If you are wondering what will happen to Goodlass Nerolac Paints given the fact that Maruti’s overall market share has come down from 70% in FY99 to 53% on FY00. Hold on! The company's future plans deserve a re-look.
Goodlass Nerolac, is the market leader in the industrial paint segment with 70% share of the Original Equipment Manufacturer (OEM) passenger car segment. Though an industrial paints company, the management off late is increasingly focussing on the decorative segment as it is evident from the its strategy to widen its distribution network (currently 10,700) and install more Colour Scape (the computerized paint tinting machine). In the industrial segment the company is tapping other growth areas like plastics, can and coil coatings. For FY00, the company has outperformed the industry growth with the top line growth of 16% while the post-tax earnings went up by 18%.
No doubt, the company will be affected by the decline in sales of Maruti Udyog Limited. But with new additions in the form of Tata Indica and Toyota, the company is on target. Other than this, the company has a 40% share in two-wheeler segment and a 20% in consumer durables (Whirlpool, Godrej GE) which incidentally are some of the fastest growing sectors.
But commercial vehicle sales growth is expected to drop below 15% for FY01 from a handsome 33% growth during FY00. Moreover, the margins in the paints sector would continue to remain strained because of firm raw material prices. The price of titanium dioxide, the main raw material used in paints, is also firming up. This could put further pressure on realisations.
On the other hand, Indian passenger car segment has witnessed very good growth rates over the last couple of years and it is expected to do so in the future. Infact over the last four years its has grown at a rate of 18.5% per annum. Further, increasing consumer spending, easy availability of finance, good monsoon along with the focus of the management on the decorative segment should enable Goodlass Nerolac to post better results. With strong support from Kansai Paints in terms of technology and research and development, the company should achieve its turnover target of Rs 120 bn by FY03.
The stock is currently trading at Rs 139, at a P/E multiple of 7 on FY00 earnings.
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