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Kotak Securities
Kansai Nerolac (Add)
CMP: ₹473.55
Target: ₹500
Kansai Nerolac Paints (KNPL), a subsidiary of Kansai Paint, Japan, is one of India’s leading paint companies and the largest player in the industrial segment. KNPL had its beginning as Gahagan Paints and Varnishes in the year 1920. In over 93 years of its existence the company has built a strong brand and gained a reputation for high quality, innovation and differentiated product offerings.
We estimate that branded paint demand will remain robust in a country such as India where per capita consumption is very low and 30 per cent paint market is still unorganised. Management of KNPL also indicated that the volume trends remain strong for the company in the decorative segment and expect the trend to continue in medium term. Automotive demand is expected to look-up in H2FY20.
We also estimate the gross margin of the company to improve with easing raw material inflation. The stock remains one of the favoured companies in the consumer space with a strong brand, credible history, sound management and balance sheet and a strong outlook. Maintain estimates and recommend Add with an increased target price of ₹500 (from ₹470) at 43x FY21E earnings (from 40x), which is at more than 10 per cent discount to market leader Asian Paints.
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