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ICICI Securities
Kansai Nerolac Paints (Add)
CMP: ₹519.55
Target: ₹565
Analysis of historical multiples of Kansai Nerolac Paints (KNPL) indicates that recovery in passenger volumes may result in higher earnings growth, but has no bearings on its PE multiples. There is no correlation between passenger vehicles volume growth and PE multiples of Kansai. The company’s valuation discount to Asian Paints (Kansai PE/Asian Paints PE) over FY07-19 also has no correlation with passenger vehicle volume growth rates.
With Kansai trading near its mean PE+ 1SD, we believe, there is limited stock price upside via multiple re-rating and earnings growth will be a key driver for stock price movement. We expect the company to report PAT CAGR of 21.5 per cent over FY19-FY22E and improve its return ratios across the same timeframe. Maintain ‘add’ rating with a DCF-based target price of ₹565 (implied P/E 39x September 21E).
Key risk: Sharp increase in input prices as well as competitive pressures may impact our earnings estimates on Kansai Nerolac.
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