Kansai Nerolac Paints (KNPL IN) – Q1FY26 Result Update – Early Diwali and Industrial push to benefit
Kansai provides a favorable risk reward in near term given 1) strong growth of industrial paints which is 45% of its sales (highest industrial paints share in Industry) 2) likely pick up in 2Q decorative volumes due to early Diwali and sustained gains from paint+ innovations and 3) guidance of steady 13-14% EBITDA margin led by better product mix and improving demand scenario.
KNPL plans to maintain its decorative market share led by 1) Innovations and new launches under Paint + initiatives (12% of sales) 2) distribution improvement in Nextgen Nerolac Shoppe (400 added in 1Q26) 3) rising scale and focus on projects business 4) loyalty and influencer program. Outlook in non-auto industrials remains positive led by strong order pipeline across Infra, Railways and Powder coatings etc.
We expect 6/8% volume growth and 100bps margin expansion over FY25-27. We estimate a CAGR of 5.6% in sales and 9.8% in PAT over FY25-27. We value the stock at 28xMar27 EPS (No change) and assign a target price of Rs277 (Rs284 earlier). Retain Accumulate.
Revenues grew 1.8%; Volume growth ~3.2%: Revenues grew by 1.8% YoY to Rs20.9bn (PLe: Rs21.3bn). Gross margins contracted by 89bps YoY to 36.1% (Ple: 36%). EBITDA declined by 6.7% YoY to Rs3.1bn (PLe:Rs3.36bn); Margins contracted by 136bps YoY to 14.9% (PLe:15.8%). Adjusted PAT declined by 4.3% YoY to Rs2.30bn (PLe:Rs2.39bn). 1Q Decorative volumes were flat, while industrial volumes grew in high single digits.
Concall Highlights: 1) Demand in decorative business was affected in May (North India ) due to operation Sindoor while project business was affected due to early monsoon 2) Demand in auto segment was muted, Kansai did better than market led by various initiatives in distribution and innovations 3) PV & 2W segment demand is expected to be subdued, while normal monsoons will enable positive Tractor demand outlook 4) Performance Coatings continued to register strong growth on the back of strong infra push of Govt. 5) Raw material prices are currently benign, ADD on Tio2 will increase input costs by 1-1.3%of overall RM. 6) KNPL expects QoQ improvement in demand led by favorable monsoon and early Diwali 7) July demand remains muted like June25, however august and September are anticipated to be better 8) Competition seems to be picking out as dealers in strong areas are coming back to KNPL. 9) Auto to show mid-single digit value growth while non-auto industrial segment to see higher single digit value growth in FY26. 10) New products now contributing 10% towards overall revenue 11) North and east doing well, west improving, while south remains subdued 12) Nepal is doing well, however Bangladesh and Sri-Lanka remains concerned area.