Result Update - Kansai Nerolac Paints Ltd - BUY - TP Rs.600 - Kotak

Healthy quarter, strong trend continues

- Strong volume growth in the decorative segment, stable volumes in the industrial segment and raw material price inflation were the highlights of the results for KNPL during the quarter.

Key Highlights

- As per management commentary, KNPL experienced double digit YoY growth across segments led by decorative segment. Management commented that raw material price inflation, volatility in crude prices and INR depreciation was more pronounced this quarter which impacted the operating margins. Management is making efforts to increase product prices and reduce various cost to counter the situation.

- Sales (excluding GST) was reported at Rs 13.76 bn (+24.7% QoQ and +17.2% YoY) in a seasonally strong quarter for paint companies. EBIDTA was reported at Rs 2.21 bn with Ebidta margin of 16% (+70 bps QoQ and -150 bps YoY).Consequently PAT was reported at Rs 1.4 bn (+32.4% QoQ and +1% YoY).

- Management is confident of strong volume and sales growth and bounce back of operational performance. Even we believe that the situation is healthy for paint companies in every segment including decorative paints, industrial as well as auto paints. Maintain BUY with an unchanged TP of Rs 600 at 44x FY20E earnings.

Valuation and Outlook

- We estimate that branded paint demand will remain robust in a country like India where per capita consumption is very low and 30% paint market is still unorganised. Management of KNPL also indicated that the volume trends remain strong for the company and expect the trend to continue in medium term. For KNPL, we estimate 9% volume CAGR over FY18 - FY20E with stable margins and ROE of ~19.6% and ROCE of ~28.9% for FY20E. Maintain BUY with an unchanged TP of Rs 600 at 44x FY20E earnings.

Shares of KANSAI NEROLAC PAINTS LTD. was last trading in BSE at Rs.489.75 as compared to the previous close of Rs. 490.8. The total number of shares traded during the day was 12060 in over 323 trades.

The stock hit an intraday high of Rs. 495 and intraday low of 483.85. The net turnover during the day was Rs. 5886766.

Source : Equity Bulls

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