Q3FY20 result highlights
Key positives: Healthy gross margins and tight control over costs.
Key negatives: Weak revenue growth.
Impact on financials: Factoring weak performance, we have cut our FY20/21E EPS estimate by 11% each.
Valuations & view
KNPL’s 3QFY20 results were below expectations impacted by sharp moderation in decorative segment, continued decline in Automotive segment as well as high base. Management commentary remains cautious with near term challenges in automotive & slowdown in decorative business, which is likely to keep overall volumes/sales trajectory lower compared to peers. We are factoring double digit volume growth in decorative segment as well as recovery in Industrial segment for FY21/22E. However, given the lower visibility and inherent cyclicality of the industrial segment (~40-45% of sales) & weaker metrics compared to peers, we continue to value the stock at 15% discount to APNT’s target multiple and believe current valuations at 43x/37x FY21/22E earnings provide limited upside potential. We would monitor the pace of recovery in industrial segment to change our stance. Maintain Neutral rating on the stock.
Kansai Nerolac Paints Limited (KNPL) is a paint company. The Company offers a range of products, including decorative, Automotive Coatings and Performance coatings. The Company has coating solutions across the Decorative, Wood Coatings, General Industrial, High Performance Coatings, Powder Coatings, Automotive and Auto Refinish market segments. The Company serves its customers through a network of approximately four manufacturing facilities located at Lote in Maharashtra, Bawal in Haryana, Jainpur in Uttar Pradesh and Hosur in Tamil Nadu and over hundred strategically located depots. The Company has a joint venture in Nepal with Kansai Nepal, which caters to customers in Nepal. KNPL also has a joint venture in Sri Lanka with Capital Holdings Maharaja Group to set up the paint business in Sri Lanka. The Company is a subsidiary of Kansai Paint Co. Ltd.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.