Buy Kansai Nerolac Paints; target of Rs 551: Prabhudas Lilladher

Prabhudas Lilladher's research report on Kansai Nerolac Paints

We have tweaked FY21/22/23 EPS by 6.3%/ -0.1% / 0.3% due to high double digit growth in decorative segment on the back of strong demand post unlock and strong pickup in Automotive and other Industrial coatings. KNPL is well placed to capitalize on rising demand in decorative paints given success of its economy segment and higher dependence on tier2/3 cities (least impacted due to the pandemic). Industrial segment reported marginally negative growth however recovery has set in from September’20 as 1) largest client MSIL’s reported 16.2% volume growth for Q2FY21 and 19% for Oct’20 2) strong demand for powder coatings led by Consumer Durables (Havells, CG and White Goods players) and 3) rising spends on Infra and housing.

Outlook

We remain positive in the long term story for KNPL led by decorative paints demand (shift towards organized sector, housing push in Tier2/3 cities and shorter painting cycle) and gradual recovery in auto paints (rising demand for personal mobility) and emerging segments like powder coatings from appliances, infra coatings, transport/metros, rebar and Industrial applications. KNPL trades at 35.4xFY23 EPS which is at 30% discount to FY23 PE of APNT (50x) v/s historical average of 15%. Retain Buy with a target price of Rs551 (38xFY23 EPS).

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