EXCISE cuts, reduction in import duties on some raw materials like orthoxylene and pthallic anhydride, and a boom in the construction and automobile sectors have put the Indian paints industry on a roll for another couple of years at least. Paintmakers are looking at a 20-30 per cent growth per annum. Capacity expansion is on the cards for most of the players, especially in the industrial paints sector, which is growing faster than the decorative paints market. A glance at the top two paint companies:
ASIAN PAINTS: The market leader's strength has always been its superior marketing and distribution prowess. Sales grew by 23.5 per cent in 1994-95, and net profit by an impressive 69.8 per cent.
While its decorative paints business--the company has a marketshare of 37 per cent--will gain substantially from excise cuts, Asian Paints is also investing heavily in industrial paints (marketshare: 14 per cent), which has not been a traditional focus area for the Bombay-based company.
At Rs 650, with an EPS of 29.6 (all prices are Bombay Stock Exchange, October 5), there is little chance of significant appreciation in the near future, but as a long-term investment, the scrip is definitely a good buy.
GOODLASS NEROLAC: The industrial paints leader (marketshare: 43 per cent) saw sales go up by 28 per cent in 1994-95, and net profit by as much as 61.8 per cent. The high depreciation burden implies very impressive cash profits. In industrial paints, Goodlass Nerolac, currently the only Indian manufacturer of cathodic electro-deposition (CED) primers, will soon face competition from Asian Paints, which has a CED plant coming up. In decorative paints (marketshare: 11 per cent), it is planning to chip away at Asian Paints' dominance by launching new brands and hiking marketing spend. At Rs 190, with an EPS of 15.3, the scrip is a good pick for medium-term gains.