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Kansai Nerolac Paints – Review

December 17, 2008

Kansai Nerolac Paints Ltd – KNPL is the 2nd largest paints company in India with a market share of approximately 21%. It is the largest in the industrial paint segment with a 45% market share and has a substantial market share of 14% in the decorative segment. Sales contribution from both the segments for KNPL is almost equal.

For Q2 FY09, Net Sales grew 12% to Rs.390cr – another quarter of weak performance given the impact of high raw material costs and subdued demand from the crucial housing and automobile sectors. There was a 5% growth in volumes and 5% growth in prices of the paints. Margin contraction too continued with operating margins declining by around 390bps to 12.6% from the 14% levels to Rs. 49.37cr. Similar margin contraction was seen at the net level.

A substantial part of the 12% growth in the top-line has come from increased volumes in the decorative segment and product price rise in the same. On the industrial segment front, volumes as well as realizations continue to be subdued because of the sluggishness in the automobile sector.

KNPL has also witnessed a slowdown over the last few quarters. Competition in the industrial segment would also make it difficult to pass on any price increases – usually fixed price contracts. With respect to the decorative segment, even though the company currently gets 45% of revenues, it still has a lower percentage of its sales coming from the high growth emulsions segment.

KNPL is expected to report an EPS of Rs 44 for FY09.

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