MAY 31: Asian Paints announced a bonus issue in the ratio of 3:5, and afterthe annoucement, the stock is up by 2 per cent, which indicates that marketis more or less happy with the bonus ratio. While this imrovement may not bevery impressive, the performance of the stock is one of the best in the lastfive months.When the overall market took sharp beating, and technology stocks showed anaverage erosion of 60 per cent, this stock managed to remain strong, and hasbeaten the Sensex.
The market had reason to optimistic on the stock. The latest annoucement ofbonus issue is one of them. What has helped the management to decide toreward its shareholders is a steady performance of the company. The companyhas shown a sharp reduction in cost which has provided a boost to thecompany's profit margins.
Sales have shown a growth of 18.9 per cent in 1999-2000 whereas the profitat the net level has risen by 26.6 per cent from Rs 77 crore to Rs 97 crore.A sharp increase in tax outgo also had its impact which jumped by 90.6 percent to Rs 45.8 crore. For the year, the company achieved a 23 per centvolume growth in its paint business. This growth was more than impressive ifone were to go by the depressed industry scenario. More than the volumegrowth, what was impressive was the fact that a reduction in cost has helpedthe company to show higher profit margins. This was possible despite anincrease in raw material prices.
For the fourth quarter (January-March 2000), while gross sales improved by22.5 per cent to Rs 332.4 crore, net profit was up by 19.8 per cent to Rs34.6 crore. Gross sales during the third-quarter stood at Rs 372.73 crore,and the net profit stood at Rs 23.24 crore.
For the future, the company expects the decorative paint segment to grow ata rate of 13 per cent - 14 per cent. However, a further improvement on thecost-cutting front appears difficult. At the same time, if realisations showimprovement, profit margins will take a sharp rise which would help thecompany service its increased equity. Post-bonus, the equity will increaseto Rs 64.20 crore, and unless the PAT improve by 60 per cent, the earningper share will show a negative growth.
From the technical point of view, the stock has done very well in the recentpast, and appears on a good wicket. The short-term support for the stock isat Rs 410, and the medium term support is at Rs 350 below which delivery canbe offloaded. The upmove may gather momentum above Rs 440.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.