Accumulate Kansai Nerolac Paints Ltd for the Target Rs 235 by Prabhudas Liladhar Ltd
Healthy demand outlook across deco & industrial
We remain cautiously optimistic on KNPL driven by
1) healthy demand outlook across industrial and deco segments
2) maintenance of 13-14% margin guidance over the near term, with Q4 expected to witness margins within this range despite geopolitical headwinds
3) further price hikes to support value growth. However, persistently elevated inflation remains a key risk, with potential pressure on discretionary demand.
KNPL’s focus on decorative innovations, distribution expansion and scaling up the project business remains intact. We expect 8% volume CAGR and ~120bps margin expansion over FY27-29. We estimate sales/EPS CAGR of 6.1%/10.5% over FY27-29. We value the stock at 22x Sep’28 EPS, arriving at a TP of Rs235 (earlier Rs259 at 24x Jun’28 EPS). At 17.4x FY29 EPS, valuations remain inexpensive, given improving demand scenario, thus limiting further downside. Retain Accumulate.
Revenues grew 18.9%; Volume growth ~8.6%
* Revenues grew by 18.9% YoY to Rs22.7bn (PLe: Rs20.96bn)
* We estimate volume growth of 6.0% with decorative volumes growing by low single digits and industrial paints volumes growing in high single digits
* Gross margins contracted by 513bps YoY to 29.9% (Ple: 34%)
* EBITDA grew by 4.9% YoY to Rs2.2bn (PLe:Rs2.31bn); Margins contracted by 131bps YoY to 9.8% (PLe:11%)
* Adjusted PAT grew by 8.8% YoY to Rs1.5bn (PLe:Rs1.54bn)
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SEBI Registration number is INH000000933
