During the last one year's period, market has seen high volatility. However, there are a few stocks which have managed do to reasonably well. And Asian Paints is one such scrip. During these tumultuous period, the stock has moved in a range of Rs 205 to Rs 280.One of the reasons for this steadiness could be a lack of activities on this counter. The average trading volumes on this counter have declined sharply in the last seven months.
An improved financial working also had an impact. For the first six month ended on September 2000, the net sales stood at Rs 597.68 crore, showing a growth of 19.2 per cent over Rs 501.37 crore in the corresponding period in the previous year. The growth has been satisfactory if one were to consider the depressed industry scenario.
Thanks to strict cost control, the company has also managed to maintain its profit margins. During the first half, profit margins stood at 15.79 per cent - marginally higher compared to 15.76 per cent in the corresponding period of the previous year.
The raw material cost which accounted for nearly 49 per cent of the gross sales grew by 15 per cent in the first half, and helped the company to maintain its profit margins at operational levels.Net profit at the same time grew by 24 per cent to Rs 49.01 crore. A 42 per cent jump in other income despite an insignificant rise in interest burden has also helped its profit growth. Overall, the performance has been satisfactory to say the least.
For the future, while the demand scenario for the sector is not so rosy, the company's ability to control its cost, and use its asset smartly will continue to help its performance. A decline in raw material cost may give a major boost to its profit margins.
As for discounting by the market, the stock has been getting a price multiples in the range of Rs 15 to Rs 20 which is likely to remain in the same range.
With a steady track record, the supply of additional paper on account of a bonus issue in the ratio of 3:5 may not have a major impact on its stock price.
From technical point of view, unlike a large number of listed stocks, the scrip has managed to keep itself above its medium term support which itself is an impressive show.
The stock has a good base at Rs 200, and if this level is broken, the medium term investors can make an exit. Fresh positions can also be taken with this as a stop loss.
On the upper side, the stock has a strong resistance at around Rs 290, and above this, the stock will enter into a new bull phase.
Deepak Singh Tanwar
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.