Geojit's research report on Kansai Nerolac Paints
Kansai Nerolac Paints (KNPL) is the market leader in the industrial paints and third largest decorative paint company in India. In Q1FY23, revenue grew by 46% YoY led by high double digit volume growth, 20%+ in decorative and ~30% in industrial & automotive paints. However, gross margin declined by 460bps YoY to 29.9% due to inflation in input prices, while EBITDA margin contracted by 115bps YoY. During the quarter, raw material price were increased by 7% but KNPL took only a price hike of 2% and in coming quarter the management to take price hike in industrial segment. KNPL has expanded its reach in institutional business in metros and Tier 1 cities, which could strengthen its premium paints. Ease in shortage of semiconductor chips and more than 50% market share in auto business to support the revenue visibility.
Outlook
We therefore reiterate Accumulate rating and value KNPL at 40x on FY24E EPS with a target price of Rs. 567.
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