Kansai Nerolac Paints Ltd. share price target

by ~30% despite double digit volume growth in decorative paints. Though decorative paint business has slowed down QoQ (prolonged monsoons, flooding in key states and lower off-take in Kashmir - KNPL has 60% share), structural drivers like shift towards organized sector, housing push in Tier2/3 cities and shorter painting cycle....

The recent tax cut by the government from 33% to 25.2% is likely to boost earnings of Kansai Nerolac (Kansai) by 3% and 6% for FY20E and FY21E respectively. We change our earnings estimates and target price accordingly. We believe a tax cut would help demand revival in both decorative and industrial paint demand (with revival in automotive industry). This would also help organised players to gain market share from the...

The industrial paint remained a drag for KNL due to the unprecedented slowdown in the automotive segment. However, a shift in focus towards other industrial categories like coil coating and functional powder coating helped offset poor volume demand from the automotive industry. This, along with strong growth in the decorative segment (despite a higher base of 14% growth in Q1FY19) drove its performance in Q1FY20. Strong demand for decorative paint would be largely driven by demand remaining intact in tier II, tier III cities and a shorter repainting cycle. We model revenue...

We expect automotive paints demand to remain under pressure in the near term with recovery unlikely before festive season in 3Q19 and improvement in consumer sentiments. Inputs costs have peaked out and remained relatively stable enabling 200bps QoQ gross margin expansion. We believe that worst seems over on the margin front. We adjust the numbers for IndAS 116 only and estimate CAGR of 13.5% in volumes, 11.7% in revenues and 15.6% in PAT over FY19-21. Kansai is trading at 37.4xFY21 EPS. We value the stock at 40xJune21 EPS of Rs12 and arrive...

KNL has increased its revenue contribution in decorative paints from 50% in FY09 to 55% in FY19. Further, capex of | 1100 crore to expand paint manufacturing capacity from 3.9 lakh tonnes (lt) to 5.5 coupled with strong decorative paint demands (at CAGR of 13%) would help drive overall volume CAGR at ~10% in FY19-21E. Strong demand for decorative paint would be largely driven by demand remaining intact from tier II, tier III cities and a shorter repainting cycle. Further, in the industrial paint category, KNL has not lost market share despite lower volume growth. We believe a gradual...

Kansai's results were lower than our estimates. Revenue rose a mere 4.5% YoY to `11.5bn subdued performance after seven quarters of double digit growth. The decorative segment volume growth was in high single digit, but industrial segment fell 5% due to automobile industry slowdown. Given continued pressure in auto sales volume, we believe the industrial segment will continue to be impacted. We have revised our FY20E and FY21E revenue estimates to factor in lower growth in the automotive business....

Kansai Nerolac (KNL) recorded strong topline growth of ~18% led by volume growth of ~14% (I-direct estimate). The volume growth was largely driven by strong festive demand of decorative paints but industrial paint (topline contribution of ~45%) offtake remain sluggish due to inferior automotive paint demand from its key client. On the margin front, gross margin stayed under pressure (down 550 bps YoY) mainly due to higher raw material prices and inability to pass on higher raw material prices in the industrial paint category. As...

Expect QoQ margin expansion given decline in input costs and stable USD/INR We retain positive view and Accumulate rating on Kansai given strong decorative volume growth of 21% despite 10% volume growth in Industrial paints and gross margin decline of 550bps YoY and 200Bps QoQ. We believe that Inputs cost pressures have peaked out and expect QoQ margin...

Kansai Nerolac's (KNL) Q2FY19 performance was largely hit by higher raw material prices leading to ~466 bps YoY fall in gross margin. Overall volume growth at ~9% in Q2FY19 was led by decorative paint segment due to pre-festive placements at dealer's level. However, we believe slower industrial paint volume growth was mainly due to inferior automotive paint demand from its key client. KNL expects double digit volume growth across the paint category led by the decorative segment in the next two years owing...

across segments led by decorative segment. Management commented that raw material price inflation, volatility in crude prices and INR depreciation was more pronounced this quarter which impacted the operating margins....