Kansai Nerolac Paints - Q1FY21 Result Update - ICICI Securities

Kansai Nerolac's Q1FY21 revenue, earnings fell 59%, 71% YoY, respectively, mainly due to loss of revenue in April 2020. However, the performance was better than our estimates mainly due to notable demand recovery in the decorative segment (55% of sales), which reported double digit volume growth in May-June 2020. Strong demand from tier II/III/IV cities helped drive decorative volume growth in Q1FY21, where business activities reached near normalisation post ease in restrictions from lockdowns. However, intermediary lockdowns in tier 1 and metro cities has impacted the recovery process. On the margin front, a sharp rise in employee cost completely offset the impact of higher gross margin (up 340 bps YoY). As a result, EBITDA margin fell ~355 bps YoY to 13.5% (though better than our estimate of 5.8%). Finally, despite lower tax rate, higher other income, PAT was down 71% YoY to ~Rs. 42 crore, largely due to lower sales. Further, the balance sheet position remained strong (with zero debt, efficient working capital management) despite various challenges. Going ahead, while the demand scenario likely to be challenging in the near term (considering intermediary lockdowns), we expect a strong demand recovery in the decorative paints to drive volume growth from H2FY21 onwards.

Valuation & Outlook

KNPL is a leading paint manufacturer with a strong promoter pedigree. The company is well placed to face near term challenges of Covid-19 related slowdown due to its strong fundamentals (No. 3 decorative player with pan India dealer network and zero debt balance sheet). Considering a strong revival in paint demand from FY22E, we reiterate our BUY rating on the stock with a revised target price of Rs. 510/share.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_KansaiNerolac_Q1FY21.pdf

Shares of KANSAI NEROLAC PAINTS LTD. was last trading in BSE at Rs.458.1 as compared to the previous close of Rs. 443.4. The total number of shares traded during the day was 9580 in over 688 trades.

The stock hit an intraday high of Rs. 464.7 and intraday low of 445. The net turnover during the day was Rs. 4410765.

Source : Equity Bulls

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