Goodlass Nerolac, the market leader in the industrial paint segment, posted a 110% jump in net profits in the second quarter ended 30th September 2000. Despite concerns of a slow down in automobile sales (especially at Maruti, its major client) and rising raw material prices, this is a creditable performance. This has necessitated a re-look at our estimates for the full year.
For the first half of the current year, sales grew by a healthy 17%. We expect the company to post around 15% growth in sales for the full year (FY01). Sales could slow down in the second and third quarters, as automobile sales are not expected to show any significant improvement till March 2001. It may pick up in FY02, once the government announces the new auto policy. The government is reportedly planning to reduce excise duty on small cars, which would mean that small cars would become cheaper by Rs 20,000-Rs 25,000. Further, Toyota, the company’s new client, has become the market leader in the multi utility vehicle segment with consistent growth in volumes in the current year.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
The company’s initiatives on the decorative paint segment are also encouraging. It has launched new products and has increased the number of Colour Scape’s, the computerized dealer-tinting machines. This should add to the top line in the current year. Going forward, we believe that the impetus for sales growth would be the decorative segment where per capita consumption levels continue to remain low.
Margins have also shown significant improvement in the first half of the current year. Operating margins went up from 8.2% in 1HFY00 to 9.8% in 1HFY01. This, on the back of rising raw material prices and the pressure from the automobile companies to decrease paint prices is a notable improvement.
Though raw material costs as a percentage of total cost is expected to touch 54.5% in FY01 (53% in FY00), the discontinuation of the resins and the pigments division would increase its operational efficiency. Therefore, overall, we expect the margins to remain at the previous year’s level of 8.9% for the full year. We have also upgraded our net profit estimate to Rs 350 m for FY01.
The stock is trading at Rs 138 at a P/E multiple of 6.5x the annualised 1HFY01 earnings. On the estimated sales of Rs 6,902 m, market capitalisation to sales works out to 0.3 times (market capitalisation is Rs 2,115 m).
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: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407