Geojit Retail Equity Research

Target: ₹459

CMP: ₹418.30

Kansai Nerolac Paints (KNPL) is the market leader in industrial paints and the third largest decorative paint company in India. In Q4FY23, it reported a better than expected top-line growth of 13 per cent year on year, led by a healthy demand in the industrial paints and decorative segment. Gross margin improved 397 basis points (bps) year on year to 31.9 per cent owing to price hike in industrial paints and benign raw material prices. EBITDA margin improved 424 bps year on year to 9.7 per cent in Q4FY23.

The company has gained market share in passenger vehicle paints, two wheeler paints, commercial vehicle paints and tractor segment paints. The decorative and industrial paints volume grew by double digit due to new product launches and strong demand from automotive OEMs. The management highlighted that the journey of exiting low margin paints is progressing well and they are focusing on adding more premium paints. The company has launched 14 new products in the decorative category, which has coloured the demand. E

We expect a revival in passenger vehicle sales and strong demand momentum in the industrial segment to drive top-line. The management is focusing to improve its market share in decorative business and expects the segment to grow faster than industrial paints.

We expect margins to improve in the coming quarters on account of price hikes from auto OEMs and a fall in input prices.

We expect an increasing demand outlook for auto with improved chip availability and introduction of new products to increase the growth in premium category. We reiterate Accumulate rating and value KNPL at 32x on FY25 EPS with a target price of ₹459.

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