Kansai Nerolac Q3 Results Review - Focus On Driving Margin Expansion: Dolat Capital

Dolat Capital Report

Kansai Nerolac Paints Ltd.’s Q3 FY23 results were below our estimate on account of extended monsoon and higher channel stocking during the quarter. As the company has high cost inventory which would last till Q1 FY24E, we believe that margins would remain under pressure for next couple of quarters.

During the quarter, volume growth was marginally negative in decorative segment and the sales growth was driven by price hikes.

Gross margin contracted 80 basis points YoY to 30.4%. However, improved on a sequential basis by 160 bps led by softening in raw material prices.

Going ahead, Kansai plans to focus on high margin products which would augment margins.

Kansai Nerolac’s Q3 results were below our estimate. Consequently, we have downward revised our FY23E/24/25E earnings per share estimates to Rs 8.9/12.4/14.3 respectively.

In the near term, the company would face headwinds related to inflation and lower demand. However, in the long run we believe that the company would grow fast on a favorable base.

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