, 2019 | Updated on May 3, 2019

For the quarter ended March 2019, KANSAI NEROLAC has posted a net profit of Rs 928 m (down 12.3% YoY). Sales on the other hand came in at Rs 11 bn (up 3.5% YoY). Read on for a complete analysis of KANSAI NEROLAC's quarterly results.

KANSAI NEROLAC Announces Quarterly Results (3QFY19); Net Profit Down 9.9% (Quarterly Result Update)

Jan 30, 2019 | Updated on Jan 30, 2019

For the quarter ended December 2018, KANSAI NEROLAC has posted a net profit of Rs 1 bn (down 9.9% YoY). Sales on the other hand came in at Rs 13 bn (up 17.3% YoY). Read on for a complete analysis of KANSAI NEROLAC's quarterly results.

More Views on News

Most Popular

My Top 7 Stocks to Profit from Sensex 100,000(The 5 Minute Wrapup)

May 16, 2019

Tanushree Banerjee explains everything you need to know about the Rebirth of India and Sensex 100,000.

3 Stocks to Bet on to Become a 'Dividend Millionaire'(Profit Hunter)

May 14, 2019

As markets continue to rattle amid earning season, upcoming elections, volatile crude price and US China trade war, it's a great idea to add some stability to your portfolio by adding dividend stocks.

Indian Steel: The Perfect Multibagger Opportunity(Profit Hunter)

May 17, 2019

A structurally strong Indian Steel Industry will help India achieve 8%+ GDP growth in the coming years.

My Top 7 Stocks to Buy as Modi Returns to Power(The 5 Minute Wrapup)

May 23, 2019

The Modi government is all set to come back to power. With a stable government at the centre, how should you play the stock market?

What Makes TVS Srichakra and CCL Products a Cut Above the Rest?(The 5 Minute Wrapup)

May 17, 2019

Despite the commodity nature of their businesses, these two stocks have rewarded shareholders well.


Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


May 27, 2019 10:25 AM


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