• JUNE 25, 2001

Goodlass 4QFY01: What to expect?

Goodlass Nerolac, the country's second largest paint manufacturer, is set to announce its fourth quarter and FY01 annual results tomorrow. The company had a dismal third quarter with net profits tumbling by more than 47% due to the slow down in the economy and subdued demand for commercial vehicles. Will 4QFY01 be anything different? The chances are bleak. Read on.

(Rs m) 9mFY00 9mFY01 change
Sales 3,880 4,361 12.4%
Other Income 69 83 20.4%
Expenditure 3,522 3,965 12.6%
Operating Profit (EBDIT) 358 396 10.7%
Operating Profit Margin (%) 9.2% 9.1%  
Interest 65 47 -28.5%
Depreciation 89 136 53.7%
Profit before Tax 273 296 8.6%
Tax 80 83 4.4%
Profit after Tax/(Loss) 194 213 10.3%
Net profit margin (%) 5.0% 4.9%  
No. of Shares (eoy) (m) 15.3 15.3  
Diluted number of shares 15.3 15.3  
Earnings per share* 16.9 18.6  

Goodlass reported a 12.4% rise in sales to Rs 4,361 m in the first nine months of FY01. Considering the quarterly performance of the company, it is in line with the industry. The paint industry had a robust first half with sales growing by more than 15%. Both Asian Paints and Goodlass reported a sharp rise in profits coupled with a marginal rise in operating margins. Goodlass reported a 10.6% and 22.8% rise in sales in 1QFY01 and 2QFY01. Operating margins for the first half of FY01 increased by a marked 160 basis to 9.8%.

But the sharp slump in both the commercial (CVs) as well as the passenger car sales did not augur well for the company in 3QFY01 (Goodlass in the key supplier of paint to Telco and Maruti Suzuki). Both sales and margins witnessed significant erosion. While sales declined by a marginal 2.4%, net profits were down by more than 47%. This was primarily on account a 320 basis points drop in operating margins. Sales and operating margins might continue to decline on account of persistant sluggish auto demand even in 4QFY01. The chart below vindicates it. Passenger cars and multi-utility segment have reported a 10.5% drop in production in March 2001 and April 2001 respectively. CV segment continues to suffer from sluggish freight transportation market. Freight market continues to remain stressed on account of a 12 m tonnes drop in agriculture production last year.

Even in the decorative segment, paint demand was affected in the third and fourth quarter due to the earthquake in Gujarat. Keeping these factors in mind, we expect Goodlass to report around 7%-8% growth in sales for FY01. However, higher income and lower interest costs should prevent the bottomline from posting a huge drop despite expectations of around 100 basis points drop in operating margins for FY01.

The stock is trading at Rs 85 at a P/E multiple of 4.5x the annualised first nine months earnings.

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