Broker’s Call: Kansai Nerolac (Accumulate)
Monarch Networth Capital
Kansai Nerolac (KNPL) has reported a strong 9.8 percent year-on-year revenue growth, marking the highest increase in the past 12 quarters. This growth was fueled by a high-single-digit increase in decorative products and a double-digit rise in industrial businesses, particularly in automotive, performance coating, and powder coating sectors.
Despite an erratic monsoon and geopolitical uncertainties, management anticipates sustained demand. Notably, the company's growth lagged behind market leader Asian Paints, which grew by 17.6 percent. A 5 percent consolidated price hike, however, led to a contraction in gross margin (35 percent) and EBITDAM (13.8 percent), primarily due to an unfavorable product mix and delayed price adjustments in the industrial segment.
The management anticipates margin improvement from Q2FY27E, following the full impact of 3 percent decorative and 3-5 percent industrial price hikes. Kansai Nerolac aims to maintain its FY27E EBITDAM guidance of 13-14 percent and expects a medium-term improvement to 14 percent+. Despite current margin pressures, the company expects recovery in subsequent quarters thanks to the complete pass-through of price hikes, though commodity price volatility and macroeconomic uncertainties remain key considerations.
The analysis initiates coverage with an 'Accumulate' rating, valuing the stock at 23 times FY28E earnings, with a target price of ₹232.
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