Goodlass Nerolac, the second largest paint company, has reported a 24.7% drop in net profits for FY01 to Rs 226 m. The slow down in the economy and subdued auto demand in the second half of FY01 has taken its toll on the company. The impact is more pronounced in 4QFY01 with net profits dropping by a sharp 88.3% to Rs 12 m.
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Operating profits in 4QFY01 have registered a de-growth of 53.9% to Rs 83 m on the back of a 5.6% drop in sales to Rs 1,305 m. The predominantly industrial paint focus meant that the company could not raise prices to balance the rise in input costs unlike its competitors like Asian Paints. It took a double whammy in terms of both rise in input costs as well as subdued demand for paints, on account of economic slow down. Both Telco and Maruti, the key clients for Goodlass Nerolac, reported a sharp drop in auto sales in FY01. As a result, operating margin has witnessed a significant drop from 13.1% in 4QFY00 to 6.4% in 4QFY01.
However, for the full year ended FY01, the erosion in margins is not significant as the company managed to improve margins in the first half of FY01. Though the industrial paint demand remained subdued, the decorative paint segment of the company seems to have recorded good growth. Reportedly, its new launch in the exterior paint segment, Suraksha, has been well received.
Though interest costs have come down, higher depreciation has dragged bottomline sharply. The 65.4% rise in depreciation could be primarily on account of the installation of dealer tinting machines. Though tax outflow has come down by 14.6%, the effective tax rate has gone up from 29.1% in FY00 to 31.7%. We had projected a net profit of Rs 270 m for FY01, against which Goodlass has registered a net profit of Rs 226 m.
The scrip is currently trading at Rs 85 at a P/E multiple of 5.7x the FY01 earnings.
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