Kansai Nerolac Paints Q4 Results Review: Analysts See Potential To Maintain Strong Growth

Shares of Kansai Nerolac Paints Ltd. advanced on Tuesday after its consolidated net profit jumped during the fourth quarter of FY23.

The company's net profit rose 279.18% year-on-year to Rs 93.77 crore, according to an exchange filing, but missed Bloomberg's estimate of Rs 122.10 crore.

Kansai Nerolac Paints is ramping up its influencer programme—across painters, contractors, architects, and interior decorators—and working on a new go-to-market strategy to reach consumers directly and improve the salience of its new differentiated offerings, according to Nomura Holdings Inc.

Kansai Nerolac Paints Q4 FY23 Highlights (Consolidated, YoY)

• Revenue up 12.82% at Rs 1,733.6 crore (Bloomberg estimates: Rs 1,719.9 crore).

• Ebitda is up 100.33% at Rs 168.1 crore (Bloomberg estimates: Rs 193.08 crore).

• Ebitda margin at 9.7% vs. 5.46% (Bloomberg estimates: 11.2%).

• Net profit up 279.18% at Rs 93.8 crore (Bloomberg estimates: Rs 122.1 crore).

• The company declared a dividend of Rs 2.70 per share for fiscal 2023.

• Shigeki Takahara has resigned as a non-executive director with effect from June 26 and will be replaced by Pravin D. Chaudhari.

The board also approved a 1:2 bonus issue, taking the share capital from 53.89 crores to 80.83 crore shares.

Shares of the company gained 2.69% to trade at Rs 414.05 apiece, compared to a 0.39% gain in the Nifty 50 as of 11:18 a.m.

The stock rose as much as 10.32% intraday, the most since August 2022. Total traded volume stood at 40.9 times its 30-day average. The relative strength index was 74.11.

Of the 20 analysts tracking the stock, 10 maintain a 'buy,' three suggest a 'hold,' and seven recommend a 'sell,' according to Bloomberg data. The average of 12-month price targets implies a potential upside of 7.9%.

Here's what analysts have to say about the results:

• The brokerage is 'underweight', with a target price of Rs 322 apiece.

• All business segments did well, and with raw material prices softening during Q4, overall inflation was still positive.

• Measures to improve decorative growth have been taken, including an increase in feet on the street, digital interventions, network expansion, new product launches, and brand strengthening.

• Morgan Stanley assigns a higher weight to the bear case, given the rising competitive intensity and margin uncertainty. The bull case weight reflects the potential to maintain strong earnings growth.

  Key assumptions:

• The brokerage sees a faster-than-expected pickup in GDP and consumer sentiment and a continued slowdown in the Covid-19 spread.

• Market share gains from the unorganised sector.

• Faster-than-expected recovery in the automotive and non-auto industrial paints businesses.

• Maintains 'buy,' with a target price of Rs 575.

• Decorative business is expected to benefit from favourable seasonality (in its exterior coating business), while industrial business momentum is expected to be sustained.

• Raw material price moderation (especially for crude-based commodities) and improvement in product mix (increase in the contribution of high-margin exterior coating businesses) are expected to have aided expansion in Q4.

• Nomura said the company has renewed its commitment to filling up white spaces in its portfolio and is expanding its water-based decorative paint capacities to keep up with the growing competitive intensity in the domestic paints industry.