ICICI Direct is bullish on Kansai Nerolac Paints has recommended buy rating on the stock with a target price of Rs 620 in its research report dated November 04, 2019.
ICICI Direct's research report on Kansai Nerolac Paints
Kansai Nerolac’s (KNL) Q2FY20 aggregate performance was split between a strong decorative segment (with volume and value growth of 12% and 8%, respectively) and weak industrial segment performance (de-grew 22% YoY). While the company managed growth the niche categories such as protective coating and powder segments, the unprecedented slowdown in the automotive industry dragged the overall industrial category performance during the quarter. Benign raw material prices coupled with savings in other costs helped sharp expansion in EBITDA margin by ~200 bps YoY to 17% (vs. our expectation of flattish margin of 15%). PBT remained flat at Rs 187 crore (vs. I-direct estimate: Rs 186 crore) as decline in revenue was partially offset by expansion in EBITDA margin during the period. We believe while industrial segment performance would largely depend on recovery of automotive industry, the strong demand of decorative paint would help drive revenue growth for KNL.
We model revenue CAGR of 10% led by ~9% volume CAGR in FY19-21E led by decorative paint segment. Better gross margin coupled with saving through transition to new corporate rate tax wold drive profitability for KNL. We maintain our target price and BUY recommendation on the stock.
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