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Paints: Skewed 1QFY02 performance

Aug 9, 2001

The paint companies' worries continue. The sluggish macro-economic scenario has resulted in lackluster topline and lower profit growth. We have consolidated the 1QFY02 results of three major paint companies' viz. Asian Paints, Goodlass Nerolac and Berger Paints to analyse the trend in the aforesaid quarter.

(Rs m) 1QFY01 1QFY02 Change
Sales 4,941 5,143 4.1%
Other Income 52 90 74.3%
Expenditure 4,338 4,547 4.8%
Operating Profit (EBDIT) 603 597 -1.0%
Operating Profit Margin (%) 12.2% 11.6%  
Interest 89 79 -10.8%
Depreciation 133 175 31.4%
Profit before Tax 433 433 0.1%
Tax 130 125 -4.2%
Profit after Tax/(Loss) 302 308 2.0%
Net profit margin (%) 6.1% 6.0%  

Sales for the first quarter of the current financial year has gone up by 4.1% to Rs 5,143 m. One important aspect to note in 1QFY02 results is the substantial rise in other income by 74.3% to Rs 90 m. This has been the case over the last three quarters. The other income primarily includes lease rentals from dealers where paint companies' have installed dealer tinting machines. To put things in perspective, Asian Paints alone has increased such dealer tinting machines by 1,000 in FY01 and this is expected to go up in the coming quarters. So one can naturally expect this component to increase progressively.

The subdued economic scenario and resultant effect on paint demand has meant downward pressure on margins. Historically however, paint demand in first quarter tends to be on the lower side in absence of any positive triggers. This could change towards the end of the year on account of encouraging preliminary monsoon analysis by the meteorological department. If this filters into higher kharif production coupled with the diwali season in the second half of the current year, there could be a sharp upturn in paint demand and thus margins.

The lowering of interest rates and efficient working capital management with the installation of supply chain engine last year by paint companies have lowered interest costs by 10.8% to Rs 79 m in 1QFY02. Depreciation charges have increased primarily on account of the dealer tinting machines, which paint companies' include in their books of accounts. Going forward, this could change as companies like Asian Paints have plans to account for it in the dealers book.

Though on the look of it one might say that net profits, on a consolidated basis have grown by just 2% to Rs 308 m. But barring Asian Paints, all other paint companies have posted a sharp drop in profits. In the sample analysed above, Asian Paints has contributed to almost 53% of the total sales and 69% of net profits.

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