Goodlass Nerolac: A ruddy hue

Anup Menon

THE FIXED deposit programme of Goodlass Nerolac Paints (GNP) is a good option for investors with a low risk profile.

The rates on offer are not very impressive, but given the dearth of investments in a similar risk class investors can consider the shorter-end tenures on offer. The company offers a premium of around 100 basis points over the average bank deposit rate for the same period. A top company in the paints industry, the company's fundamentals are not likely to come under pressure. The gearing levels and the ability to cover interest payments are comfortable. In this backdrop, the company is not likely to face a problem in servicing its fixed deposit base. However, on account of the low incremental benefits for longer tenures, investors can consider the shorter-end tenures on offer.

The fixed deposit programme of Goodlass Nerolac is open for investment. The scheme is open for fixed deposits only. The tenure for the deposit scheme is 1, 2 and 3 years offering interest rates of 9.5, 10.5 and 11 per cent respectively. The minimum deposit is Rs 10,000. Additional investments can be made in multiples of Rs 1,000 each. Deposits are accepted at the company's registered office located at Nerolac House, Post Box 16322, GK Marg, Lower Parel, Mumbai -- 400 013.

GNP has a presence in both the industrial and decorative paints industry. The company is among the market's leaders with a share of close to 40 per cent in the industrial paints segment.

GNP has an alliance with Kansai Paints of Japan, which is the world leader in industrial paints. Growth rates and margins are higher in the industrial paints segment as compared to decorative paints. This augurs well for the company from the long term perspective. The company's performance is sensitive to economic cycles. Critically off take in the industrial paints segment depends on the performance of the automobile and white goods sector. These sectors have been showing signs of slowing down. However, the possibility of a significant negative impact on performance is not likely. GNP also has an established presence in the decorative paints segment. However, the decorative paints segment is growing at a slower rate than industrial paints. In this segment earnings are driven more by volumes.

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The company's earnings performance for the first half of fiscal 2000 has been fairly impressive. Sales revenues rose by around 17 per cent to Rs 287.99 crore compared to the same period the previous year. In the same period, operating margins improved from 9.42 per cent to 11.62 per cent. Post-tax earnings rose 71 per cent to Rs 16.19 crore. The company's fundamentals and cash flows appear comfortable and this may ensure that the fixed deposit base is serviced with a fairly high degree of safety.s