Kansai Nerolac Paints Ltd. share price target

Kansai Nerolac reported a strong performance with ~15% YoY growth in decorative paint volumes in Q2FY21. The strong volume growth is attributable to intact demand from semi urban and rural regions along with continuous dealer additions (grew 4-5% in Q2FTY21). Further, demand for premium range of emulsions witnessed a strong recovery with the opening up of metro and tier 1 regions. The decorative segment value growth at 7% YoY was largely led by a change in product mix and dealer discount policies. On the industrial paint segment, while July-August witnessed a gradual...

Sales revival in decorative segment post easing of restrictions After a washout April 2020 due to lockdown, KNPL saw a demand revival in decorative paint category in May-June 2020 with double digit volume growth. Strong volume traction in decorative segment was led by repainting/maintenance related demand from tier II/III/IV cities. However, industrial paint volume offtake continued to be under pressure in Q1FY21 on lower demand from key clients. While intermediary lockdowns may delay recovery process in near term, gradual unlocking of economy would help...

54% volume decline in 1Q and gradual recovery in Industrial paints demand paints given success of its economy segment product soldier, higher dependence on tier2/3 cities and low base from 2Q (Lockdown in Kashmir last year, 60-70% market share). Although recovery in auto paints will be gradual...

KNPL's industrial segment remains a drag for the company with volume degrowth of 19% in FY20. However, the company is gradually increasing its focus towards non-automotive segments (~30% of Industrial paints) such as performance & powder coatings to offset revenue loss from automotive segments. On the decorative front (volume growth of ~5% in FY20), KNPL launched the lower end of emulsions in the domestic markets, which received a good response from customers (Soldier' brand recorded ~18% growth in FY20). We believe a good performance of the non-automotive segment (with market share gains) and a gradual recovery in demand for...

KNPL 4Q Mgt commentary reinforced our positive stance on the company given 1) successful launch of soldier in economy segment in emulsions 2) foray in coil coatings, floor coatings and rebar coatings 3) strong free cash flow with cash/investments of Rs4.7bn and 4) sustained higher than industry growth in decorative segment. Although near term outlook remains uncertain due to lockdown impact on sales and sentiments, we expect smart recovery from 2HFY21 given low base in Auto and impact of J&K; from 2Q20. Although...

Our interaction with managements and dealers indicates significant prebuying activity of consumer goods during January-February 2020 on fears of supply related issues from China. While companies have secured supplies to avoid any disturbance in sales in Q4FY20, demand was negatively impacted in March 2020 owing to holiday and post that lockdown across countries. We also believe a late recovery in demand for consumer goods will also impact Q1FY21 performance due to 1) shortage of workers (due to heavy migration), 2) shift in focus on essential goods compared to discretionary products and 3) streamlining of supply chain....

KNPL recorded revenue de-growth of ~8% YoY to ~| 1248 crore, below our estimate of | 1415 crore in Q3FY20. The muted performance was mainly led by a sharp decline in volume of industrial paint (owing to ongoing slowdown in the automotive industry). In addition to this, the slowdown in decorative paint demand in Q3FY20 was mainly due to extended monsoons and a delay in recovery of demand from north regions. We believe the performance of decorative paint segment would improve from FY21 onwards supported by strong demand from tier II, tier III cities and shorter repainting demand. On...

Expect pick- up in growth given low base on auto and expected pickup in decorative and other industrials in coming months We are cutting FY20,21 and 22 EPS estimates of Kansai by 8.7%, 6.0% and 3.3% respectively following disappointing performance during 3QFY20. Kansai reported 7.6% declined in sales as auto paint sales declined 20% even as decorative and industrial paints sales increased by 1% and 4% respectively. Kansai has not adopted aggressive approach in pushing Putty...

Decorative segment grows with strong volume growth KNL has recorded strong volume growth of ~12% YoY (I-direct estimate) in the decorative paint segments, despite extended monsoon and almost nil sales in the Jammu & Kashmir regions where company has a major presence. We believe the performance of decorative segment will remain strong in FY19-21E (with volume CAGR of 13%) supported by strong demand from tier II and tier III cities and shorter repainting demand. On the industrial front, the management expects improvement in the performance...