Kansai Nerolac Paints Ltd Initiating Coverage with BUY

Transcription

Initiating coverage
BUY
(Wholly owned subsidiary of Bank of Baroda)
$CompanyN ame$
SECTOR: Furniture, Furnishing, Paints
Kansai Nerolac Paints Ltd. (KNPL)
9th May, 2016
Painting a bright future; initiate with BUY
We initiate coverage on KNPL with a BUY rating and a price target of
Rs.362 implying 23% upside. Kansai Nerolac Paints Ltd (KNPL) has a 60%
market share in automotive paints (the largest player in industrial paints)
and ~20% in decorative segment. KNPL caters to both industrial and
decorative segments which contributes in the ratio of 47:53 to its revenue
stream.
Price
Price Target
Rs. 295
Rs. 362
Leader in automotive paints in India: Industrial paint contributes ~47% of the
total revenue of KNPL. The company has a significant market share of 60% in the
automotive coatings segment. The company is a supplier to automobile giants like
Maruti Suzuki, GM, Volvo, Tata Motors, Fiat, Toyota etc. We expect that the
demand for automotive paints is expected to increase on account of positive
monsoon would drive the automobile industry, which would augur well for the
company’s growth.
Share Holding (%)
Focusing on decorative segment: KNPL is one of the leading players in
decorative segment with market share of ~20% which contributes ~53% to its
revenue. The company introduced many innovative products in decorative
segment. Also the company re-launched its premium segment interior emulsion
called ‘Impressions’ with HD to enhance the customer experience. We expect that
with aggressive marketing, big product portfolio, and increased discretionary
spending would drive the company’s revenue growth going forward.
52 week high/low
Reuters Code
KNPL:IN
KANE.NS
As on March 2016
Promoters
73.12
Others
26.88
Stock Data
Nifty
7,866
Sensex
25,689
316/201
Maket Cap (Rs. bn)
159.1
Face Value
Rs.1.0
Price performance (%)
1M
3M
6M
1Y
Absolute
4.7
11.4
21.2
33.8
Relative to Sensex
0.6
4.4
22.8
39.0
Relative Performance
BSE Sensex
Apr-16
May-16
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
150
130
110
90
70
50
Jun-15
Marketing initiatives & product Differentiation to drive the revenue: The
company is aggressively focusing on enhancement of its brand image by making
investments in marketing and product differentiations. KNPL is aggressively
focusing on enhancing its brand image by constantly making investments in
marketing and differentiating products. The company is spending more on
advertising and promotion to grow faster and increase its market share in this
segment. The ratio of advertisement spends and net sales has increased from
3.9% in FY14 to 5% in FY16. We believe that KNPL’s fast penetration strategy
aggressive promotion & marketing initiatives would drive the revenue growth going
forward.
23%
Bloomberg Code
May-15
Benefiting from softening raw material prices: The company is benefiting from
falling global crude oil prices. Raw material required for paint manufacturing
majorly includes Pigments (Titanium dioxide), resins, solvents, oil, chemicals,
organic acids & other crude derivatives. Since most of the raw materials are
petroleum based, the industry benefits from softening crude prices. Raw Material
cost for KNPL has come down from 60% of total sales in FY13 to 59% in FY14
followed by 53% in FY15 due to decrease of crude oil price & pigments like
Titanium dioxide. Although, the raw material prices has bottomed out we do not
expect sharp rise in raw material prices. Thus we expect that the company would
maintained its EBITDA margin at the same level in future.
Up/Down (%)
KNPL
Source:-Bloomberg
Valuation: At CMP of Rs.295, the stock trades at PE of 44.3x/36.8x/31.7x/24.5x
for FY16e/17e/18e/19e. We expect that with a diversified product portfolio, auto
industry revival, improving standard of living, softening raw material prices, early
repainting cycle and aggressive marketing would drive the company growth. We
value the company at 30x with a BUY rating and a target price of Rs 362 (upside
of 23%).
Exhibit 1: Financial summary (Rs mn)
Year end: March
Net sales
Growth (%)
EBITDA margin (%)
PAT
Adjusted PAT
EPS (Rs)
P/E(x)
ROE (%)
ROCE (%)
Debt/equity (x)
P/Bv (x)
FY14
31,933
11.4
11.5
2,087
3.9
3.9
76.4
15.3
13.8
0.04
11.1
FY15
35,870
12.3
12.6
2,751
5.1
5.1
58.0
18.1
16.4
0.03
9.9
FY16p*
38,699
7.9
14.9
8,942
6.7
6.7
44.3
18.4
17.1
0.01
6.9
FY17e
42,721
10.4
14.7
4,319
8.0
8.0
36.8
18.1
17.0
0.02
6.4
FY18e
50,767
18.8
14.3
5,022
9.3
9.3
31.7
18.9
17.8
0.02
5.6
Source: Company, BOBCAPSe
*p - provisional
Akanksha Tripathi | akanksha.tripathi@bobcaps.in | +91 22 6138 9383
FY19e
65,650
29.3
14.1
6,501
12.1
12.1
24.5
21.4
20.3
0.01
4.9
Kansai Nerolac Paints Ltd. | 9 May 2016
Industry Outlook
Innovations in the field of technology and strong government initiatives in the field of housing,
automobiles and infrastructure has helped Indian paint industry to witness steady growth over the
past decade. India happens to be second largest consumer of paint in Asia. Mostly taken up as
an activity during occasions viz wedding, festivals etc. Further, rise in demand from retail
consumers coupled with rise in disposable income, urbanization, development of rural markets
have helped Indian paint industry to see a gradual shift in the preferences of people from low cost
lime wash and distemper to higher quality paints like emulsion and enamels.
Decorative category
accounts for 70% of
the overall paints
market in India in
value terms
Industry Structure
The Indian paint industry can be categorized into two broad categories viz, decorative and
industrial paints. Decorative category accounts for 70% of the overall paints market in India in
value terms while Industrial category accounts for rest. Decorative paints' segment includes
exterior & interior wall paints, varnishes, enamels, primers, putties, distempers, etc. Industrial
paints' segments include automotive paints, powder coatings, marine paints etc.

Decorative Paints: Decorative paints segment entails major part of the industry and
primarily caters to the residential and commercial buildings. The decorative paint market
has been further segmented into emulsions, enamel, distemper and cement paints.
Enamels are the most widely used followed by distempers and emulsions. Interior and
exterior paints account for 75% and 25% of the decorative paints respectively.
The paint industry which currently stands at Rs 40,600 crore with per capita
consumption increasing to over 4 kgs, out of which the decorative segment contributed
nearly 73% at Rs. 29,638 crore, while the remaining Rs. 10,962 crore was contributed
by the industrial segment. The major boost to the growth in Indian paint market has
been provided by the decorative paint segment, which is anticipated to grow more than
18%.
Interior and exterior
paints account for
75% and 25% of the
decorative paints
respectively

Industrial Paints: Three main segments of the industrial sector include automotive
coating, high performance coating, powder coating and coil coating, adds the paper..
Kansai Nerolac is the market leader in this segment. This segment includes paints used
in automobiles, auto ancillaries, consumer durables, containers, etc. User industries for
industrial paints include automobiles engineering and consumer durables. The industrial
paints segment is far more technology intensive than the decorative segment.
Exhibit 2: Major Players of Indian Paint Industry
Akzo Nobel,
12%
Kansai
Nerolac, 16%
Others, 2%
Asian paints,
53%
Berger paints,
17%
Source: Industry, BOBCAPs
| Equity research |
2
Growth drivers for Indian Paint Industry
The industry is one of the key drivers of growing economy and plays a pivotal role in country's
rapid economic and industrial development. The factors for growth of the market including growth
in real estate construction, growth in automotive industry, growth in industrial sector, growth in
disposable income, low penetration and increased Government expenditure on infrastructure.
Crude derivatives is
about a third of the
raw material costs for
paint companies
Declining crude oil prices: The paints sector is raw material intensive, with over 300 raw
materials (50% petro-based derivatives) involved in the manufacturing process. Since most of the
raw materials are petroleum based, the industry benefits from softening crude prices. A sharp fall
in crude prices will improve gross margins of paints companies.
Big Auto Market: Another factor boosting the paint market is the growth in the automotive
industry which creates huge demand for industrial paints. The Indian auto industry is one of the
largest in the world with an annual production of 23.37 million vehicles in FY 2014-15, following a
growth of 8.68 per cent over the last year.
Favorable Demographics: With 66% of its population under the age of 35, India is home to the
largest cohort of young people in the world—825 million. The median age of the country is just 27
years, much below 37 in the US and 46 in Japan. India's demographic profile is instable and is
changing in a way that is quite favorable to the economic growth. Growth of the working-age
share of the population and increase in number of nuclear families is fueling the rise in per capita
spent.
The median age of
India is just 27 years,
much below 37 in the
US and 46 in Japan.
Per capita paint consumption: The per capita paint consumption in India which is a little over 4
kgs is still very low as compared to the developed western nations. This provides enough
opportunity for further growth in this sector. With various reforms undertaken to develop our
nation, the per capita consumption for paint is bound to increase in near future.
Exhibit 3: Per capita consumption of paints
11
10
(Kg)
8
6
4
India
South Africa
Brazil
China
Russia
The per capita paint
consumption in India
which is ~ 4 kgs
Outlook: The current trend in macroeconomic numbers clearly shows sign of improving
economy. The government has also shown its intent in furthering the reform momentum to revive
investments and improve governance. Government initiatives in major sectors like Housing,
Automobiles and Infrastructure will trigger fresh opportunities in all paint segments. Further,
softening of international crude and commodity rates has eased costing pressures on the
industry. All this is positive for the Paint Industry.
As on March 2015, the size of the paint industry is estimated around Rs 35,500 crore which is
expected to be worth Rs.50, 000 crore by the end of 2016 given the right policy directions and
implementation. With young population, particularly belonging to middle and emerging middle
class have rising aspiration, consumption of paint is bound to increase at steady rate from current
average of 4 Kgs per capita.
| Equity research |
3
Investment rationale
Leader in automotive paints in India
KPNL has a 60%
market share in
automotive paints
and a 30% market
share in powder
coatings
KNPL is the third largest player with an overall market share of ~16%. Industrial paint contributes
~47% of the total revenue of KNPL. The company has a significant market share of 60% in the
automotive coatings segment. Where the peer companies like Asian paints has ~20% and Berger
has very little presence in automotive paints segment.
The company supplies paints to many big automobile players. Some of the main customers of the
KNPL are Suzuki, General Motors, Tata Motors, Fiat, Toyota, Volvo and many more. Demand for
automobile paint is expected to grow 17% over the next five years from 13% in the previous five
years.
Being leader in the segment, KNPL offers powder coating solutions to wide range of applications
like Air Conditioners, Microwave Ovens, Refrigerators and Washing Machines etc. and also a
leader in this segment. KNPL’s key customers in this segment include Godrej, Whirlpool,
Samsung, Blue Star, Daikin, Voltas, Hair, Videocon, Siemens, Havells, and Hitachi etc. KNPL
provides its consumers with a diversified portfolio of products in both the decorative and industrial
segment.
We expect that the demand for industrial paints is expected to increase going forward led by
industrial growth and positive monsoon which will drive the automobile industry. This is on
account of increasing investments in infrastructure, domestic and global auto majors having long
term plans for the Indian market, which would augur well for the company’s growth.
KNPL has ~16%
market share in
decorative segment &
contributes ~53% of
the net sales
Focusing on decorative segment
Demand from decorative segment form ~70% of the overall paint industry. KNPL is one of the
leading players in decorative segment with market share of ~20% which contributes ~53% to its
revenue. The company introduced many innovative products in decorative segment. The
company introduced many innovative products in decorative segment. In decorative segment it
has various product categories like Emulsions or Water Based paints (both Interior & Exterior),
Enamels or Oil Based paints, Distempers, Primers, Wall Putty etc. Today, water-based paints
dominate and account for ~80% of paints sold in the residential market. Also, the company relaunched its premium segment of interior emulsions Impressions with high definition colour
technology to enhance customer experience.
The company has increased its focus on decorative segment, seeing gradual shift in the
preferences of people from the traditional white wash to higher quality paints like emulsions and
enamel paints.
Exhibit 4: Indian Paint Industry Categories
Industrial,
30%
Decorative ,
70%
We believe that paints segment would continue growing at a faster pace led by presence of
limited players and strong repainting demand due to increase in per capita income and improving
and standard of living.
| Equity research |
4
We expect that with the big product portfolio, growing demand for paints and increased
discretionary spending would drive the company’s revenue growth going forward.
Benefiting from softening raw material prices
Paints sector is raw
material intensive with
over 300 raw
materials
The paints sector is raw material intensive with over 300 raw materials (50% petro-based
derivatives) involved in the manufacturing process. Since most of the raw materials are petroleum
based, the industry benefits from softening crude prices. The company is benefiting from falling
global crude oil price. Crude oil prices have shown a declining trend over the past years. Crude
derivatives constitute about a one third of the raw material costs for paint.
Raw material required for paint manufacturing majorly includes Pigments (Titanium dioxide),
Resins, Solvents, Oil, Chemicals, and organic acids & other crude derivatives. Mostly, titanium
dioxide and other crude derivatives such as PAN and PENTA together form about 40-50% of total
input costs for paint companies.
Raw Material cost for KNPL has come down from 60% of total sales in FY13 to 59% in FY14
followed by 53% in FY15 due to decrease of crude oil price & pigments like Titanium dioxide.
Although, the raw material prices has bottomed out we do not expect sharp rise in raw material
prices. Thus we expect that the company would maintained its EBITDA margin at the same level.
Exhibit 5: Crude oil price for last one year
Apr-16
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
70
60
50
40
30
20
10
0
May-15
USD
Softening raw material
prices
Source: Bloomberg, BOBCAPS
Overall expansion in paint industry would drive KNPL’s growth
Market size of the
paint industry is ~
Rs.350 bn in India
India is an emerging economy and with a rising GDP. The market for paints in India is expected
to grow at 1.5 times to 2 times GDP in the next five years. The market size of the paint industry in
India is estimated at around Rs.350 bn. With the GDP growth expected to be between 7.5%
levels, the top three players are likely to clock above industry growth rates in the future,
considering they have a strong brand and good reach.
Moreover, low per capita consumption of paints in India provides enough room for further growth
in this sector with the improving standard of livings. Indian paints industry is rolling into a bright
future, with growth prospects supported by a growing the country's economy.
India provides enough
room for further
growth in paint sector
with the improving
standard of livings

The key drivers of the market indicate the factors for growth of the market including
growth in real estate construction, growth in automotive industry, growth in industrial
sector, increasing disposable income, low penetration and increased Government
expenditure on infrastructure.

The recent trend in macro indicators shows improving fundamentals of the country's
economy. Due to increased government funding for infrastructure, demand for paints
both in industrial and decorative segment is set to rise, thereby rendering Indian paint
industry to be poised for further growth.
Going forward, with the expectation of better than average monsoon will help in improving rural
demand as well as the demand from automotive paint segment leading the growth in paints
industry.
| Equity research |
5
Expectation of better
than average
monsoon would lead
to increase in demand
Besides, the growing popularity of quality paints and increasing income levels of people residing
in Tier-II and Tier-III cities would also advance the growth in premium paint market of India.
We believe that with the strong brand and reach the company would get benefit from growing
economy as well as industry.
Marketing initiatives a key to revenue growth
Roped in Shah Rukh
Khan” as a brand
ambassador
KNPL is aggressively focusing on enhancing its brand image by constantly making investments in
marketing and differentiating products. The company is spending more on advertising and
promotion to grow faster and increase its market share in this segment. The ratio of
advertisement spends and net sales has increased from 3.9% in FY14 to 5% in FY16. KNPL has
also expand its dealer network from 12,000 to over 15,000 in the same period.
To fill the gap between consumer requirement and product offering, the company built 360
degree campaign which included new tv commercial ad and a dedicated webpage for those who
wish to know more about the product. Also it has roped in “Shah Rukh Khan” as a brand
ambassador to communicate & campaign for eco-friendly, low VOC and lead free products.
KNPL also launched region specific TV campaigns for Andhra Pradesh, Tamil Nadu and Kerala.
Strong product portfolio
Differentiated its
product portfolio by
offering products with
HD technology
The company has differentiated its product portfolio by offering eco-friendly, lead free, low VOC &
economical series of affordable emulsion paints with High Definition Colour Technology (HD).
Also, the company launched eco-friendly plastic coatings for car and new range of powder
coating products through technology tie up with Protech Canada.
The company launched 2 new products – Excel Rain Guard and Statue Paint in FY15. Excel Rain
Guard is exclusively for waterproofing of exteriors against harmful effects whereas Statue paint is
an economy emulsion paint exclusively for coating statues. Both the products were received well
by the consumers.
Revival in automobile
industry would drive
the demand
We believe that with the strong portfolio, penetration strategy of aggressive promotion &
marketing initiatives would drive the revenue growth going forward.
Revival in Auto Industry:
1/3 of the demand for
industrial paints
comes from
Automobile industry
KNPL’s ~47% revenue contribution comes from industrial paints, out of which ~20% comes from
quoting division rest 27% comes from auto industry. The growth of the Industrial paint industry is
mainly dependent on the expansion of the customer base. The automobile industry generates
more than one third of the demand for industrial paints.
Auto industry is expected to continue its growth momentum after sluggish demand for auto in last
2-3 years, which has affected the entire industrial paint industry. We expect, better than average
monsoon would revive the automobile industry which will positively impact the demand for
automotive paints.
Strong demand due to urbanisation and short repainting cycle
Interior design is
becoming a fashion
statement & social
status symbol
The decorative paints segment has witnessed strong growth over last few years on account of
substantial increase in disposable income. The demand for premium paints & niche products is
growing due to change in trends like paints for specific social occasions like marriage, vastu and
festivals such as Diwali have led to the higher realization for decorative paints. Also, interior
design is becoming a fashion statement & social status symbol creating huge demand for
premium emulsions, innovative textures & unique concepts for kids’ rooms. Simultaneously,
people are shifting towards premiumisation from distemper to external emulsion has led to the
revenue growth.
According to ASSOCHAM, Indian paint industry is likely to surge from the current level of about
Rs.40,6bn to about Rs.620bn by 2016 witnessing a breathtaking double-digit at a CAGR of
| Equity research |
6
~20%. With more than 65% of decorative paints demand coming from repainting demand,
reduction in duration of repainting activity has surged the decorative paints demand.
We believe that rise in disposable income, increasing urbanization, development of the rural
market and launches of many innovative products ( as growing trend for premium emulsions and
innovative textures), early repainting cycle would lead to an increase in the per capita
consumption of paint. These factors would fuel the paint industry's growth as well as KNPL’s
growth.
Key risk
 Weaker demand in Auto sector: Further slowdown/ sluggish growth in the automotive
industry could impact the company’s growth.
 Increasing Raw Material Cost & Currency Fluctuations: Rising prices of Titanium Dioxide
& crude oil prices along with depreciation of Indian rupee may impact the operating margins.
 Narrowed demand: Demand for paints is direct from the construction and automobile industry.
Any de-growth in these industry will cap the growth in paint industry.
 Increase in interest rate: Any increase in the interest rate can subdue the demand for the
new houses which can lead slowdown in the demand for paints.
| Equity research |
7
Valuation:
At CMP of Rs.295, the stock trades at PE of 44.3x/36.8x/31.7x/24.5x for FY16e/17e/18e/19e.
We expect with a diversified product portfolio, auto industry revival and rising demand for
decorating paints as well as industry paints, early repainting cycle and aggressive
marketing would drive the company’s revenue going forward. We expect that the company
revenue/earnings to growth a CAGR of 16%/24% over FY15-19e respectively. We value the
company at 30x with a BUY rating and a target price of Rs.362 (upside of 23%).
Exhibit 6: One year forward PE chart
50
5 years mean = 28x
(x)
40
30
20
PE(x)
11-Oct-15
11-Jan-16
11-Jul-15
11-Apr-15
11-Jan-15
11-Jul-14
11-Oct-14
11-Apr-14
11-Jan-14
11-Jul-13
11-Oct-13
11-Apr-13
11-Oct-12
11-Jan-13
11-Jul-12
11-Apr-12
11-Oct-11
11-Jan-12
11-Jul-11
11-Apr-11
10
Average PE
Source: Bloomberg, BOBCAPs
| Equity research |
8
Financial summary
Growing industry would drive the revenue growth
KNPL’s revenues has grown at CAGR of 11% over FY12-15 and we expect that its revenues to
grow at a CAGR of 16% over FY15-FY19e driven by growth in industrial paints and strong growth
in decorative paints, diversified product portfolio, and improving standard of living.
Exhibit 7: Revenues to grow at a CAGR of 16% over FY15-19e
60,000
20
15
40,000
30,000
10
20,000
(%)
Rs. Mn
50,000
5
10,000
-
0
FY14
FY15
FY16p FY17e FY18e FY19e
Net sales
Growth (%)
EBITDA margins to maintained at ~14%
KNPL’s EBITDA margin has expanded by ~300 bps in last 3-4 years due to reduction in raw
material prices. As per the management the raw material prices has bottomed out thus see some
contraction in EBITDA margins. On a conservative basis, we expect EBITDA margins to remain
at ~14% levels.
8,000
20.0
6,000
15.0
4,000
10.0
2,000
5.0
-
(%)
Rs. Mn
Exhibit 8: EBITDA margins to remain flattish
0.0
FY14
FY15
FY16p FY17e FY18e FY19e
EBITDA
EBITDA margin %
| Equity research |
9
PAT to grow at a CAGR of 22% over FY15-19e
We expect that PAT to grow by 22% with margin expansion of 63 bps over FY16p-19e due to
reduction in interest cost and growth in EBITDA.
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-
12
10
8
(%)
Rs. Mn
Exhibit 9: Consolidated PAT margin to grow by 63 bps over FY15-19e
6
4
2
0
FY14
FY15
FY16p
PAT
FY17e
FY18e
FY19e
PAT margin %
*p – provisional
Return ratios to improve
We believe that the company’s well-known brands, growing demand for paints, fall in raw material
prices and growth in economy would drive the return ratios going forward.
Exhibit 10: Growing EPS over FY16-FY19e
14.0
12.1
12.0
%
10.0
9.3
8.0
8.0
6.7
6.0
5.1
4.0
3.9
2.0
0.0
FY14
FY15
FY16p
FY17e
FY18e
FY19e
*p – provisional
Exhibit 11: ROE & ROCE growth
20
%
15
10
5
0
FY14
FY15
FY16p
ROE
FY17e
FY18e
FY19e
ROCE
*p - provisional
| Equity research |
10
Exhibit 12: Income statement (Rs mn)
Year end: March
FY14
Net sales
growth (%)
31,933
FY15
FY16p*
F17e
F18e
F19e
35,870
38,699
42,721
50,767
65,650
11.4
12.3
7.9
10.4
18.8
29.3
21,489
23,847
23,682
27,511
32,896
42,645
Staff Cost
1,383
1,462
1,808
1,742
2,070
2,677
R&D Cost
-
-
-
-
-
-
5,387
6,050
7,434
7,205
8,562
11,072
3,674
4,511
5,774
6,263
7,239
9,256
9
23
28
8
16
28
COGS
SG&A Cost
EBITDA
growth (%)
Depreciation
655
683
684
739
800
867
3,018
3,828
5,091
5,524
6,439
8,389
Other income
98
215
250
261
287
315
Interest paid
18
9
5
5
5
5
-
-
5,353
-
-
-
PBT
3,098
4,034
5,336
5,779
6,721
8,700
Tax
1,012
1,283
1,747
1,460
1,698
2,198
EBIT
Extraordinary items
Minority interest
7
11
-
-
-
-
2,087
2,751
8,942
4,319
5,022
6,501
-
-
(5,353)
-
-
-
2,080
2,740
3,588
4,319
5,022
6,501
17
32
31
20
16
29
Exhibit 13: Balance sheet (Rs mn)
Year end: March
FY14
PAT
Non-recurring items
Adjusted PAT
growth (%)
*p - provisional
Cash & Bank balances
Other Current assets
Investments
Net fixed assets
Goodwill
Other non-current assets
Total assets
Current liabilities
Borrowings
Other non-current
liabilities
Total
Share capital
Reserves & surplus
Shareholders' funds
Total liabilities
FY15
FY16p*
FY17e
FY18e
FY19e
553
345
4,785
6,733
7,569
8,714
11,721
11,101
12,327
12,743
15,089
19,405
486
2,077
5,346
5,346
5,346
5,346
9,673
9,581
9,773
10,106
10,679
11,322
23
23
23
23
23
23
343
609
735
757
848
950
22,798
23,735
32,988
35,708
39,554
45,760
6,933
6,153
8,625
9,177
9,665
11,522
619
503
331
454
431
410
949
1,009
1,013
1,153
1,183
1,217
8,501
7,666
9,969
10,783
11,280
13,149
539
539
539
539
539
539
13,721
15,481
22,420
24,326
27,676
32,012
14,260
16,020
22,959
24,865
28,215
32,551
22,798
23,735
32,988
35,708
39,554
45,760
*p - provisional
| Equity research |
11
Exhibit 14: Ratios (%)
Year end: March
F14
F15
FY16p*
F17e
F18e
F19e
EPS
3.9
5.1
6.7
CEPS
5.1
6.4
7.9
8.0
9.3
12.1
9.4
10.8
13.7
Per share data (Rs)
DPS
1.3
1.7
5.5
2.7
3.1
4.0
26.5
29.7
42.6
46.1
52.4
60.4
Gross margins
28.4
29.4
34.1
31.5
31.1
31.0
EBITDA margins
11.5
12.6
14.9
14.7
14.3
14.1
6.5
7.6
9.3
10.1
9.9
9.9
PE
76.4
58.0
44.3
36.8
31.7
24.5
P/BV
11.1
9.9
6.9
6.4
5.6
4.9
EV/EBITDA
43.2
34.8
25.8
23.5
20.2
15.7
BV
Profitability ratios (%)
Net margins
Valuation ratios (x)
EV/Sales
5.0
4.4
3.9
3.4
2.9
2.2
RoE
15.3
18.1
18.4
18.1
18.9
21.4
RoCE
13.8
16.4
17.1
17.0
17.8
20.3
RoIC
15
18
24
30
32
35
*p - provisional
Exhibit 15: Cash flow statement (Rs mn)
Year end: March
FY14
FY15
FY16p*
FY17e
FY18e
FY19e
2,080
2,740
8,942
4,319
5,022
6,501
550
681
684
739
800
867
(997)
(458)
1,029
252
(1,918)
(2,527)
229
105
-
-
-
-
1,861
3,068
10,654
5,310
3,905
4,842
(1,146)
(588)
(696)
(1,248)
(1,373)
(1,511)
41
(1,591)
(3,269)
-
-
-
(1,104)
(2,179)
(3,965)
(1,248)
(1,373)
(1,511)
757
888
6,690
4,061
2,532
3,331
-
-
-
-
-
-
Net inc/dec in debt
(130)
(116)
(172)
123
(23)
(22)
Dividend (incl. tax)
(694)
(912)
(2,978)
(1,438)
(1,672)
(2,165)
11
(68)
1,075
(974)
0
0
(812)
(1,096)
(2,074)
(2,290)
(1,695)
(2,187)
(55)
(208)
4,616
1,772
837
1,145
Profit after tax
Depreciation
Chg in working capital
Total tax paid
Cash flow from
operations
Capital expenditure
Change in investments
Cash flow from
investments
Free cash flow
Issue of shares
Other financing activities
Cash flow from
financing
Inc/(Dec) in Cash &
Bank bal.
*p - provisional
| Equity research |
12
Company Profile
Kansai Nerolac Paints Limited (formerly known as Goodlass Nerolac Paints Ltd) is an Indiabased paint company. The Company serves customers across the paint segments, such as
Decorative, Wood coatings, Automotive, Auto Refinish, Performance Coating and Powder
Coating. The Company serves its customers through a network of four manufacturing facilities
located at Lote in Maharashtra, Bawal at Haryana, Jainpur in Uttar Pradesh and Hosur in Tamil
Nadu and a network of 94 depots.
The Mumbai-based company is the leader in the industrial paints segment with a market share of
over 40%. It is the third-largest player in the decorative paints segment with a modest market
share of 13%. Nearly 75% of the Indian paints industry consists of the decorative segment. The
Company has international operations in Nepal through its joint venture with Kansai Nepal. The
Company's product Excel Rain Guard is meant for waterproofing of exteriors against harmful
effects of rainfall while Statue paint is an Economy emulsion paint meant for coating statues.
History
1920: It started as Gahagan Paints & Varnish Co. Ltd. at Lower Parel in Mumbai.
1957: Goodlass Wall Pvt. Ltd. grew popular as Goodlass Nerolac Paints (Pvt.) Ltd. Also, it went
public in the same year and established itself as Goodlass Nerolac Paints Ltd.
1976: Goodlass Nerolac Paints Ltd. became a part of Tata Forbes Group on acquisition of a part
of the foreign shareholdings by Forbes Gokak.
1983: Goodlass Nerolac Paints Ltd. strengthened itself by entering in technical collaboration
agreement by Kansai Paint Co. Ltd., Japan and Nihon Tokushu Tokyo Co. Ltd., Japan.
1999: Kansai Paint Co. Ltd. Japan took over the entire stake of Tata Forbes group and thus
Goodlass Nerolac Paints became wholly owned subsidiary of Kansai Paint Company Ltd.
2006: On 11 July, Goodlass Paint Ltd. name has been changed to Kansai Nerolac Paints Ltd.
Parent Company
Kansai Paint was founded by Katsujiro Iwai in Amagasaki City, Japan in May 1918. Kansai Paint
is a comprehensive manufacturer of paints and coatings. The Products include- automotive
coatings, industrial coatings, decorative coatings, protective coatings and marine coatings. They
are also present in U.K., Turkey, U.S.A, Canada, Mexico, and UAE.
| Equity research |
13
Kansai Nerolac is the market leader in the Indian automotive industry. Some of the main
customers of the company are:
Exhibit 16: Automotive segments key customers
Source: Company, BOBCAPS
Exhibit 17: Key Management
Name
Mr. Pradip Panalal Shah
Designation
Chairman
Mr.Devendra Motilal Kothari
Vice-Chairman
Mr.Harishchandra Meghraj Bharuka
Managing Director
Mr. Pravin Digambar Chaudhari
Wholetime Director
Source: Company, BOBCAPS
Awards and Achievements
| Equity research |

Golden Peacock Environment Management Award, 2005.

Short listed for the Best Managed Company Award from Business Today & A.T.
Kearney 2005.

Best Vendor Award from customers like Toyota Kirloskar Motors Ltd. (TKML) for Cost
and from Maruti Udyog Ltd. (MUL) on overall commendation.

Awards for Marketing Initiatives like Cannes 2007 Bronze for Press Ad.

Reader's Digest Trusted Brands Gold Awards, 2008.

Product of the Year Award 2010 for Nerolac Excel April 2010.

Product of the Year Award 2011 for Nerolac Excel Total with Heat-Guard Technology
April 2011.

Sustainability Award for outstanding contribution by Mahindra & Mahindra – October
2011.[26]

Best Vendor Performance Award in Paint Supplier's Category by Honda Motors cycles &
scooters at their annual conference 2012.

ASAPP Media Information Group – Construction World Magazine Ranked Kansai
Nerolac Paints First
14
Sales and Dealing Team
Purvesh Shelatkar – Senior Vice President & Head Equity
+91-22-6138 9330
purveshshelatkar@bobcaps.in
Anil Pawar – Senior Manager – Dealing
+91-22-6138 9325
anil@bobcaps.in
Sachin Sambare – Manager– Dealing
+91-22-61389331/33
sachin.sambare@bobcaps.in
Ashwin Patil – Executive – Dealing
+91-22-6138 9326
ashwin@bobcaps.in
+91-22-6138 9382
vaishali.parkar@bobcaps.in
+91-22-6138 9381
padmaja.ambekar@bobcaps.in
+91-22-6138 9383
akanksha.tripathi@bobcaps.in
+91-22-6138 9384
rishabh.mehta@bobcaps.in
+91-22-6138 9351
hareesha@bobcaps.in
Kshitij Kelkar
+91-22-61389386
kshitij@bobcaps.in
Kiran Sawardekar
+91-22-61389385
kiran@bobcaps.in
Nisha Rasal
+91-22-61389328
nisha@bobcaps.in
+91-22-61389336
minaxi.tiwari@bobcaps.in
Research Team
Vaishali Parkar Kumar – Analyst
Padmaja Ambekar – Analyst
Akanksha Tripathi – Analyst
Rishabh Mehta – Analyst
Hareesha Kakkera - Associate
Sectors
Agri, Auto, Defence,
Midcap, Smallcap
Auto Ancillary, Infra, Midcap
Footwear, FMCG,
Hospitality
Textile, FMCG, Metals,
Chemicals
Bio Technology,
Pharmaceuticals
Retail Dealing Team
Debt Dealing Team
Minaxi Tiwari
UTI Tower, 3rd Floor, South Wing, Bandra-Kurla Complex, Bandra (E), Mumbai - 400 051. India.
Ph.: +91.22.6138.9300 || Fax: +91.22.6671.8535 ||
Email: research@bobcaps.in|| Web: www.bobcaps.in
NSE SEBI No. (CASH): INB231304537
NSE SEBI No. (DERIVATIVES): INF231304537
BSE SEBI No. : INB011304533
SEBI Registered Research Analysts: INH000000040 valid till 03rd February, 2020
Disclaimer
BUY. We expect the stock to deliver >15% absolute returns.
HOLD. We expect the stock to deliver 5-15% absolute returns.
SELL. We expect the stock to deliver <5% absolute returns.
Not Rated (NR). We have no investment opinion on the stock.
“The BoB Capital Markets research team hereby certifies that all of the views expressed in this report accurately reflect our personal views about the subject
company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific
recommendations or views expressed in this report."
BOB Capital Markets Ltd. generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities
or derivatives of any companies that the analysts cover. Additionally, BOB Capital Markets Ltd. generally prohibits its analysts and persons reporting to analysts from serving as
an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market
commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may
make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing,
among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies
that are the subject of this material is provided herein.
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| Equity research |
15

Kansai Nerolac Paints Ltd Initiating Coverage with BUY

Transcription

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