Goodlass Nerolac: Buy

Recommendation: Buy

Anup Menon

The Goodlass Nerolac (GNP) stock is a good investment from the long-term perspective.

Based on the current market price of Rs 135, it trades at a price earnings multiple of around six times its latest annualised earnings per share. At the current levels, there is scope for an upside. But sustaining the stock at higher levels would depend on the automobile industry's performance in the near term. However, fresh investments could be considered from a short-term perspective.

Earnings performance: The company's earnings performance for the first half of 2000-01 was impressive. The company saw above-average (compared to its peers) growth in turnover and bottomline. This could be attributed to the fact that the automobile sector's good performance in the first half of 2000-01.

Business: Goodlass Nerolac is the second largest player in the paints industry after Asian Paints. It has an overall market share of around 16.52 per cent in the industry and over 40 per cent in the industrial paints segment. In this segment, the company derives a significant chunk of its revenues from the automobile industry.

Prospects: The company's prospects in the near term look stable, and better from the longer perspective.

The short-term valuation would largely depend on the performance of the automobile industry, and the company's ability to rake in volumes in the decorative paints segment. The slowing growth in the automobile industry over the last two months could result in reduced off-take for Goodlass.

To help reduce the higher volatility associated with the industrial paints segment, the company has been concentrating on improving its presence in the decorative paints segment. For instance, it has targeted 18-20 per cent growth rate in this segment over the next couple of years. This should help stabilise its earnings stream.

Overall, the company is well placed and has taken the initiative to increase its market share. With the renewed focus on decorative paints, the near-term performance is likely to be good.