Q4FY18 result highlights
Key positives: Double digit volume growth in the decorative segment.
Key negatives: Weakness in margins.
Impact on financials: Factoring weaker margin performance, we have reduced our FY19/20E earnings by 7%.
Valuations & view
Revenue growth trajectory remains healthy led by continued double digit volume growth in the decorative segment. However, higher input costs (solvents) & lack of commensurate price hike in industrial segment resulted in earnings miss for the quarter. While input cost inflation remains concern, the benefit of further hike in decorative segment, gradual pricing recovery in industrial segment as well as operating leverage will result in sequential improvement in margins starting Q1FY19. Given the strong volume driven earnings trajectory (21% CAGR over FY18-20E), we maintain our Outperformer 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.
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