Asian Paints, the market leader in the Indian paint sector, has posted a 28% rise in net sales from Rs 2,727 m in 2QFY00 to Rs 3,481 m for the second quarter ended September 2000. One of the key driver has been the economy segment (exterior paints like Ace and Apex), which have grown by over 62%. As expected, premium products like OPAL (a polyurethane wood finish paint) have performed very well.
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Other income has gone up by more than 100% primarily because of rent from installation of dealer tinting machines (dealers have to pay a certain percentage as franchisee-rent to the company). Though operating profits have gone by 22%, margins have come under pressure due to rise in crude prices which in turn has resulted in higher rutile titanium dioxide prices.
Rutile titanium dioxide prices have gone by more than 2.5% during the first six months (titanium dioxide accounts for 30% of total raw material costs) from US$ 1,950/MT in June 2000 to US$2,000 in September 2000. This along with the change in inventory accounting norms (ASP-2) have affected operating margins. The company's performance is in line with our expectations and we expect the margins to drop by 100 basis points for the full year ending FY01 since basic raw material prices are expected to go up further by US$ 50/MT.
The company has also been suffering from higher tax outflow due to lack of any fresh investments benefits. A proposal to set up a new manufacturing capacity is on the anvil so as to lower the incidence of tax. Meanwhile, the company has increased the number of Colour World to 1,433 (848 in July 2000) as a strategy to enhance its market share (2,100 by FY01).
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