Buy Kansai Nerolac Paints, target price Rs 345: HDFC Securities

HDFC Securities has buy call on Kansai Nerolac Paints with a target price of Rs 345. The current market price of Kansai Nerolac Paints is Rs 410. Time period given by analyst is one year when Kansai Nerolac Paints Ltd. price can reach defined target.

Kansai Nerolac Paints Ltd., incorporated in the year 1920, is a Large Cap company (having a market cap of Rs 22122.65 Crore) operating in Building Materials sector.

Kansai Nerolac Paints Ltd. key Products/Revenue Segments include Paints, Enamels, Varnishes, Other Operating Revenue and Scrap for the year ending 31-Mar-2021.


Financials
For the quarter ended 31-03-2022, the company reported a Consolidated Total Income of Rs 1535.63 Crore, down -15.64 % from last quarter Total Income of Rs 1820.31 Crore and up 4.43 % from last year same quarter Total Income of Rs 1470.50 Crore. Company reported net profit after tax of Rs 19.17 Crore in latest quarter.

Investment Rationale
Kansai Nerolac’s (KNPL) standalone revenue, at 6.2% YoY (INR14.1bn, 3-year CAGR: 8%), was largely in line. In decorative segment, volume declined 7-8% while value remained flat YoY in Q4; performance continued to lag the top two. FY22 price hikes in decorative/industrial coatings stood at ~21/18%. Price hikes inched closer to cover RM inflation in decorative, while there is some price re-calibration left in the industrial segment. In FY22, given KNPL’s revenue mix, it faced significantly more heat on GM (750bps decline YoY) than peers. It expects GM pressure and rising A&P budgets in decorative segment to impact profitability. Hence, it revises FY23/24 EPS estimates down by -22/-10% respectively and DCF-based TP to INR540/sh (earlier: INR630/sh), implying 38x FY24 EPS. The derating in multiple is also because KNPL is the most susceptible to increase in competitive intensity.

Promoter/FII Holdings
Promoters held 74.99 per cent stake in the company as of 31-Mar-2022, while FIIs owned 3.55 per cent, DIIs 13.21 per cent.