IGI Logo

Competitive intensity clouds positives

Quick Pointers:

* Strong growth in Paint+, Wood coatings, Projects and Industrial Paints enables Kansai to report ~5.5% volume growth in 4Q25 

* EBITDA margin guidance of 13-14% for FY26, gradual recovery likely after that

KNPL has sustained 13-14% EBIDTA margin guidance and amid competitive intensity in decorative paints in the near term. Industrial Paints outlook remains positive led by 2W in auto paints and General industrial segment led by infra and related segments.

KNPL plans to maintain its decorative market share led by 1) Paint + initiatives 2) distribution improvement in Nextgen Nerolac Shoppe 3) projects business 4) loyalty and influencer program and new innovations and launches. positive Outlook in non-auto industrials remains positive led by strong order pipeline across Infra, Railways, Powder coatings etc.

Competitive intensity remains intense in decorative segment as full impact of new players like Birla Opus, JK Maxx and JSW is yet to play out fully. However, margins are likely to improve in FY26 given benign input costs.  We estimate a CAGR of 6.7% in sales and 11% IN PAT over FY25-27. We value the stock at 28xMar27 EPS (No change) and assign a target price of Rs284 (Rs288 earlier). Retain Accumulate but expect backended returns.

Revenues grew 4.7%; Volume growth ~5.5%: Revenues grew by 4.7% YoY to Rs17.4bn (PLe: Rs17.3bn). Gross margins contracted by 13bps YoY to 34.6% (Ple: 34.9%). EBITDA declined by 0.7% YoY to Rs1.8bn (PLe:Rs2.3bn); Margins contracted by 56bps YoY to 10.2% (PLe:11.8%). Adjusted PAT grew by 2.4% YoY to Rs1.2bn (PLe:Rs1.48bn). We estimate a volume growth of 5.5% for 4Q25.

Concall Highlights: 1) Demand in decorative sees gradual recovery QoQ, although overall discretionary demand remains muted with higher competitive intensity. 2) Overall demand is expected to improve, led by robust rural demand and increased construction activity. 3) Paint+, Construction Chemicals, Wood finishes and Projects continued to do well 4) Automotive paints grew faster than market led by various initiatives, with passenger vehicles remaining subdued and 2-wheeleer doing well 5) Performance Coatings continued to register strong growth on the basis of a strong order pipeline. 6) GM remains largely stable amidst benign RM costs; however, forex remains volatile. 7) forecast of a good monsoon builds a strong case for improved demand in paints industry. 8) Paint + has reached double digit sales contribution with improvement of 190bps in last year 10) EBITDA margin guidance for FY26 maintained at 13-14%, margins likely to improve post that once the competitive intensity stabilizes 11) Decorative volume likely to be in the mid-single digit range in medium term 12) KNPL is facing challenges in Sri-Lanka and Bangladesh while Nepal continues to perform well

Above views are of the author and not of the website kindly read disclaimer