From THE HINDU group of publications
Sunday, July 29, 2001


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Asian Paints: Buy

Recommendation: Buy

Anup Menon

TRADING at around Rs 250, the Asian Paints stock is a good investment option for a low-to-moderate risk portfolio. The stock trades at a price earnings multiple of around 19 times its latest annualised earnings per share.

The company's earnings performance for the first quarter of this fiscal has been fairly impressive.

Though there has been a slump in demand in recent times, the company has managed to keep its head above water. This apart, given the strong brand equity enjoyed by Asian Paints and its position in the industry, near-term cash flows are not likely to be affected.

Thus, investors can consider entering the stock at around the Rs 240-250 levels. Profits can be booked at around the Rs 280-290 levels.

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Earnings performance: The company's earnings performance for the 2000-01 first quarter has been fairly impressive. Sales revenues rose around 9 per cent to Rs 273.81 crore, compared to the corresponding previous period. Operating margins remained stable at around the 16 per cent mark. Post-tax earnings rose around 14 per cent to Rs 21.22 crore the previous year. On an equity base of Rs 64.19 crore, the annualised earnings per share work out to around Rs 13.

Business profile: Asian Paints (APL) is one of the largest players in domestic paints with an overall market share of around 33 per cent. It is also the market leader in decorative paints. However, the same is not the case with the industrial paints segment, which is catching up. APL may soon become the market leader in both these segments.

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Prospects: The company's performance for the first quarter has been fairly good. This has been, to some extent, on account of the rising realisations in key raw materials such as phtalic anhydride and pentaerithrytol.

However, though Asian Paints has an extensive network and it is fairly well-entrenched in the decoratives segment, the key to future growth may be the industrial paint segment.

In the last one quarter the company's industrial paints business improved around 13 per cent, compared to the previous year. This augurs well especially given the state of the automobile industry.

The growth in this segment is a good sign as margins are higher in industrial paints, compared to the decoratives. However, the question is: Can the company sustain its revenues from this segment?

This would depend, to a large extent, on the performance of user-industries such as automobiles and white goods. Overall, the company's performance in recent times has been fairly impressive. Its market position is not likely to be threatened in the near future.

Further, if it manages to strengthen its hold over industrial paints, there should be some improvement in cash flows. Investors can consider the stock at current levels.

Related links:
Asian Paints Q1 net rises 14 pc
Asian Paints net up 9.30%
Asian Paints jt venture in Bangladesh
Asian Paints: A spirited show

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