Partner With Us NRI
Kansai Nerolac Paints Ltd>
  • CMP : 273.6 Chg : -8.75 (-3.10%)
  • Target : 440.0 (8.11%)
  • Target Period : 12-18 Month

10 May 2023

Demand recovery drives topline…

About The Stock

Kansai Nerolac (KNL) is a global leader in industrial coatings (auto). However, in the last 10 years, it has increased its decorative paint mix to ~55% of its topline. Currently, KNL is the third largest decorative paint player in India.

  • Strong distribution network of ~28,000 dealers across the country
  • In the last three years, KNL has increased its total paint manufacturing capacity from 5.47 lakh KL to 6.06 lakh KL at a cumulative investment of ~₹ 543 crore
Q4FY23 Results

Revenue growth supported by better demand across segments.

  • Revenue grew ~13% YoY to ~₹ 1734 crore on the back of improved demand and new product launches across decorative & industrial paints
  • Gross margin improved ~397 bps YoY supported by lower raw material prices and price hikes in industrial paints. As a result, the EBITDA margin improved 424 bps YoY) to 9.7%. This is still lower than its pre-Covid range of 12-13% due to higher advertisement expenditure
  • On a favourable base, PAT grew ~5x YoY to ₹ 96 crore tracking EBITDA margin expansion
What should Investors do?

KNL’s share price has given negative return over the past five years (from ₹ 506 in May 2018 to ₹ 407 levels in May 2023).

We maintain our HOLD rating on the stock

Target Price and Valuation

We value the stock at 35x P/E FY25E EPS and revise our target price to ₹ 440.

Key Triggers for future price performance
  • We believe regaining lost market share in decorative paint (~55% of total revenue) will be a key trigger for the company’s future revenue growth
  • Revival in passenger vehicle sales and strong demand momentum in industrial paints would help in a recovery in 45% of KNL’s revenue portfolio
  • Focus on improving product mix towards premium products would help drive gross margin, going forward
  • Higher ad expenses to keep overall EBITDA margin expansion under check
Alternate Stock Idea

We like Supreme Industries in our coverage.

  • Supreme is market leader in the plastic piping segment with ~15% market share. Robust b/s with average RoE, RoCE of 23%, 26%, respectively
  • BUY with a target price of ₹ 3200

Key Financial Summary

(| Crore) FY20 FY21 FY22 FY23 5 Year CAGR (18-23) FY24E FY25E 2 Year CAGR (23-25E)
Net Sales 5,280.0 5,074.3 6,369.4 7,542.7 10.1 8,307.9 9,383.7 11.5
EBITDA 804.5 863.3 649.4 818.0 0.6 980.3 1,159.7 19.1
EBITDA Margin (%) 15.2 17.0 10.2 10.8 - 11.8 12.4 -
Net Profit 515.8 525.7 343.2 468.5 -1.8 574.9 686.9 21.1
EPS (|) 9.6 9.8 6.4 8.7 - 10.7 12.7 -
P/E (x) 42.5 41.7 63.9 46.8 - 38.2 31.9 -
Price/Book (x) 5.9 5.4 5.3 4.8 - 4.9 4.5 -
Mcap/Sales (x) 4.2 4.3 3.4 2.9 - 2.6 2.3 -
RoE (%) 13.8 13.0 8.3 10.3 - 13.0 14.1 -
RoCE (%) 17.7 17.5 11.7 14.0 - 17.4 19.0 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY23 Results: Healthy revenue growth, margin under pressure

  • Kansai Nerolac’s Q4FY23 revenue grew at a healthy pace of ~13% YoY to ~| 1,734 crore led by volume growth in both decorative and industrial paints segments. We believe the company reported ~12%, ~11% YoY volume growth in the decorative & industrial paints segment, respectively, led by new product launches and strong demand from automotive OEMs
  • Gross margin was up ~397 bps YoY supported by benign raw material prices and price hikes taken in the industrial paints segment. Although the company saw a 424 bps YoY improvement in EBITDA margin (base-period included one-time retirement benefit of ~| 24 crore), reported EBITDA margin of 9.7% is the lowest reported margin in FY23. This was mainly due to a sharp increase in other expenses (up 22% YoY) on account of higher advertisement expenditure
  • Favourable base and improvement in EBITDA margin led to ~5x growth in PAT to ~| 96 crore

Q4FY23 Earnings Conference Call highlights

  • Demand outlook & market share:
    • KNL has a better market share in North India followed by East, West & South region. The company’s popular & economy range of paints are more common than the premium range
    • KNL has a better presence in Tier 2, 3 & 4 cities and is working on improving its presence in Tier 1 cities
    • According to the management, the demand environment is stable and the paint industry is expected to grow ~200-300 bps higher than the GDP growth rate
    • The company has ~10% market share in construction chemicals
    • The company’s market share in performance coatings is ~20% and the management is focusing on improving it


  • Decorative Paints Segment:
    • The management indicated focus on growing decorative paints segment faster than industrial paints
    • In Q4FY23, the company introduced 14 new products in the decorative paints segment
    • The company’s digital platform, NextGen painting service has a presence in 450+ cities, 100+ dealers and has painted 20,000+ houses. According to the management, 500 homes are painted per day under this service
    • The company is focusing on gaining wallet share through its existing painters & influencers network and has been able to engage 1 lakh painters
    • KNL opened 100 shoppees in India and is aiming to increase the number
    • The company has introduced new branding in decorative paints segment named ‘Paint+’


  • Industrial Paints Segment:
    • KNL has gained market share in passenger vehicles, two-wheelers, commercial vehicles & electric vehicles categories in FY23
    • The company has introduced eight new products in the industrial paints segment
    • The management expects 8-10% growth in the industrial paints segment, going forward
    • As per the management, rural demand has continued to remain volatile
    • The company’s exit of low margin business in performance coating category will be completed in Q1FY24, which formed 10% of the revenue generated from performance coatings


  • Margins:
    • The company has completed its price hikes in the industrial paints segment and KNL has taken price hikes with 100% of its customers in the automotive segment
    • According to the management, the industrial paints segment margin in Q4 was close to double digits. Going forward, the company aims to achieve sustainable double digit margin in the industrial paints segment
    • As per the management, the sustainable EBITDA margin for the decorative paints business will remain 400-500 bps lower than the market leader
    • KNL’s high-cost inventory has got exhausted. The company has increased its marketing spend amid rising competition


  • Distribution & Expansion:
    • The company is growing its dealer network at a run rate of 8-10% per annum
    • KNL’s current capacity is at 6,06,000 KL. The company has envisaged a capex of | 316 crore to add capacity of 1,54,080 KL over FY24-25E
    • As a part of its backward integration strategy, the company has commenced production of resin and is further looking at expanding the resin capacity
    • According to the management, the total number of painters in India was at ~25 lakh, which includes small & big painters. Out of this, ~7.5 lakh painters drive 80% of the business. KNL has been able to reach ~3.5 lakh painters out of the 7.5 lakh painters



ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock


Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15%




Pankaj Pandey

Head – Research




ICICI Direct Research Desk,

ICICI Securities Limited,

Third floor, Brillanto House,

Road No 13, MIDC,

Andheri (East)

Mumbai – 400 093








I/We, Hitesh Taunk, MBA (Finance), Sanjay Manyal, MBA (Finance) and Ashwi Bhansali, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products.

ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. Registered Office Address: ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025. CIN: L67120MH1995PLC086241, Tel: (91 22) 6807 7100. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.


Investments in securities market are subject to market risks. Read all the related documents carefully before investing.


Registration granted by Sebi and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. None of the research recommendations promise or guarantee any assured, minimum or risk-free return to the investors.


Name of the Compliance officer (Research Analyst): Mr. Anoop Goyal

Contact number: 022-40701000 E-mail Address: complianceofficer@icicisecurities.com


For any queries or grievances: Mr. Prabodh Avadhoot Email address: headservicequality@icicidirect.com Contact Number: 18601231122


ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.


Recommendation in reports based on technical and derivative analysis centre on studying charts of a stocks price movement, outstanding positions, trading volume etc as opposed to focusing on a companys fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports.


Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.


ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research.


The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.


This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.


ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.


ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.


ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.



ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.


Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.


ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.


Since associates of ICICI Securities and ICICI Securities as a entity are engaged in various financial service businesses, they might have financial interests or actual/ beneficial ownership of one percent or more or other material conflict of interest various companies including the subject company/companies mentioned in this report.


ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.


Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.


We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.


This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

Read More