We model revenue CAGR of 10% led by ~9% volume CAGR in FY19-21E led by decorative paint segment. Better gross margin coupled with saving through transition to new corporate rate tax wold drive profitability for KNL. We maintain our target price and BUY recommendation on the stock.
We increase our FY20 and FY21 EPS by 8.3% and 2.9% respectively mainly led by one-time deferred tax benefit in FY20. We estimate 10.7% sales CAGR over FY19-22 with 5.1% sales growth in FY20 with double digit volume growth in Decorative paints and double digit volume decline in Automotive paints. We estimate 17.6% Adj. PAT CAGR over FY19-22 (12.5% PBT CAGR) and value the stock at 41xSept21 EPS of Rs12.2 to arrive at a target price of Rs548 (earlier 507 at 40xJune21). Retain Accumulate.
Increasing urbanisation, higher rural income levels and a brief repainting cycle have been the main reason for sustainable decorative paints demand. This coupled with social schemes such as Housing for All and better monsoons (would help in improving rural income) would be a strong trigger for the paint industry. We believe, strong revenue earning CAGR of 16% and 20% in FY19-21E supported by recent corporate tax rate cut. .Given the strong balance sheet, zero debt on the books, higher operating margins and sustainable free cash flows, we expect return ratios to remain at elevated level in FY19-21E. We maintain our BUY rating on stock.
Reduction in GST rate from 28% to 18%, correction in crude prices leading to correction in raw material prices, spending by government, increasing disposable income leading to strong growth in the decorative segment and stability in the industrial segment would drive the revenues and earnings of paint companies going forward, including KNPL. Maintain ADD with a TP of Rs 500 (from Rs 470) at 43x FY21E earnings.
We model revenue CAGR of 13% led by ~9% volume CAGR in FY19-21E led by decorative paint segment. Price hikes coupled with a favourable mix would lead to an expansion in EBITDA margin from FY19 onwards. We maintain our HOLD recommendation on the stock with a revised target price of Rs 470/share.
Decorative paints save the show; Auto paints near term drag We adjust the numbers for IndAS 116 only and estimate CAGR of 13.5% in volumes, 11.7% in revenues and 15.6% in PAT over FY19-21. Kansai is trading at 37.4xFY21 EPS. We value the stock at 40xJune21 EPS of Rs12 and arrive at a target price of Rs479 (earlier 464 at 40xFY21). We believe current scenario provides an opportunity to accumulate stock for medium to long term gains, although returns will be back ended. Retain Accumulate.
Consequently, we increase our EPS forecast by 2/3% for FY20E and FY21E numbers and assign a higher PE multiple to the stock. Recommend ADD (from Reduce) with a TP of Rs 470 (from Rs 425) at 40x FY21E earnings (increased from 37x). Multiple of 40x is the average one year forward PE for KNPL for the last 3 years and at 20% discount to market leader Asian Paints.
Kansai’s results were lower than our estimates. Revenue rose a mere 4.5% YoY to Rs 11.5bn – subdued performance after seven quarters of double digit growth. The decorative segment volume growth was in high single digit, but industrial segment fell 5% due to automobile industry slowdown. Given continued pressure in auto sales volume, we believe the industrial segment will continue to be impacted. We have revised our FY20E and FY21E revenue estimates to factor in lower growth in the automotive business. Valuing the stock at 32x FY21E EPS (25% discount to APL) to arrive at a TP of Rs 393; Downgrade to Sell
We cut our revenue estimate by 5.6%, 9.1% for FY20E and FY21E, respectively. We model revenue CAGR of 13% led by ~10% volume CAGR in FY19-21E (largely driven by decorative paint segment while industrial segment to grow at moderate rate). Price hikes (at regular intervals) coupled with a favourable mix would lead expansion in EBITDA margin from FY19 onwards. We value KNL at 40x FY21E earnings and cut our target price from | 480 to Rs 455. We revise our rating from BUY to HOLD.