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Asian Paints: Slowdown takes its toll

Oct 30, 2001

Asian Paints, the market leader in the Indian paints segment, has reported a marginal fall in sales and profits for 2QFY02. Operating margins have also fallen by 50 basis points in the current quarter due to a subdued demand scenario.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Sales 3,481 3,383 -2.8% 5,976 6,121 2.4%
Other Income 37 68 82.8% 68 121 79.3%
Expenditure 2,914 2,849 -2.2% 5,033 5,188 3.1%
Operating Profit (EBDIT) 567 534 -5.7% 943 934 -1.0%
Operating Profit Margin (%) 16.3% 15.8%   15.8% 15.3%  
Interest 72 53 -26.7% 124 100 -19.1%
Depreciation 78 83 6.0% 158 176 11.8%
Profit before Tax 453 466 2.9% 729 779 6.8%
Tax 149 170 14.5% 240 270 12.6%
Profit after Tax/(Loss) 305 296 -2.8% 489 508 3.9%
Net profit margin (%) 8.8% 8.8%   8.2% 8.3%  
No. of Shares (eoy) (m) 64.2 64.2   64.2 64.2  
Diluted number of shares 64.2 64.2   64.2 64.2  
Earnings per share (Rs)* 19.0 18.5   15.2 15.8  
(*annualised)            

The fall in sales is primarily due to the seasonal nature of the paint industry. Due to a late Diwali season in the current financial year, sales and profits for the quarter and half year ended 30th September, 2001 were subdued. Since 2QFY01 was the festive season, the company reported a 27.7% rise in sales and as a result overall volume growth is on the lower side. Nevertheless, paint demand has slowed down in the current year (against the industry growth rate of 12% last year, paint demand is expected to increase by 6%-7% in the current year). But we expect the company to report around 16%-18% growth in sales in the third quarter of the current year.

The subdued demand scenario and increased competition has resulted in a marginal fall in operating margins by 50 basis points to 15.8% in 2QFY02. The rise in other income is primarily on account of higher rentals from dealer tinting machines, which the company plans to increase by around 800 in the current year.

The fall in net profits would have been higher if not for a 26.7% fall in interest costs. Tax liability has increased due to a higher provisioning for deferred taxation.

The scrip is currently trading at Rs 267 on a P/E multiple of 16.9x the annualised 1HFY02 earnings.


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