Kansai Nerolac stock jumps 4% on Q3 show, Macquarie keeps 'neutral' tag intact

Macquarie highlighted uncertainty in the firm's growth trajectory with a new CEO coming in.

Paint player Kansai Nerolac Ltd. surged in the morning session on February 6, after reporting a four-fold jump in net profit for the quarter ended December 31, 2024.

The paint maker posted a net profit of Rs 680.9 crore for the quarter, higher by 341.4 percent on-year compared to Rs 154.3 crore reported in Q3 FY24. The profit includes a one-time gain from the sale of land in Lower Parel, Mumbai.

Revenue inched up 0.2 percent to Rs 1,921.9 crore from Rs 1,918.7 crore. EBITDA declined 3.7 percent to Rs 235 crore in the third quarter from Rs 244 crore a year ago, with the EBITDA margin slipping to 12.2 percent from 12.7 percent.

EBITDA refers to earnings before interest, tax, depreciation, and amortization.

The company also set aside Rs 186.3 crore as a provision for impairment related to long-term investments, loans, receivables, and financial guarantees for its subsidiaries in Bangladesh and Sri Lanka.

At 9.18 am, shares of the firm were quoting Rs 255 apiece, higher by 4 percent compared to the previous session's closing price.

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“The company continued to see good growth in paint+ products, projects, wood coatings and construction chemicals. Demand in decoratives was impacted due to higher inflation, leading to lower spend on discretionary products and tight liquidity. We are seeing a gradual recovery in demand," said the managing director Anuj Jain.

International brokerage Macquarie noted that the Q3 EBITDA margin beat was driven by cost control in employee expenses. Further, it reported a better decorative segment sales performance compared to India's largest paints major Asian Paints.

The firm's current India head Pravin Chaudhari to become new CEO. The brokerage said this caused uncertainty in the firm's growth trajectory with a new CEO coming in. Macquarie kept its 'neutral' rating intact, with a target price of Rs 225 per share.

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