Prabhudas Lilladher's research report on Kansai Nerolac Paints
Kansai’s PE discount to APNT at 45% is at the lowest ebb in the last decade as it had multiple pain points across portfolio. However, we believe worst is over as 1) resolution of semiconductor issue will boost auto paints demand 2) gradual pick up in decorative segments partly aided by waterproofing and wood coatings segment and 3) increasing presence in niche industrial paints like performance coatings, coil coatings, rebar coatings and products for Infra and railways. We expect margins to bottom out in 3Q post 18-20% average price increase in current year and estimate 21% PAT CAGR over FY21-24.
We value the stock at 42xFY24 and arrive at target price of Rs707 (Rs650@42xSept23 EPS earlier). our sensitivity analysis shows that volume growth revival in Kansai can reduce PE gap with APNT and provide upto 40% upside at 10-year average PE discount at TP of APNT (Rs3675@63xFY24). Upgrade to BUY.
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