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Accumulate Kansai Nerolac Paints; target of Rs 651: Prabhudas Lilladher

Prabhudas Lilladher recommended accumulate rating on Kansai Nerolac Paints with a target price of Rs 651 in its research report dated October 27, 2021.

October 28, 2021 / 02:17 PM IST
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Prabhudas Lilladher's research report on Kansai Nerolac Paints

We are cutting our FY22/23/24 EPS estimates by 8.4%/5.7%/5.7% mainly due to 1) Increased pressure on GRM’s due to significant input cost inflation and 2) semiconductor shortage led impact on auto sales may last upto 1 year. We are reducing our Gross margin estimate by 260bps in FY22 with gradual restoration in FY23/24. We expect higher price increases in 3QFY22 and gradual recovery in margins from 4QFY22, although it may take a couple of quarters for margins to come to normal range of 15-17%. We continue to remain positive on the long term story led by 1) steady growth in Decorative paints demand on account of shift towards organized sector, housing push in Tier2/3 cities and shorter painting cycle, 2) Distribution expansion of 5-10% expected every year 3) Increased contribution from newly launched differentiated products 4) Gradual recovery in auto paints and 5) emerging segments like powder coatings (appliances), infra coatings, transport/metros, rebar and Industrial applications.


We estimate PAT CAGR of 20.9% over FY21-24 and value the stock at 42xsept23 EPS assigning a TP of Rs651 (Rs661 earlier). Recovery in margins and Auto sales can re-rate the stock from current levels of 36.7xSept23 EPS. However, Kansai needs higher volume growth in decorative paints to bridge the valuation gap (45% discount APNT on FY24 EPS) with APNT. Accumulate.


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first published: Oct 28, 2021 02:17 pm
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