Kansai Nerolac Paints Ltd (Not Rated) FY25 Annual Report Analysis: Subdued demand coupled with increased competitive intensity hurt FY25 performance
* The decorative segment witnessed muted demand during FY25, while business segments such as wood coating and construction chemicals showcased strong growth. The project business also witnessed robust growth trajectory, supported by expansion into new towns and geographies. The Industrial business registered good demand growth, led by the automotive and performance coating businesses.
* In FY25, the Indian paints industry demonstrated resilience in the face of subdued demand and intensifying competitive pressures. Rural demand remained muted for much of the year, with signs of recovery emerging towards 3Q25. However, the entry of new players into the market further intensified competition, prompting more aggressive pricing strategies. Additionally, an extended monsoon season impacted demand during 2Q25, affecting both retail and project sales.
* Mgmt. believes that unorganized segment in paints has seen some shrinkage in recent years as organized paint players have expanded into rural areas via distributors and many other means.
Key observations:
* Consolidated revenues stood at Rs 78.2bn (flattish yoy) while EBITDA declined by 8.3%, and PBT before exceptional items decreased by 5.7% yoy. In FY25, company introduced 10 new products within the Paint+ category, contributing to a total of 28 offerings.
* Company’s International subsidiaries in Bangladesh and Sri Lanka faced multiple challenges due to the adverse macroeconomic conditions prevailing in those countries. Revenue and profitability of these subsidiaries were significantly impacted during the year. In Nepal, despite a subdued demand environment, the subsidiary achieved revenue growth and sustained profitability. Company’s domestic subsidiary, Nerofix, also faced a challenging market landscape, and focussed efforts are underway to address these headwinds and strengthen performance.
* During FY25, company’s Atchutapuram (Vizag) manufacturing unit commenced commercial production. Company’s installed capacity stood at 664mn litres in FY25 vs. 611mn litres in FY24. Capex spending during FY25 stood at Rs 3.5bn vs. Rs 2.4bn in FY24. Capacity projects are in pipeline for finished products as well as intermediates at Jainpur, Sayakha, Hosur, Goindwal Sahib, and Atchutapuram (Vizag) sites.
* As per mgmt., Indian paints industry is anticipated to experience modest growth in FY26, driven by favourable macroeconomic conditions, rising urbanisation, and increased construction and infrastructure development activities, with decent demand in both – decorative and industrial segments.
* Company’s future strategy – a) Focus on Paint+, New Products, and Premiumisation, b) Influencer Strategy – targeting engagement with architects and interior designers, c) Broaden product range and improve distribution network under new businesses of Construction Chemicals, Wood Finish, and Adhesives, d) Expand geographical reach for project business, e) Provide superior retail experience via expanding shop network.
* Consolidated cash conversion cycle improved to 90 days of sales in FY25 vs 92 in FY24.
* Consolidated OCF stood at Rs 6.7bn in FY25 vs. Rs 9bn in FY24. This was on account of unfavourable changes in W.C., incl. increase in trade & other receivables and a lower increase in trade payables/other financial liabilities/provisions in FY25 vs FY24.
* Consolidated other expenses grew 2% yoy to Rs 13.1bn in FY25 (~17% of sales). 3/5-year CAGR came in at 12%/8%.
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