Q4FY21 Result Update - Kansai Nerolac Paints - ICICI Direct

Kansai's Q4FY21 volume growth at ~31% YoY along with cumulative price hikes of ~3% YoY was better than our estimate. Strong topline growth at 35% was largely on account demand revival and on a favourable base. However, gross margin were down ~410 bps YoY due to a delay in price hikes in the industrial paint and higher raw material cost. On the positive side, EBITDA margin was up 235 bps YoY to 15.3%, led by saving in other costs. Key conference call takeaways: 1) Challenging demand condition in the near term due to lockdown, 2) more price hikes in future to offset inflationary pressure, 3) continuous focus on cost saving measure, 4) plans of various new launches and market share gain in both decorative & industrial segments, 5) initiated technology tie-ups with overseas group companies (Europe, Africa, Turkey) to strengthen global procurements process and get easy approval from European automotive companies. We believe the short term demand outlook is challenging. However, the long term focus of the company to gain market share by launching new products alongside keeping EBITDA margin at elevated level would help drive revenue, PAT CAGR of 22%, 21% in FY21-23E, respectively.

Valuation & Outlook

We believe the recent correction in stock price (down 16% from its recent peak), discounts all near term negatives such as lockdown impact and tapering of EBITDA margin from its peak in FY21. Strong brand and robust balance sheet will help the company to recoup its lost sales, going forward. We reiterate our BUY recommendation on the stock with a revised target price of Rs. 655 (earlier TP Rs. 675).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_KansaiNerolac_Q4FY21.pdf

Shares of KANSAI NEROLAC PAINTS LTD. was last trading in BSE at Rs.553.65 as compared to the previous close of Rs. 566.3. The total number of shares traded during the day was 24637 in over 2105 trades.

The stock hit an intraday high of Rs. 571.05 and intraday low of 551.25. The net turnover during the day was Rs. 13759694.

Source : Equity Bulls

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