Kansai Nerolac Paints delivered a largely in-line June quarter, but foreign brokerage Macquarie believes the bigger test for the company now lies beyond the earnings print.
The brokerage said hopes of industrial price hikes, coupled with resilient demand across decorative and automotive coatings, could help sustain margins through the rest of FY27, even as competition and inflation remain key monitorables.
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Maintaining its 'Neutral' rating, Macquarie's Avi Mehta described the outlook as "constructive", noting that the company expects demand to remain strong across both decorative and auto segments, while "price hikes to flow through in the industrial segment in Q2."
The brokerage has retained its FY27 standalone EBITDA margin expectation of 13-14%, supported by continued cost control and premiumisation.
Macquarie's Take
Mehta said first-quarter EBITDA came in "marginally ahead of our above-Street estimate," with lower-cost inventory and disciplined cost management helping offset a softer decorative performance.
Decorative sales grew at a high single-digit pace, with volumes rising in the low single digits, while industrial sales expanded at a double-digit rate.
The brokerage highlighted robust growth in industrial coatings, healthy double-digit expansion in the projects and waterproofing businesses, and management's confidence that 3-5% industrial price hikes and the carry-forward benefit of earlier decorative price increases should help maintain margins in the second quarter.
At the same time, Macquarie flagged slower decorative sales growth than market leader Asian Paints, flattish growth in the auto-refinish business, and the possibility of pressure on return ratios as the company undertakes a Rs 600 crore capex programme focused on auto coatings over the next two years.
Q1 Show
Kansai Nerolac reported a 4.8% year-on-year rise in consolidated net profit to Rs 232 crore, while revenue increased 9.8% to Rs 2,374 crore.
At the operating front, EBITDA grew 8.4% to Rs 329 crore, with EBITDA margin largely stable at 13.9% compared with 14% a year earlier.
The coming quarters, however, may hinge less on what Kansai Nerolac delivered in Q1 and more on whether the expected pricing actions translate into stronger profitability without slowing demand.
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