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  • 02 Aug 2022
  • ICICIdirect Research

KANSAI NEROLAC REVENUE GROWTH LED BY GROWTH IN DEMAND FOR INDUSTRIAL PAINTS

KANSAINER - 243 Change: -0.10 (-0.04 %)

News: Kansai Nerolac’s revenue came in at ~Rs 1945 crore up by ~49% YoY on a favourable base for both decorative and industrial paints. The revival of the auto industry was a major factor in the industrial paints' robust rebound. New product introductions and dealer activation were the main drivers of the decorative paint revival. Revenue increased at a CAGR of 10% over the course of three years, driven by a volume CAGR of 3%. The use of high-cost inventories was a major factor in the fall of gross margin by 430 bps YoY to 29.9% in Q1FY23. However, the fall in EBITDA margin was restricted at 124 bps YoY to 13%, mostly due to savings in employee expenses and other expenses. Lower employee costs and judicial price increases helped the EBITDA margin recover sequentially. PAT increased by 37.3% YoY to Rs163 crore, tracking stronger topline growth.

Views: Despite seeing robust revenue growth in Q1FY23, we believe Kansai's three-year revenue CAGR is still lower than the industry leader due to a decline in market share for decorative paints. Robust automotive demand helped boost the company's overall performance in Q1FY23 on the industrial paints front (~45% of sales). This, along with gradual price increases across all segments, caused a 190 bps rebound in gross margin QoQ.

Impact: Neutral.