Accumulate Kansai Nerolac Paints; target of Rs 555: Dolat Capital Market

Dolat Capital Market's research report on Kansai Nerolac Paints

Revenues grew 4.3% YoY to Rs 13.8bn in Q2FY21, in line with market leader. Positive growth in Q2 after double digit decline of 60% in Q1 was encouraging. Growth from smaller towns outpaced metros/tier 1. The decorative business witnessed double digit volume growth (~+15%) during the quarter- strong performance as APL reported similar improvement. However, industrial sales continued to remain under pressure, and saw gradual recovery in September’20. As RM costs were lower due to fall in crude oil derivatives, GM expanded 90bps in Q2 - fifth consecutive quarter of GM expansion. Kansai would benefit from twin tailwinds (1) early signs of demand resurgence in automotive business and (2) favorable base.

Outlook

Considering improvement in demand in decorative and automotive business, we have revised our FY21E and FY22E EPS estimates to Rs 8.8 (+27.4%) and Rs 11.3 (+13.3%) and introduced FY23E estimates at Rs 13.3. We value Kansai at 42x FY23E EPS to arrive at a TP of Rs 555. Upgrade to Accumulate.

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