Buy Kansai Nerolac Paints - BP Wealth

Kansai Nerolac (KNPL) is a subsidiary of Kansai Paints, Japan. With more than 92 years of strong foundation the company is geared to set up its operations firmly in India. With continuous R&D activities, strong marketing and brand creation initiatives along with being one of the pioneers in the Eco-friendly no lead added paint space the future seems promising. KNPL has remained surefooted on its expansionary plans and has been strengthening the supply chain infrastructure to take on its rivals. Aggressive expansions have helped KNPL assume a prominent scale and presence over the past few years and recently it acquired the Shalimar Paints manufacturing facility located in Nepal. Maruti Suzuki remains one of its top clients for automotive paints.

Investment Rationale

Urban Aspirations

Transformation of India from a rural economy to a one driven by urbanization has impacted all industries alike. The paint industry has greatly benefited from this move. Urbanization has affected the decorative as well as the industrial segments respectively. Since a greater proportion of the younger population has been moving to cities in search of a better future, demand for houses and automobiles have been on a rise ever since greater demand for houses translates into a positive move for the decorative paints segment and for automobiles contributing to the growth in the industrial and automotive paints segment. However rampant urbanization does not mean that rural India is witnessing poor growth. It should be considered that at the same time the purchasing power and disposable incomes of the various segments of the population have increased considerably, even from the rural areas. All these factors have cumulatively resulted in an optimistic outlook for KNPL and will continue to contribute to its growth even in the future.

Dominant player in the Industrial paints segment

KNPL is a leader in the industrial paints segment with a market share of 44% and contributing about 45% to its overall revenues. Within this segment its primary activities extend into automotive, industrial, powder, marine and protective coatings. KNPL also dominates the automotive coatings market with a 60 % share. Further bifurcations within this sub segment can be classified as follow:90% share in passenger cars,60% in LCV's and more than 40% in two wheelers & HCV's.

The company has also been working closely with OEM's to custom tailor products to suit their specifications leading to greater customer loyalty, a pre-requisite in this segment. For the automotive market KNPL has developed a wide range of solutions and has also deployed technical service team members at customers site to provide constant assistance. The powder coatings and performance coatings segment has witnessed a substantial jump in sales over the past few years. KNPL currently commands a 27% market share and the firm is highly optimistic about this segment to provide future growth prospects.

Outlook & Valuation

We have assigned a target PE multiple of 25x to our FY15 EPS of Rs 60.7 to arrive at a target price of Rs 1,518. We have a Buy rating on the stock with a potential upside of 30% from CMP.

Source : Equity Bulls

Keywords