Asian Paints Ltd has announced a sale by its overseas subsidiary Berger International Ltd of its Thailand paint operations. With this, Asian Paints has sold another loss-making operation in South-East Asia, exiting four countries in the region. Between August and now, it has sold its operations—held through Berger—in Malaysia, Hong Kong and China, apart from Thailand. Its south-east Asian operations turned in revenues of Rs106 crore in 2008 but incurred a loss of Rs6 crore. It runs a profitable operation in Singapore but the other four countries reported losses. In 2009, the region posted a loss of Rs5.6 crore in the January to June period.
The subsidiaries that were sold contributed to about 6% of international revenues and their divestiture will lower revenues to that extent. But profitability will improve significantly. The earnings before interest and tax (Ebit) margins for Asian Paints are twice that of its international operations. The sale of its loss-making subsidiaries will help in narrowing this gap.
The Caribbean and West Asia are other key markets for the firm. In a presentation made in November, the company cited a weak economic outlook in the Caribbean Islands and a drying project pipeline in West Asia as concerns.
West Asia contributes to over half of its global revenues and has been driving growth, with a 26% growth in sales and 72% growth in Ebit. In the coming quarters, the investing community will look to see if the real estate sector woes in West Asia are having an effect on its performance.
Since international operations contribute just 16% of revenues, the domestic market plays an overriding role. Here, the prospects are brighter as the quick recovery in the construction and automobile segments translates to better demand for the company’s coating products.
Concerns could be on the raw material front as inflation in pigment prices or crude oil related inputs could put pressures on margins. But they don’t seem a threat in the near term. Asian Paints’ share price has risen by 6% in a month and even touched its 52-week high in mid-December.
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