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  • Stock Recommendation: Kansai Nerolac Paints Ltd – BUY – TP Rs.600

    Publish date: July 23, 2018

    Result update: Healthy quarter, strong trend continues

    Strong volume growth in the decorative segment, stable volumes in the industrial segment and raw material price inflation were the highlights of the results for KNPL during the quarter.

    Key Highlights

    • As per management commentary, KNPL experienced double digit YoY growth 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. Management is making efforts to increase product prices and reduce various cost to counter the situation.
    • Sales (excluding GST) was reported at Rs 13.76 bn (+24.7% QoQ and +17.2% YoY) in a seasonally strong quarter for paint companies. EBIDTA was reported at Rs 2.21 bn with Ebidta margin of 16% (+70 bps QoQ and -150 bps YoY).Consequently PAT was reported at Rs 1.4 bn (+32.4% QoQ and +1% YoY).
    • Management is confident of strong volume and sales growth and bounce back of operational performance. Even we believe that the situation is healthy for paint companies in every segment including decorative paints, industrial as well as auto paints. Maintain BUY with an unchanged TP of Rs 600 at 44x FY20E earnings.

    Valuation & outlook

    We estimate that branded paint demand will remain robust in a country like India where per capita consumption is very low and 30% paint market is still unorganised.

    Management of KNPL also indicated that the volume trends remain strong for the company and expect the trend to continue in medium term.

    For KNPL, we estimate 9% volume CAGR over FY18 - FY20E with stable margins and ROE of ~19.6% and ROCE of ~28.9% for FY20E.

    Maintain BUY with an unchanged TP of Rs 600 at 44x FY20E earnings.


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