Kansai Nerolac Paints (KNPL IN)

Rating: ACCUMULATE | CMP: Rs330 | TP: Rs370

December 10, 2023 Making right moves in competitive environment

Company Update Quick Pointers:

 Change in Estimates | ☑ Target |  Reco  Premium products share in decorative business has improved by 150bps due
to 11 new launches and focused distribution and media spends
Change in Estimates

FY25E
Current
FY26E
Previous
FY25E FY26E
 Non-Auto Industrials have seen sustained growth led by Infra initiatives of GOI
Rating ACCUMULATE ACCUMULATE with increase in margins
Target Price 370 351
Sales (Rs. m) 84,826 93,775 84,826 93,775
We attended the India strategy Session of Kansai Paints, Japan (Mkt Cap
% Chng. - -
EBITDA (Rs. m) 13,100 14,467 13,100 14,467 USD3.6bn) where KPIL (Mkt Cap USD3.2bn) highlighted its key initiatives and
% Chng. - -
EPS (Rs.) 11.0 12.1 11.0 12.1
growth strategies. KPIL is following a 360 degree growth strategy which
% Chng. - - involves 1) 11 new Deco launches aimed at increasing share of premium
products 2) Distribution expansion with a focus to increase traction in less
Key Financials - Standalone indexed south and west India 3) online incentive to influencers to push sales
Y/e Mar FY23 FY24E FY25E FY26E 4) technology led innovations in Auto paints (including EV) to increase
Sales (Rs. m) 70,810 76,629 84,826 93,775
traction 5) Extension of B2B segment to 75 cities 6) Technology backed
EBITDA (Rs. m) 8,098 11,607 13,100 14,467
Margin (%) 11.4 15.1 15.4 15.4 products to sustain leadership in powder coatings and gain from rising Infra
PAT (Rs. m) 5,023 7,644 8,859 9,801 spends in other industrial paints including Railways 8) aim to increase share
EPS (Rs.) 9.3 9.5 11.0 12.1
Gr. (%) 25.9 1.4 15.9 10.6 of waterproofing and allied segments from 5% to 10% of sales.
DPS (Rs.) 1.0 2.7 4.5 5.5
Yield (%) 0.3 0.8 1.4 1.7 KPIL has been taking all the right steps, however valuations at 27.2xFY26 are
RoE (%) 11.4 14.9 15.0 15.2
factoring in expected increase in competition and consequent threat to
RoCE (%) 14.7 18.8 18.9 19.2
EV/Sales (x) 2.4 3.3 3.0 2.7 market share and profitability post Grasim’s entry. We believe improving
EV/EBITDA (x) 21.3 22.1 19.4 17.5 sales traction and profitability in Industrial paints (45% of sales), could be a
PE (x) 35.4 34.9 30.1 27.2
P/BV (x) 3.9 4.7 4.3 4.0
saving grace given for KPIL given parent’s strength in Industrial Paints. We
estimate 27.9% PAT CAGR over FY23-26 and 13.3% CAGR over FY24-26.
Retain accumulate with target price of Rs370 based on 32xSept25EPS (Rs.351
Key Data KANE.BO | KNPL IN
earlier based on 32xFY25 EPS).
52-W High / Low Rs.354 / Rs.247
Sensex / Nifty 69,826 / 20,969
Market Cap Rs.267bn/ $ 3,203m
Shares Outstanding 808m Demand outlook remains mixed
3M Avg. Daily Value Rs.119.87m
 Rural demand continues to face pressure; however, some green shoots are
Shareholding Pattern (%) being observed, Urban demand remains resilient.
Promoter’s 74.99
Foreign 4.28  Going forward, Kansai is likely to focus more on weaker markets with the aim
Domestic Institution 11.90
Public & Others 8.83
of increasing its presence in those markets i.e. South and West.
Promoter Pledge (Rs bn) -

Non-Automotive business sees margin improvement

Stock Performance (%)
1M 6M 12M  The non-automotive business is experiencing a turnaround with improving
Absolute 7.4 15.2 11.1 margins, driven by robust demand from infrastructure projects.
Relative (0.1) 3.7 (0.4)

 This trend is likely to remain the same in the medium term.

Amnish Aggarwal
amnishaggarwal@plindia.com | 91-22-66322233
Decorative – premium launches improve sales mix by 150bps
Vishwa Solanki
vishwasolanki@plindia.com | 91-22-66322244
 The decorative business is undergoing portfolio expansion driven by new
Hasti Savla
launches under Nerolac Paint+.
hastisavla@plindia.com |

December 10, 2023 1

 Kansai Nerolac Paints

 Kansai has seen 11 new launches under Paint + (Beauty gold washable, excel
mica marble sheet, perma damp lock, impression Kashmir etc) and the
salience of premium products to overall sales has increased by ~150bps points

 The focus will remain on reinforcing the core through distribution expansion,
launching new products under the value segment, and maintaining
competitiveness with other players, including new entrants.

Project business continue to Gain scale

 Project business has reached to more than 75+ towns with its superior series
of products.

 Pipeline of potential projects remains healthy with increasing salience in

decorative business.

Auto & Powder segment sees market share gain

 Kansai continues to remain market leader in Auto & powder segment

 New technology from parent company remains key differentiator

 Auto and powder segment is seeing an increase in market share led by

salience of premium products like super durable powders, rebar coating,
construction equipment, pipe coating etc.

 Auto paints are gaining traction by increasing its market share in new segment
such as alloy wheels, zinc flake, PT and booth chemical etc.

Construction chemicals and wood finish seeing healthy demand

 Construction chemicals business has reached 5% of total business, & presents

a potential to reach 10% in medium term

GTM strategy- improved customer service and incentivizing

influencers

 Launched the NxtGen service for consumers, available in 145+ cities with the
capability to handle 5000+ sites in a month.

 Introduced the Illuminati program for architects and interior designers—an

invite-only club that recognizes and supports their work, extending modern
services and training to build a network of like-minded individuals.

 Developed a unique engagement program for painters called Painters

(Pragati), designed to enable painters to directly engage with the company and
learn about new painting tools and techniques.

 KPIL has started online transfer of incentives to painters which is aimed at

reducing the time gap between the purchase and giving better deal to
influencers to push sales

December 10, 2023 2

 Kansai Nerolac Paints

TiO2 prices down 6.3% YoY and 4.6% QoQ Volumes grow by 1.7% in 2Q24

TiO2 Volume Growth (%) Realization Growth (%)

500
140 20.0
450 114
120
378 15.0
400 428 100 17.218.117.3
80 10.0
350
60 39 9.8
300 29.0 5.0
250
40 21 18.2 8.3
250 20 9 4.8 2.0 5.3 9.5
4.1
6.7 1.7
0.0
0
200 -1.0 -0.2 0.0
-20 -2.0 -1.8 -5.0
-2.8 -3.0
Jan-20

Jan-21

Jan-22

Jan-23
Oct-19

Apr-20

Oct-20

Apr-21

Oct-21

Apr-22

Oct-22

Apr-23

Oct-23
Jul-20

Jul-21

Jul-22

Jul-23
-13.0

Jun-21

Jun-22

Jun-23
Mar-22

Mar-23
Mar-21
Dec-20

Dec-21

Dec-22
Sep-20

Sep-21

Sep-22

Sep-23
Source: Company, PL Source: Company, PL

New products saw robust growth

Source: Company, PL

December 10, 2023 3

 Kansai Nerolac Paints

Financials
Income Statement (Rs m) Balance Sheet Abstract (Rs m)
Y/e Mar FY23 FY24E FY25E FY26E Y/e Mar FY23 FY24E FY25E FY26E

Net Revenues 70,810 76,629 84,826 93,775 Non-Current Assets

YoY gr. (%) 19.0 8.2 10.7 10.5
Cost of Goods Sold 49,553 49,696 54,337 59,850 Gross Block 30,992 32,628 35,338 38,048
Gross Profit 21,257 26,933 30,489 33,926 Tangibles 30,480 32,106 34,806 37,506
Margin (%) 30.0 35.1 35.9 36.2 Intangibles 512 522 532 542
Employee Cost 3,338 3,717 4,156 4,595
Other Expenses 5,793 6,322 7,125 8,065 Acc: Dep / Amortization 12,774 14,136 15,589 17,158
Tangibles 12,349 13,693 15,131 16,685
EBITDA 8,098 11,607 13,100 14,467 Intangibles 425 442 458 473
YoY gr. (%) 22.6 43.3 12.9 10.4
Margin (%) 11.4 15.1 15.4 15.4 Net fixed assets 18,218 18,492 19,749 20,890
Tangibles 18,131 18,412 19,675 20,821
Depreciation and Amortization 1,646 1,951 1,935 2,045 Intangibles 87 80 74 69

EBIT 6,452 9,657 11,164 12,422 Capital Work In Progress 1,126 1,200 1,200 1,200
Margin (%) 9.1 12.6 13.2 13.2 Goodwill 2 - - -
Non-Current Investments 1,715 1,729 1,743 1,758
Net Interest 97 105 96 103 Net Deferred tax assets (1,023) (1,074) (1,127) (1,184)
Other Income 308 717 835 849 Other Non-Current Assets 4,069 4,807 5,116 5,388

Profit Before Tax 6,663 10,269 11,903 13,168 Current Assets

Margin (%) 9.4 13.4 14.0 14.0 Investments 4,981 8,981 10,181 10,931
Inventories 16,480 17,909 19,825 21,684
Total Tax 1,639 2,626 3,044 3,367 Trade receivables 11,172 12,110 13,175 14,565
Effective tax rate (%) 24.6 25.6 25.6 25.6 Cash & Bank Balance 947 1,944 2,577 3,371
Other Current Assets 1,923 2,069 2,290 2,532
Profit after tax 5,023 7,644 8,859 9,801 Total Assets 60,751 69,394 76,026 82,508
Minority interest - - - -
Share Profit from Associate - - - - Equity
Equity Share Capital 539 808 808 808
Adjusted PAT 5,023 7,644 8,859 9,801 Other Equity 45,535 55,601 61,093 66,447
YoY gr. (%) 25.9 52.2 15.9 10.6 Total Networth 46,074 56,410 61,901 67,256
Margin (%) 7.1 10.0 10.4 10.5
Extra Ord. Income / (Exp) - 4,913 - - Non-Current Liabilities
Long Term borrowings - - - -
Reported PAT 5,023 12,556 8,859 9,801 Provisions 211 - - -
YoY gr. (%) 29.6 149.9 (29.4) 10.6 Other non current liabilities - - - -
Margin (%) 7.1 16.4 10.4 10.5
Current Liabilities
Other Comprehensive Income 2 - - - ST Debt / Current of LT Debt - - - -
Total Comprehensive Income 5,025 12,556 8,859 9,801 Trade payables 9,375 9,442 10,324 11,115
Equity Shares O/s (m) 539 808 808 808 Other current liabilities 3,131 1,563 1,706 1,875
EPS (Rs) 9.3 9.5 11.0 12.1 Total Equity & Liabilities 60,751 69,394 76,026 82,508
Source: Company Data, PL Research Source: Company Data, PL Research

December 10, 2023 4

 Kansai Nerolac Paints

Cash Flow (Rs m) Key Financial Metrics

Y/e Mar FY23 FY24E FY25E FY26E Year
Y/e Mar FY23 FY24E FY25E FY26E

PBT 6,504 10,269 11,903 13,168 Per Share(Rs)

Add. Depreciation 1,646 1,951 1,935 2,045 EPS 9.3 9.5 11.0 12.1
Add. Interest 97 105 96 103 CEPS 12.4 11.9 13.4 14.7
Less Financial Other Income 308 717 835 849 BVPS 85.5 69.8 76.6 83.2
Add. Other (113) 3,968 (208) (121) FCF 2.7 4.1 5.1 6.6
Op. profit before WC changes 8,134 16,293 13,727 15,195 DPS 1.0 2.7 4.5 5.5
Net Changes-WC (3,374) (8,050) (3,394) (3,298) Return Ratio(%)
Direct tax (1,639) (2,626) (3,044) (3,367) RoCE 14.7 18.8 18.9 19.2
Net cash from Op. activities 3,121 5,617 7,289 8,531 ROIC 12.8 17.8 17.9 18.4
Capital expenditures (1,644) (2,296) (3,192) (3,187) RoE 11.4 14.9 15.0 15.2
Interest / Dividend Income - - - - Balance Sheet
Others (640) - - - Net Debt : Equity (x) (0.1) (0.2) (0.2) (0.2)
Net Cash from Invt. activities (2,284) (2,296) (3,192) (3,187) Net Working Capital (Days) 94 98 98 98
Issue of share cap. / premium 38 (38) 269 - Valuation(x)
Debt changes - - - - PER 35.4 34.9 30.1 27.2
Dividend paid (539) (2,183) (3,638) (4,446) P/B 3.9 4.7 4.3 4.0
Interest paid (97) (105) (96) (103) P/CEPS 12.4 11.9 13.4 14.7
Others - - - - EV/EBITDA 21.3 22.1 19.4 17.5
Net cash from Fin. activities (599) (2,325) (3,464) (4,549) EV/Sales 2.4 3.3 3.0 2.7
Net change in cash 238 996 633 795 Dividend Yield (%) 0.3 0.8 1.4 1.7
Free Cash Flow 1,477 3,321 4,097 5,344 Source: Company Data, PL Research
Source: Company Data, PL Research

Quarterly Financials (Rs m)

Key Operating Metrics
Y/e Mar Q3FY23 Q4FY23 Q1FY24 Q2FY24
Y/e Mar FY23 FY24E FY25E FY26E
Net Revenue 17,171 16,051 20,712 18,456
Volume Gr % 10.0 7.5 8.0 8.0
YoY gr. (%) 3.5 13.6 6.5 1.7
Gross Margins % 30.0 35.1 35.9 36.2
Raw Material Expenses 11,985 10,986 13,400 11,873
Source: Company Data, PL Research
Gross Profit 5,186 5,066 7,312 6,583
Margin (%) 30.2 31.6 35.3 35.7
EBITDA 1,885 1,525 3,339 2,699
YoY gr. (%) 7.7 83.8 30.6 36.8
Margin (%) 11.0 9.5 16.1 14.6
Depreciation / Depletion 421 420 428 452
EBIT 1,464 1,104 2,912 2,247
Margin (%) 8.5 6.9 14.1 12.2
Net Interest 25 25 29 32
Other Income 86 143 164 224
Profit before Tax 1,525 1,223 3,046 2,439
Margin (%) 8.9 7.6 14.7 13.2
Total Tax 402 283 777 640
Effective tax rate (%) 26.4 23.1 25.5 26.2
Profit after Tax 1,123 940 2,269 1,799
Minority interest - - - -
Share Profit from Associates - - - -
Adjusted PAT 1,123 940 2,269 1,799
YoY gr. (%) 5.7 161.7 39.3 53.4
Margin (%) 6.5 5.9 11.0 9.7
Extra Ord. Income / (Exp) - - 5,169 -
Reported PAT 1,123 940 7,438 1,799
YoY gr. (%) (15.2) 283.2 356.6 53.4
Margin (%) 6.5 5.9 35.9 9.7
Other Comprehensive Income 3 (9) 1 -
Total Comprehensive Income 1,126 931 7,439 1,799
Avg. Shares O/s (m) 539 539 808 808
EPS (Rs) 2.1 1.7 2.8 2.2
Source: Company Data, PL Research

December 10, 2023 5

 Kansai Nerolac Paints
Price Chart Recommendation History

(Rs)
No. Date Rating TP (Rs.) Share Price (Rs.)
675
1 03-Nov-23 Accumulate 351 306

582 2 07-Oct-23 Accumulate 351 324

3 04-Aug-23 Accumulate 351 327
489
4 06-Jul-23 Accumulate 328 320
396 5 09-May-23 Accumulate 486 397
6 11-Apr-23 Accumulate 485 386
303
Jun - 21

Jun - 22

Jun - 23
Dec - 20

Dec - 21

Dec - 22

Dec - 23
7 06-Feb-23 Accumulate 485 416
8 06-Jan-23 Accumulate 563 419

Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Asian Paints Accumulate 3,387 2,960
2 Avenue Supermarts BUY 4,724 3,920
3 Britannia Industries Hold 4,801 4,527
4 Colgate Palmolive Hold 1,948 2,034
5 Dabur India Accumulate 597 530
6 Emami Accumulate 564 519
7 Hindustan Unilever Hold 2,786 2,548
8 ITC Accumulate 492 450
9 Jubilant FoodWorks Hold 505 529
10 Kansai Nerolac Paints Accumulate 351 306
11 Marico Hold 556 532
12 Metro Brands Accumulate 1,231 1,208
13 Mold-tek Packaging Hold 918 882
14 Nestle India Accumulate 25,471 24,245
15 Pidilite Industries Hold 2,644 2,458
16 Restaurant Brands Asia Accumulate 145 114
17 Titan Company Accumulate 3,387 3,275
18 Westlife Foodworld Hold 844 883

PL’s Recommendation Nomenclature (Absolute Performance)

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

December 10, 2023 6

 Kansai Nerolac Paints

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We/I, Mr. Amnish Aggarwal- MBA, CFA, Mr. Vishwa Solanki- PGDM - Finance, Ms. Hasti Savla- CA Research Analysts, authors and the names subscribed to this report, hereby certify
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December 10, 2023 Digitally signed by Amnish Aggarwal

7
Amnish Aggarwal
DN: c=IN, st=Maharashtra,
2.5.4.20=21151ea12dd366d1ac370cb42343ee44b6e851c37bdbac5f86aa4ff3e6948487,
postalCode=400018, street=570,SADHNA HOUSE,PB MARG,WORLI,Mumbai,Maharashtra-400018,
pseudonym=5359cd84fad1bdb19c658b8fa14b58ef,
serialNumber=7a6f13691881d5a8af6353865a61b48b7040e72f4a1bf53182e368b3ca14a5e4, ou=NA,
o=PRABHUDAS LILLADHER PRIVATE LIMITED, cn=Amnish Aggarwal
Date: 2023.12.10 21:17:03 +05'30'