X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Paints: A verdict on margins - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Oct 9, 2000

    Paints: A verdict on margins

    Which company in the paint sector has the best margins? Here is an attempt to compare a pure decorative paint company, Asian Paints, versus Goodlass Nerolac, an industrial paint company (more than 55% of sales).

    First of all lets take sales growth. Historically, decorative segment has been outpacing industrial segment as demand for paints (especially exteriors) has been growing sharply in rural markets. This is also aided by healthy growth in housing development as well as excise reforms. However, industrial paints segment, off late, has gathered momentum thanks to a slew of new car launches from auto giants like Hyundai, Daewoo, Honda and Toyota. Going forward, the ratio between decorative to industrial paints is expected to come down from 70:30 to 50:50.

    The next area of focus is realisations. While average realisations per unit have been growing for Goodlass Nerolac in past three years, the same is not the case for Asian Paints. However, per unit realisation for Goodlass has dropped from 7.4% in FY99 to 0.5% in FY00.

      Asian Paints Goodlass Nerolac
    (Rs m) FY98 FY99 FY00 FY98 FY99 FY00
    Paints, enamels varnishes (MT) 116,839 131,284 162,110 52,057 55,002 64,933
    % growth 12.0% 12.4% 23.5% 3.0% 5.7% 18.1%
    Avg. realisation 77,711 78,760 75,333 88,657 95,186 95,659
    % growth -1.1% 1.3% -4% 4.8% 7.4% 0.5%
    Total 9,080 10,340 12,212 4,615 5,235 6,211

    Going forward, realisations are expected to drop further for both companies. On one hand, Goodlass cannot increase paint prices because both Maruti and Telco are initiating cost cutting measures. Asian Paints, on the other hand, can afford to increase prices partially so as to commensurate increasing raw material prices. But this may affect sales volume.

    Coming to the margins, the table below reveals that Asian Paints has better operating margins as compared to Goodlass Nerolac. Asian paints seems to have better control over operating costs, as it is evident from the fact that net working capital to sales for Asian Paints is as low as 12.6% in FY00 compared to 19.8% of Goodlass. This is creditable given the working capital intensive nature of the industry. Going forward, this is expected to drop further, as both companies have implemented state-of-art supply chain management systems to integrate their vendors and stock keeping units.

      Asian Paints Goodlass Nerolac
    (Rs m) FY98 FY99 FY00 FY98 FY99 FY00
    Gross sales 9,496 10,559 12,408 4,724 5,270 6,049
    % growth   11.2% 18.0% 5.7% 11.6% 14.8%
    Gross profit 984 1,016 1,573 457 456 539
    GPM (%) 10.4% 9.6% 12.7% 9.7% 8.7% 8.9%
    Net working capital to sales (%) 18.5% 16.1% 12.6% 21.0% 23.9% 19.8%

    Our verdict! On a comparative basis, margins are better in decorative segment. This is because industrial paints segment is more technology intensive as compared to the decorative segment. Besides, decorative paint companies have control over prices, which their peers do not have.

    Rs m ASPN GNPL
    Market Price 214 124
    Number of shares 67 15
    Market Capitalisation 14,308 1,897
    EPS 12 20
    Market cap/sales 1.2 0.3

     

     

    Equitymaster requests your view! Post a comment on "Paints: A verdict on margins". Click here!

      
     

    More Views on News

    Asian Paints: Destocking Ahead of GST Impair Sales Volumes (Quarterly Results Update - Detailed)

    Aug 17, 2017

    Asian Paints registers 20.1% YoY decline in profits during 1QFY18 with low single-digit volume growth in the decorative paints segment.

    Asian Paints: Good Performance Across Segments (Quarterly Results Update - Detailed)

    May 18, 2017

    Asian Paints registers 10.4% YoY growth in profits during 4QFY17 with double-digit volume growth in the decorative segment.

    Asian Paints: Volumes Weighed by Notebandi (Quarterly Results Update - Detailed)

    Feb 17, 2017

    Asian Paints has reported a 2.6% YoY increase in the topline and a 0.6% YoY decline in the bottomline during the quarter.

    Asian Paints: Prolonged Monsoon Impacts Volume (Quarterly Results Update - Detailed)

    Oct 28, 2016

    Asian Paints has reported a 10.2% YoY increase in the topline while the bottomline has grown by 18% YoY

    Asian Paints: A Robust Performance (Quarterly Results Update - Detailed)

    Aug 3, 2016

    Asian Paints has reported a 9.1% YoY increase in the topline while the bottomline has grown by 17.9% YoY.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    COMPARE COMPANY

    MARKET STATS