Asian Paints: Dull quarter

Q4FY08 sales growth is somewhat subdued

The Rs 4,404 crore Asian Paints sales numbers for the March 2008 quarter came in a shade lower than expectations. At just over 18 per cent, sales for the market leader in decorative paints, were driven primarily by demand in the home market and were better than the industry average.

The 48 per cent increase in the net profit was the result of a lower rise in expenses and also a much lower effective tax rate.

With the company having taken a price increase of just over a per cent for decorative paints earlier this year, it would appear that both value and volumes contributed to the growth.

For perspective, sales in the December 2007 quarter and June 2007 quarter, when consumer demand is typically stronger than in the March quarter, were far higher at nearly 26 per cent and 24 per cent respectively.

Of course, the September 2007 quarter, which overlaps with the monsoon season, saw a far lower growth at 13.5 per cent. The March quarter appears to have seen somewhat weaker demand from both the housing and industrial sectors.

The bright spot was the expansion in the operating profit margin which expanded 150 basis points to 13.7 per cent, thanks to a stronger rupee which helped to keep the raw materials bill "�especially that for crude-oil based materials--in check. For FY 08 too, the company's consolidated operating profit margin grew 200 basis points to 15 cent.

However, going forward, margins could be under pressure because of the continued surge in crude-oil based materials,which could keep higher raw material costs high.

Asian Paints has strong brands Also, much would depend on how customers respond to the price hikes that Asian Paints plans to take. At Rs 1200, the stock trades at 24 times estimated FY 09 earnings and should be a market performer.

Shoppers Stop: Short on shelf space

Higher expenses on lease rentals have pulled down the operating profit margin of the Rs 1,159 crore Shoppers Stop to 4.3 per cent, in the March 2008 quarter, a drop of 270 basis points.

That's despite a fairly good top line growth of 38 per cent for the retailer, which has recently re-positioned the Shoppers brand in the 'bridge to luxury' segment.

The reasonably good top line growth was driven by addition of space as also better same-store sales and pulled up the revenue growth for the full year FY08 to just under 34 per cent.

However, the operating profit margin for the year fell by 310 basis points to 4.7 per cent while the net profit fell 89 per cent to Rs 2.7 crore, due to start-up losses in formats such as Home Stop.

Same store sales growth, in the March 2008 quarter, of 16 per cent for the department store format, though slower than last year is better than 13 per cent seen in the December quarter and pulled up the growth for FY08 to 14 per cent for FY08.

While, Shoppers' same-store sales growth has been better than that of its peers., it is adding space at a relatively lower pace.

The retailer has 1.7 million sq ft of space, across more than 100 stores in 15 cities, but in FY08, it added just about 0.4 million sq ft.

Some of the newer businesses like Crossword and Mother Care have turned profitable though start-up losses for other formats could persist for some time.

While the retailer has established a presence across niches, the speed of the ramp "�up isn't fast enough to allow better economies of scale to kick in. With a Rs 500 crore rights issue on the anvil, the stock is likely to remain at current levels of Rs 400. At this price the stock trades at 85 times estimated FY08 earnings and is no basement bargain.