Kansai Nerolac - Q1FY21 First Cut - ICICI Securities

(CMP: Rs. 447; MCap: Rs. 24,073 crore)

Kansai Nerolac reported better than expected performance during Q1FY21, despite a revenue loss for almost a month (April 2020). Decorative segment sales recorded a strong recovery in the month of May'2020 and June'2020 with double digit volume in both the months. However, Industrial sales continued to be impacted in both May & June 2020 due to the slow recovery at the customers end. Despite the severe drop in topline, an aggressive cost control measures along with low advertisement expenditure helped the company to report EBITDA margin at 13.5% (much better than our estimate of 5.8%).

Q1FY21 Earnings Summary

- Kansai Nerolac's revenue decline of ~59% YoY at Rs. 598 crore, was slightly better than our estimate of 61% YoY fall to Rs. 577 crore. The lower revenue growth is attributable to washout of April 2020 month sales and lower demand of industrial paints. However, the decorative paints category (~55% of sales) recorded a strong recovery in demand during the month of May'2020 and June'2020 post relaxation from lockdown

- Better gross margin (up by 339 bps YoY) helped partially offsetting the impact of higher employee cost (up by 617 bps YoY) and manufacturing cost (up by 78 bps YoY). As a result the fall in EBITDA margin was restricted to 13.5% (down by 355 bps YoY)

- PBT during the period declined by ~76% YoY to ~Rs. 55 crore. However, PAT declined by 71% YoY at Rs. 42.7 crore, better than our estimate of Rs. 7.5 crore. The company reported lower tax provision during Q1FY21, as tax rate declined from ~35% in Q1FY20 to 22.8% in Q1FY21

Q1FY21 performance was significantly impacted as the sales in first 30 days were insignificant. However, double digit volume growth in the decorative segment post ease in restrictions along with cost control measures to safeguard margin is encouraging. We await management commentary on sustainability of the recovery in the decorative segment volume growth and outlook of industrial paint demand. The detailed Q1FY21 result update will be released post con-call.

Shares of KANSAI NEROLAC PAINTS LTD. was last trading in BSE at Rs.446.7 as compared to the previous close of Rs. 432.8. The total number of shares traded during the day was 14700 in over 1167 trades.

The stock hit an intraday high of Rs. 448 and intraday low of 428.6. The net turnover during the day was Rs. 6460366.

Source : Equity Bulls

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