Asian Paints has posted an impressive 9.7% growth in sales to Rs 2,738 m in 1QFY02. This is a commendable performance in light of lacklustre demand scenario and slowing industrial production.
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The growth in sales is higher than expected as it also includes processing charges received/receivable from the joint venture unit, Asian PPG Industries. Operating profit has gone up only by 6.2% to Rs 400 m due to a 50 basis points fall in operating margins to 14.6% in the aforesaid quarter. It should be noted that paint companies generally witness a drop in margins in the first half but it is compensated during the festive season. However, lower interest expenses and higher other income has led to a higher net profit. Net profit in 1QFY02 has gone up by 15% to Rs 212 m. The rise in other income was primarily on account of higher lease rentals from dealer tinting machines.
The results are in line with our expectation barring a higher growth in sales. Both margins and topline are expected to grow at a faster rate in the second half as the festive season in the current year falls in the third quarter. Besides, if the estimates of a normal monsoons come true, prospects are indeed very promising.
The scrip is currently trading at Rs 246 at a P/E multiple of 18.6x the annualised 1QFY02 earnings. On the expected sales of Rs 13,492 m in FY02, the market capitalisation to sales works out to 1.2 times (market capitalisation is Rs 15,793 m).
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