Kansai reported revenue growth of 2.7% YoY. However, Ebitda and adjusted PAT declined 7.4% and 7.2%, respectively YoY. Gross margin expanded 22 bps with correction in commodity prices. Even so, Ebitda margin contracted 99 bps YoY due to higher staff cost and other expenditure as % of net sales. ICICI Securities believes, there is negative impact of operating leverage with 10 straight quarters of low-single-digit YoY revenue growth.
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ICICI Securities Report
Kansai Nerolac Paints Ltd. has been focussing on introducing multiple new products/technologies in industrial coatings over the past two–three years. This has led to market share gains in automotive coatings and strong growth in protective coatings.
We like Kansai's strategy to focus on market share gains in industrial coatings (less competitive segment) given competition has intensified materially in decorative paints. We also like its aggressive focus on expansion of share-of-voice and new launches to strengthen decorative paints.
With correction in commodity prices and FY25's favourable base, we see Kansai's FY26E revenue/PAT growth in mid-single-digits. QoQ recovery in offtake of decorative paints and sustained growth in projects segment also augur well.
Sale of land parcels at Thane and Parel (Mumbai) should drive other income higher. Maintain Add.
We reckon [comfortable] competitive equilibrium in paints is likely broken. Retain underweight on large cap paints. Contrarian investors may consider owning Akzo Nobel/Indigo Paints/Kansai Nerolac.
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