Buy Kansai Nerolac; target of Rs 500: HDFC Securities

HDFC Securities' research report on Kansai Nerolac

Kansai Nerolac’s (KNPL) standalone revenue grew 13.6% to INR 16.1bn (four-year CAGR: 9%; HSIE: INR16.2bn). The industrial segment continues to drive performance, backed by strong automotive demand. KNPL’s decorative market share is estimated at 9-10%; it has lost its share in the past three years. Management intends to fix this by filling up white spaces in the portfolio via its new premium product (paint + range). GM expanded 359/136bps YoY/QoQ to 31.6% as (1) previous price hikes caught up with RM inflation (esp on the industrial side); (2) there is rising salience of premium products in the mix; and (3) input costs are moderating. Despite the sequential GM improvement, EBITDAM declined 148bps as management flexed the marketing lever to gain lost ground in the decorative segment (EBITDAM: 9.5% vs HSIE: 9.7%).

Outlook

We reduce FY24/25 EPS estimates by 3.3/4.1% to account for higher marketing spending needed to fend off competition and regain market share in decorative. Maintain our BUY rating with an unchanged DCF-based TP of INR500/sh (implying 32x Jun-25 P/E).

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