Broker’s Call: Kansai Nerolac Paints (Accumulate)

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Geojit Retail Equity Research

Target: INR 459

CMP: INR 418.30

Kansai Nirulac Paints (KNPL) It is the market leader in industrial paints and the third largest decorative paints company in India. In the fourth quarter of fiscal ’23, it reported better-than-expected senior revenue growth of 13 percent year-over-year, driven by healthy demand in the Industrial & Decorating Paints segment. Gross margin improved by 397 basis points year-on-year to 31.9% due to higher industrial paint prices and benign raw material prices. EBITDA margin improved 424 basis points year over year to 9.7% in the fourth quarter of fiscal ’23.

The company gained market share in passenger car paints, two-wheeler paints, commercial vehicle paints and tractor sector paints. The volume of decorative and industrial paints has grown by double digits due to new product launches and strong demand from automotive OEMs. Management stated that the journey out of the lower margin paints is progressing well and that they are focused on adding more premium paints. The company launched 14 new products in the decoration category, driving demand change. H

We expect a pickup in passenger car sales and strong demand in the industrial sector driving higher sales. Management is focused on improving market share in the decoration business and expects the segment to grow faster than industrial paints.

We expect margins to improve in the coming quarters due to higher OEM prices and lower input prices.

We expect the demand for cars to increase with the availability of improved chips and the introduction of new products to drive growth in the premium segment. We repeat aggregate rating and value KNPL at 32x FY25 EPS with price target of Rs 459.