Asian Paints
. At last, the rain Gods seem to have done the trick. For a whole week, the stock markets remained buoyant and the Sensex ended at 4454. This was a good 10 % higher than what the market ended with last week. A positive feature of this week’s rally was that it was contributed by both the technology stocks as well as the traditional blue chips. On the last day of the week, the erstwhile market favorite, Tisco closed with a gain of Rs 133 on the speculation that it may acquire Raymond’s Cement plant. Simultaneously, Media and Technology scrips such as Zee Telefilms, Infosys and Satyam Computers gained around 8 % indicating an across the board change of sentiments. On the Pharma front, Glaxo also gained nearly 12 % on Friday. The proposed merger of Dr Reddy Laboratories and Cheminor as well as the giant strides of Ranbaxy hold promise for a bright future for Pharma stocks and Mutual Funds with Pharma sector specific funds. 

Now that the southwest monsoon has already reached the main land and is expected to be normal, the economic forecast would continue to be favourable. But for some periodical corrections, the market may keep its upward march to the optimistic forecast of 6000 by Diwali. Investors should therefore stay invested and accumulate good technology and economy shares at every opportunity. The general uptrend in the economy following a good monsoon will immediately provide a boost to the construction industry and its ancillaries such as Cement, Steel and Paints. It would be therefore worthwhile to look at the market leader in the Paint industry namely Asian Paints whose shares were quoted around Rs 428.

The Company recently announced healthy results for the year 1999-2000 and a bonus in the ratio of 3:5. Against an increase in sales of around 19%, during the year, the company recorded a raise in net profits of around 27 %. This was in spite of a sharp increase in tax outgo of nearly 20 crores. Otherwise, the increase in profits would have been even more impressive. 

In the last three years, the sales of the company has grown from around Rs 937 crores to Rs 1341 crores. The profits at post tax level has grown more than proportionately from Rs 55.38 crores to Rs 97.34 crores.

Table:Performance Highlights of Asian Paints

Year 1997 1998 1999 2000
Turnover

(Rs Crores)

 937.60 1021.17 1127.93 1341.64
PBT

(Rs Crores)

 85.38 67.50 76.88 143.09
PAT

(Rs crores)

 55.38 67.50 76.88 97.34
EPS (Rs) 13.05 16.07 18.32 23.19

 

On the market front, the company achieved a 23 per cent volume growth in its paint business against a not so attractive industry scenario. Apart from 

the volume growth, a reduction in overall cost has helped the company to show higher profit margins. This reduction was achieved despite an increase in raw material prices indicating the strong fundamental strengths of the company.

The company has a strong presence in decorative paints segment, which is expected to grow at around 13 to 14 % in the coming year. The company is also taking initiatives to grow in the rural markets where it foresees a good potential for exterior paints. On the International front, the company has added three new overseas ventures in FY'2000 in Mauritius and Oman. The company now has nine overseas subsidiaries. All its overseas units are reported to have performed well in their respective financial years and hold leadership status in their respective countries.

While the industry leadership status of Asian Paints provides a distinct value to the shares of Asian Paints and a good liquidity, investors looking at the emerging prospects in the Paint industry should not lose sight of Goodlass Nerolac with an EPS of 18.9 and a P/E of around 7. However, in a market dominated by Institutional investors, Asian Paints is a clear choice in the industry for most of the mutual funds. The immediate prospects for Asian Paints is therefore bright. After the announcement of the Bonus the share has maintained its price level. Since the profit levels are expected to keep pace with the increase in capital, the shares at the post bonus stage are likely to maintain the current discounting and perhaps improve thereon. For an investor with a perspective of one year, a 35 to 50 % growth appears to be on cards at the current cum bonus price levels.

Na.Vijayashankar

June 3, 2000

 .