Goodlass: FY04 and beyond - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Goodlass: FY04 and beyond

Dec 30, 2002

Goodlass Nerolac Limited is the second largest paint company in India. It is the market leader in the Original Equipment Manufacturer (OEM) segment, where it has a market share of more than 40%. Kansai Paints, the Japanese paint major, holds 64.5% stake in the company.Key positives...
Goodlass is a strong player in the automotive paint segment and has been the key supplier to domestic auto majors including Maruti-Suzuki and Tata Engineering (Telco). While the former is the market leader in the passenger car segment (50% share), the latter has a dominant presence in the commercial vehicle category (Telco also has a 25% market share in the ‘Segment B’ passenger car).

Apart from the aforesaid players, Goodlass has also been supplying to the likes of Honda, Toyota, Mitsubishi, Volvo and TVS. Given the long-term growth potential of the Indian automobile segment, Goodlass as a market leader, is well positioned to capitalise on any upturn in industry demand. This argument is sharpened by the graph above that shows the relationship comparing YoY growth in company's revenues vis-à-vis auto sector and GDP growth. Evidently, there is a strong co-relation of the company's revenue growth with the performance of the automobile sector.

In an effort to increase its presence in the decorative segment, the company has been expanding “Colour Scape”, the computerised colour dispenser outlets. This move is expected to generate free cash on the working capital front. Goodlass launched ‘Suraksha’, the exterior paint last year. The exterior paint segment has been growing at a stellar rate of 25% per annum in the last three years. This combined with new product launches on the emulsion front has benefited the company. From as low as around 30% in 1997, contribution from the decorative paint category is estimated to have touched 50% in FY02. Since margins are relatively higher in the decorative segment, the shift in favour of decoratives is a positive for the company.

Key negatives...
While the company's dominant presence in the automotive paint category is a positive, margins in this segment are lower. The reasons are multi-fold. Firstly, the bargaining power of the company is on the lower side. Auto majors tend to squeeze their OEM suppliers in order to safeguard their own margins in a downturn. This has been the case in the last four years. Volatility in raw material prices and competition have also played a part in arresting margin expansion. The last five-year trend in revenues and profitability validates our arguments. While net sales have grown at CAGR of 9.7% for the period between FY98-FY02, operating profits increased at a slower CAGR of 2.6%. In fact, net profits have declined at a CAGR of 3.2% in the last five years. Given the lacklustre economic growth prospects in the near term, we expect operating margins to remain under pressure in the near-term.

Besides, the sharp spurt in crude prices in the second half of the current fiscal is a cause of concern. This could result in further upward movement in key raw material prices like titanium dioxide and orthoxylene. Since raw material costs account for 67% of sales for Goodlass, operating margins are expected to come under pressure.

The stock currently trades at Rs 134 implying a P/E multiple of 6.3x FY03E earnings. Historically, the stock has traded in the 6x-9x earnings. Though current valuations are on the lower end, absence of liquidity in the stock market and comparatively weaker return ratios are affecting valuations.

For more detailed analysis with projections, view our complete research report on Goodlass Nerolac.

Equitymaster requests your view! Post a comment on "Goodlass: FY04 and beyond". Click here!


More Views on News

KANSAI NEROLAC 2020-21 Annual Report Analysis (Annual Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

Here's an analysis of the annual report of KANSAI NEROLAC for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of KANSAI NEROLAC. Also includes updates on the valuation of KANSAI NEROLAC.

KANSAI NEROLAC Announces Quarterly Results (1QFY22); Net Profit Up 275.8% (Quarterly Result Update)

Aug 3, 2021 | Updated on Aug 3, 2021

For the quarter ended June 2021, KANSAI NEROLAC has posted a net profit of Rs 1 bn (up 275.8% YoY). Sales on the other hand came in at Rs 14 bn (up 119.6% YoY). Read on for a complete analysis of KANSAI NEROLAC's quarterly results.

KANSAI NEROLAC Announces Quarterly Results (3QFY21); Net Profit Up 64.6% (Quarterly Result Update)

Feb 2, 2021 | Updated on Feb 2, 2021

For the quarter ended December 2020, KANSAI NEROLAC has posted a net profit of Rs 2 bn (up 64.6% YoY). Sales on the other hand came in at Rs 15 bn (up 18.0% YoY). Read on for a complete analysis of KANSAI NEROLAC's quarterly results.

Asian Paints vs Berger Paints: Which is Better? (Views On News)

Dec 2, 2021

These companies are competing head on to grab the largest pie of a Rs 500 bn market.

Asian Paints Touches Record High After Stellar Quarterly Results (Views On News)

Jul 22, 2021

Asian Paints shares scaled fresh 52-week high today, before paring gains as the company's topline soared 91.1%.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 7, 2021 01:57 PM


  • Track your investment in KANSAI NEROLAC with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks