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Mixed topline for the quarter: Kansai Nerolac Q4FY24 revenue grew by 2.1% YoY but declined by 7.8% QoQ to Rs 1,769.4cr. Decorative business has delivered double digit volume growth however slower pickup in rural and mixed industrial segment performance impacted the topline to certain extent. For FY24, its revenue increased by 3.4% YoY to Rs 7,801.4cr driven by a mix of both decorative & industrial segments.

Margins improved YoY but remain subdued sequentially: Its gross profit improved by 9.9% YoY to Rs 607.9cr while gross margin was higher by 246bps YoY due to stability in raw materials prices and favorable mix. Further, despite increase in overall cost, its EBITDA grew by 6.5% YoY to Rs 179cr with improvement in margins by 42bps to 10.1%. On the sequential front, its gross profit growth was muted as it declined by 12.2% and margins declined by 172bps while EBITDA declined by 26.6% and margin declined by 260bps due to increase in overall cost as well as increase in marketing spends.

Key highlights: 1) The company launched 15+ new products and 4 in Paint+ category, 4 New Products in Construction Chemical and 7 in Wood Finish. 2) Paint as a service was scaled to 250+ cities and 5000+ sites per month. 3) Have introduced Nxt Gen Paint services for users online. 4) Royalties paid to parent is ~5% of revenue of the specified products. 5) Demand for North and West were good and strong while South and East, the presence is low and the company will look for the opportunities, if any. 6) Rural is witnessing some recovery in the B2B segment while B2C recovery is expected soon. 7) Healthy investment is made towards digital & communication to consumers. 8) Amongst industrial, Passenger & 2W is expected to improve while CV & tractor to be muted. 9) For decorative, volume is strong but price correction impacted top line growth. Ahead as well, double digit volume growth from this segment is expected. 10) Industrial & Decorative mix was between 50-52% & 45-48%, respectively. 11) The company is expanding via greenfield in Vizag and via brownfield in Jaipur. 12) They added 9 Depots in FY24 to strengthen the distribution network and the total now stands at 112 Depots. 13) Management remains positive on the growth and expects volumes to grow in the range of 8-10% and margins to remain in the range of 13-14% for FY25..

Outlook & Valuation: Kansai Nerolac posted mixed numbers for the quarter however they expect medium to long term growth to improve largely post elections driven by demand for both decorative & industrial segments, continuous innovation of products & categories and also their focus on gearing up distribution channels as well as increasing presence in South India. Cost fluctuation will be key monitorable, while management expects steady volume and margins for the near future. On the financial front, we expect its revenue/EBITDA to grow at a CAGR of 11.4%/16.9% over FY24-26 and maintain strong Buy with target price of Rs 395, as we believe market share gain in industrial will continue along with strong demand for decorative segment.

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