Kansai Nerolac Paints Ltd. share price target

Considering macro headwinds like erratic rainfall and shift of festive season to Q3FY24, we reckon Kansai has reported healthy numbers in Q2FY24. We remain enthused by the continued investments to strengthen competitive advantages with (1) higher feet-on-street, (2) new product launches, (3) influencer outreach, (4) investments in projects business, and (5) digital.

Kansai has introduced multiple DCF-accretive initiatives under the leadership of Mr. Anuj Jain, MD such as (1) steady expansion of innovative product portfolio across sub-segments, (2) relaunched brand as ‘Nerolac Paint+ with Japanese technology’ supported by higher brand and R&D spends, (3) investments in projects, Next-gen painting services and influencer reach to connect with customers and generate pipeline.

Kansai reported revenue growth of +5.1% compared to Asian Paints (+7%) and Akzo (+6.6%) YoY. Its EBITDA margin expansion (+294bps) was also lower than Asian Paints (+537bps) and Akzo (+331bps) YoY. While Kansai is biggest beneficiary of revival in Automotive sector, it has likely lost market shares decorative paints in our view.

Kansai reported strong Q4FY23 led by (1) price hikes in industrial paints, (2) benefits of investments in trade and projects business in FY23, (3) strong volume growth in automotive paints, (4) correction in input prices and (5) favorable base.

Kansai’s Q3FY23 was weaker than its peers with revenue growth of 0.9% vs Berger (5.6%) and Asian Paints (1.3%). Industrial paints segment has performed well with recovery in Automotive sector and Kansai was able to secure price hikes from all its key customers.