Paints: FY02 in perspective - 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?  

Paints: FY02 in perspective

Jul 1, 2002

It is known fact that India's economic growth has slowed down considerably over the last three years. Despite a challenging macro-economic environment, select sectors in India have grown at a healthy pace in the same period. Apart from housing industry, paint sector is one of them. We analyse the combined performance of top four paint majors in the country viz. Asian Paints, Goodlass Nerolac, Berger and ICI, which together command almost 70% market share in the organised paint market.The paint sector grew at a slower rate of 6.5% in FY02 due to general slowdown in the economy and subdued demand in western region, which were affected by communal riots. While decorative paint demand grew at 7%, industrial paint volumes increased by 6.5%. The fastest growing segments in the sector are the exteriors (20%) and powder coatings (12%). Demand in FY02 was aided by a 6% growth in farm output, which is one of the key demand drivers.

In the industrial paint segment, automotive paint demand was higher in FY02. This was due to various factors. Passenger car demand perked up in FY02 on the back of a number of new model launches and overall recovery in automobile demand. Key automotive paint manufacturers like Goodlass Nerolac and Asian-PPG posted impressive performance in the same period. Goodlass posted a 21% rise in net profits in FY02. Asian-PPG's, a 50:50 joint venture between Asian Paints and PPG USA, turnover is estimated to have crossed Rs 1 bn levels in FY02.

(Rs m)FY01FY02Change
Net sales 31,020 30,713 -1.0%
Other Income 280 437 55.8%
Expenditure 27,440 26,829 -2.2%
Operating Profit (EBDIT) 3,580 3,884 8.5%
Operating Profit Margin (%)11.5%12.6% 
Interest 402 274 -31.8%
Depreciation 832 1,008 21.1%
Profit before Tax 2,626 3,038 15.7%
Extraordinary items 455 557 22.5%
Tax 822 1,060 28.9%
Profit after Tax/(Loss) 2,259 2,535 12.2%
Net profit margin (%)7.3%8.3% 
Market Capitalisation (Rs m)  28,874  
Industry P/E (x)  11.4  

Amongst paint majors, Asian Paints recorded the highest growth in turnover with revenues increasing by 9% followed closely by Berger. As a result, it has extended its already commanding market share in the industry. The combined turnover of Asian Paints, Goodlass Nerolac, Berger and ICI has declined by 1% to Rs 30.7 bn. However, if we were to exclude ICI (turnover fell due to divestment of business), the top three have actually posted a 7% rise in sales during FY02. This is in line with the industry growth trend.

Though rutile titanium dioxide prices moved up in 1QFY02, thanks to the fall in crude prices post 2QFY02, the industry benefited from lower raw material costs. Paint manufacturers passed on the benefit of lower raw material prices to the consumer with atleast 3% reduction in prices in 3QFY02. This also gave a thrust to industry volumes in the second half. In contrast to FY01, operating margins increased YoY for most of the players. Favorable raw material prices is reflected in overall improvement in sector margins by more than 100 basis points.

Other income has increased significantly in FY02, which could be attributed to higher lease rentals from installations of dealer tinting machines. Cumulative number of such machines has crossed more than 4,500 levels with Asian Paints alone accounting for 2,500 of such installations. The phase of consolidation continued in FY02 as well. The most prominent being Asian Paintís acquisition of powder coatings business of Howcoplast Chemicals. This would consolidate its presence in the industrial sector. But at the same time it has to be mentioned that this sort of consolidation will not have a material impact on the industry.

Prospects for FY03 remains challenging due to continued weakness exhibited by the industrial sector in the last two years. While the reduction in customs duty from 35% to 30% in the budget would benefit paint sector, industry growth is expected to be in line with FY02 of around 7%-8%. But one positive factor is that monsoons have arrived on time and this could spurt paint demand during festive season. Slowly but surely, the unorganised segment is losing its competitive edge and this augurs well for industry market leaders. But as we have mentioned above, the phase of consolidation is on the slower side. We expect profits of top four players to increase by more than 15% in FY03 and this would be aided by improvement in operating margins.

Since the aforesaid players are representative of the industry, gauging from current valuations, the P/E multiples seem to be on the lower side given the fact that the sector has grown at twice the GDP in the last decade. A robust housing sector, increasing involvement of consumers and effective branding exercise undertaken by the industry in the last five years have set a foundation for a promising long-term growth potential.

Equitymaster requests your view! Post a comment on "Paints: FY02 in perspective". Click here!


More Views on News

BERGER PAINTS Announces Quarterly Results (1QFY21); Net Profit Down 88.9% (Quarterly Result Update)

Sep 1, 2020 | Updated on Sep 1, 2020

For the quarter ended June 2020, BERGER PAINTS has posted a net profit of Rs 196 m (down 88.9% YoY). Sales on the other hand came in at Rs 9 bn (down 45.8% YoY). Read on for a complete analysis of BERGER PAINTS's quarterly results.

KANSAI NEROLAC Announces Quarterly Results (1QFY21); Net Profit Down 71.1% (Quarterly Result Update)

Aug 21, 2020 | Updated on Aug 21, 2020

For the quarter ended June 2020, KANSAI NEROLAC has posted a net profit of Rs 427 m (down 71.1% YoY). Sales on the other hand came in at Rs 6 bn (down 59.1% YoY). Read on for a complete analysis of KANSAI NEROLAC's quarterly results.

ASIAN PAINTS 2019-20 Annual Report Analysis (Annual Result Update)

Aug 5, 2020 | Updated on Aug 5, 2020

Here's an analysis of the annual report of ASIAN PAINTS for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of ASIAN PAINTS. Also includes updates on the valuation of ASIAN PAINTS.

KANSAI NEROLAC 2018-19 Annual Report Analysis (Annual Result Update)

May 30, 2019 | Updated on May 30, 2019

Here's an analysis of the annual report of KANSAI NEROLAC for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of KANSAI NEROLAC. Also includes updates on the valuation of KANSAI NEROLAC.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms