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Goodlass: Better performance - Views on News from Equitymaster
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  • Jul 22, 2002

    Goodlass: Better performance

    Goodlass Nerolac's first quarter of the current year ended June 30, 2002 has not much to write home about. While sales have gone up by 12%, profits have increased at a faster rate on the back of improvement in margins and a fall in interest costs. The robustness in auto sector also could have benefited Goodlass.

    (Rs m) 1QFY02 1QFY03 Change
    Net sales 1,256 1,407 12.0%
    Other Income 19 8 -58.2%
    Expenditure 1,144 1,275 11.4%
    Operating Profit (EBDIT) 111 131 18.0%
    Operating Profit Margin (%) 8.9% 9.3%  
    Interest 11 5 -54.5%
    Depreciation 55 50 -9.1%
    Profit before Tax 65 85 30.4%
    Tax 20 26 33.3%
    Profit after Tax/(Loss) 45 59 29.1%
    Net profit margin (%) 3.6% 4.2%  
    No. of Shares (m) 15.3 15.3  
    Diluted Earnings per share* 11.8 15.3  
    P/E Ratio (x)   9.9  
    (* annualised)      

    While sales growth at 12% is impressive, it is estimated to have led by its new product launches in the exterior segment as well as increased demand for automotive paints. Goodlass is one of the leading suppliers of automotive paints to the likes of Maruti, Telco, Mitsubishi and select two-wheeler majors like Bajaj Auto, to name a few. However, sales also include lease rentals received from dealer tinting machines. With paint majors expanding the number of dealer tinting machines, income from lease rentals have been on the rise in the last two years. Excluding this item would reveal the actual growth in paint sales in the same period. The sharp fall in other income could be primarily on account of change in accounting for lease rentals. Usually paint companies book lease rentals in other income rather than sales.

    Operating margins have increased at a slower rate during 1QFY03 as compared to its peers. While raw material prices have been on the favorable side for the sector, for Goodlass, cost pertaining to raw materials as a percentage of sales, have gone up by 100 basis points. But a fall in staff costs and tight control on other expenses have enabled overall margins to improve in 1QFY03. Following the implementation of the ERP system, Goodlass has been able to squeeze its working capital and consequently the funds have been utilised to retire debt.

    Net profit has increased by 29% to Rs 59 m in 1QFY03 despite a sharp spurt in tax outflow. The scrip currently trades at 152 implying a P/E multiple of 9.9x 1QFY03 annualised earnings. While the rise in passenger car sales is a big positive for the company, the current year prospects remain challenging in light of expectations of slower economic growth. Besides, raw material prices have started to harden in recent months and consequently the YoY improvement in margins is expected to be on the lower side. Overall, it is a mixed outlook for Goodlass in FY03.



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