Dalal Street Business - Indian Equity Research and Strategy

Kansai Nerolac Paints Outperformer - ICICI

Thursday, May 08, 2008

Kansai Nerolac Paints' Q4FY08 results were subdued due to lower demand for industrial paints [Automobiles]. Top-line grew 8.1% y-o-y to Rs 308.4 crore from Rs 285.2 crore. Bottom-line grew by a meagre 2.8% to Rs 24 crore from Rs 23.3 crore. Increase in realizations (2% in decorative segment) boosted EBITDA margin to 13.1% from 12.7% in Q4FY07. During the quarter, the company's decorative business posted positive results as the housing segment continued to do well.

Raw material costs increased by 9% y-o-y to Rs 200.7 crore from Rs 184.2 crore. Depreciation provisioning increased 14.2% due to expanded capacities. Other income was down by 56.7% to Rs 4 crore. Going forward, housing demand is expected to be on an upswing and this would support demand for decorative paints. The outlook for industrial should improve on the expected pick-up in automobile sales.

At the current price of Rs 684, the stock discounts its FY09E EPS of Rs 52.5 by 13.0x. Historically, the stock has traded in a range of over 16x-18x. ICICI Maintains an OUTPERFORMER rating with a price target of Rs 945.