Asian Paints Margins Thinner

The 14 per cent growth in the decorative paints segment helped the company achieve a sales growth of 14.7 per cent. It chalked up sales of Rs 523.29 crore in this years first half as against Rs 455.88 crore in the first half of 1996-97.

In fact, the sales growth of this half is better than the growth rate of the entire last year, partly because last year APL could manage only a 6.1 per cent growth for the full year because of a dealers strike and a fire in the works.

However, the companys operating profit margin has come down from 12.4 per cent in the first half of 1996-97 to 11.9 per cent in this years first half. This is partly due to the slashing of prices of all its water based paints by 3 per cent since August 1997, which was triggered off by the discount scheme announced by ICI India.

 

In contrast, in 1996-97. APL had been able to raise prices of select brands by 3 per cent twice in the course of the year.

The other factor that hurt operating margins was the fact that now excise duty is now based on maximum retail price (MRP), against the prior ex-factory price earlier.

This move comes in the way of better pricing of its products.

The interest costs, which came down by 30 per cent in the second half of 1996-97, moved down further by 19.3 per cent to Rs 10.25 crore in the first half. Recovery of Rs 15.5 crore from the insurance claim and the $ 3 million through external commercial borrowings in March 1997 provided better liquidity and enabled the company to reduce its cost of funds.

In the first half APL enhanced the capacity of the Ankleshwar plant to 50,000 tonne per annum, and the second half will witness similar capacity being commissioned in its unit at Patancheru. This will result in volume driven growth, and at the same time reduce its outsourcing.