Dolat Capital recommended reduce rating on Kansai Nerolac Paints with a target price of Rs 450 in its research report dated August 05, 2020.
Dolat Capital's research report on Kansai Nerolac Paints
Revenues de-grew 59.1% YoY to Rs 6.0bn in Q1FY21 primarily due to continued slowdown in the automotive segment, further aggravated by Covid enforced lockdown. Though April’20 was a complete washout across segments, decorative business witnessed double digit volume growth in May and June. However, Industrial sales continued to remain under pressure in both months. As RM costs were lower due to fall in crude oil derivatives, GM expanded 340bps in Q1 - fourth consecutive quarter of GM expansion. Given slowdown in automotive business, despite favorable base, automotive paints business is likely to remain subdued, going ahead.
Amidst slowdown in Auto sector and expected reduction in painting activities, we have lowered FY21E and FY22E EPS estimates to Rs 6.9 (-27.9%) and Rs 10.0 (-13.0%). Valuing Kansai at 45x FY22 EPS to arrive at a TP of Rs 450. Maintain Reduce.
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