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| Asian Paints: On a roll |
| Shobhana Subramanian / Mumbai Nov 18, 2009, 00:59 IST |
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Strong brands and clever pricing have helped the company cash in on reviving consumer spends.
 The series of price cuts taken by Asian Paints over the past six to eight months, totalling 12 per cent, is paying off. That’s reflected in the strong volume growth of 20 per cent year-on-year in the September 2009 quarter.
Of course the festival season set in earlier this year and, therefore, a comparison with 2008 is not valid. Moreover, the environment last year had been vitiated with the global financial crisis and consumer spending had virtually collapsed. Nevertheless, despite the low base effect, the increase in stand-alone revenues, up 19 per cent at Rs 1,387 crore is creditable.
What’s also impressive is the jump in the operating margins of 460 basis points to 20 per cent which pushed up the operating profit 54 per cent to Rs 278 crore. If the net profit before exceptionals was up 103 per cent, it was due to a much higher other income, a lower effective tax rate and lower interest costs.
Apparently, input costs not having risen till now could change in the coming months as crude oil prices pick up. It’s possible Asian Paints will be able to pass on some of the cost increase since it does have pricing power, but it’s hard to see operating margins expanding from here on.
However, the company’s strong product portfolio and increasing share of higher value-added paints such as emulsions, should help grow volumes and the top line. Emulsions, according to analysts, account for as much as 35-40 per cent of revenues with sales brisk both in the metros and small towns.
Consolidated revenues for Asian Paints are expected to grow 21 per cent to Rs 7,700 crore in 2010-11 with estimated net profits expected to grow at a similar pace. The Asian Paints stock has already been re-rated following strong numbers in the March and June quarters; analysts believe the stock could trade at forward multiples of 23 times. At the current price of Rs 1,674, the stock trades close to 22 times estimated 2010-11 earnings.
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