Buy Kansai Nerolac; target of Rs 2396: ICICIdirect

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

live

• bselive
• nselive

Volume

Todays L/H

More

×

ICICIdirect.com`s research report on Kansai Nerolac Paints “Kansai Nerolac (KNL) is India’s largest industrial paint company with ~35% market share in industrial paints and third largest player with overall 14% market share. With sustainable growth in decorative paints & subdued industrial demand, KNL has increased its revenue contribution of decorative paints from 50% in FY09 to 55% currently. It has strong brands in interior, exterior and metal paints like Impressions, Excel, Surkasha, Satin Enamel, Lotus touch, Beauty, Pearl and Little Master. KNL continues to invest in brands with 4-5% of sales going into advertisement and promotion. We believe decorative paints would continue to grow strongly with the presence of limited players & strong repainting demand. We expect a revival in industrial paints demand (75% automotive paints), led by a recovery in automotive segment. We expect blended volume growth of 14.1%, 15.5% YoY in FY16E, FY17E, respectively.” “Kansai Nerolac is a leading industrial paints player with ~35% market share. KNL supplies paints to many automobile players. They account for 30-35% of its sales with Maruti Suzuki being its biggest client. Automobile demand has been subdued in the last two years as Maruti has seen ~1% volume CAGR during FY12-14. However, we believe a revival in industrial paints would lead to a recovery for KNL in the industrial paints segment. Going forward, we believe there should be a resumption in industrial paints as automobile growth is likely to be ~16% YoY in FY16E and ~14.5% in FY17E. We expect revenue, earnings to grow at a CAGR of 19.3%, 30.6% respectively, during FY14-17E.” “Despite the company consciously increasing its decorative paints contribution to 55% of sales from 50%, we believe the stock is still trading at a discount to Asian Paints. With improving margins, higher free cash flows and expanding return ratios, we believe the discount to Asian Paints would shrink and the stock would command a premium to its historic average of 22x. Further, with an improvement in automotive paint demand supported by higher demand for autos due to lower base effect, we expect industrial and decorative volume growth of 16% and 15% YoY, respectively, in FY17E resulting in revenue CAGR of 19.3% in FY14-17E. Simultaneously, higher operating leverage coupled with stable raw material prices are expected to lead to an expansion in operating margins by 250 bps by FY17E over FY14. At the CMP, the stock is trading at 27.4x its FY16E earnings and 22.2x its FY17E earnings. We have valued the stock on 28x multiple to arrive at a target price of Rs 2396/share,” says ICICIdirect.com research report.

For all recommendations, click here 

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More