Recommendation from Paints & Varnishes Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
KANSAI NEROLAC PAINTS : HAVING A COLOURFUL TIME
HERE IS WHY
✓Huge growth potential
✓Focus on cost reduction
✓Good financial improvement.
Kansai Nerolac Paints Limited (KNPL), formerly known as Goodlass Nerolac Paints Ltd., is the second-largest paint company in India and a leader in the industrial segment. The company has five strategically located manufacturing units across the country and a strong dealer network. It manufactures a diversified range of products ranging from decorative paints and coatings for homes, offices, hospitals and hotels to sophisticated industrial coatings. The company reported net sales of Rs 5,250.40 crore in FY20, a decrease of 2.55 per cent. It had reported net sales of Rs 5,388.47 crore in FY19. The company reported PBIDT of Rs 804.46 crore in FY20, an increase of 6.9 per cent. It had reported PBIDT of Rs 752.52 crore in FY19.
It reported PAT of Rs 515.78 crore in FY20, an increase of 15.22 per cent. It had reported PAT of Rs 447.66 crore in FY19. The company has reported cash from operating activities of Rs 595.07 crore in FY20 as against Rs 99.92 crore reported in FY19. The company posted net sales of Rs 1,585.65 crore in December 2020, up by 19.69 per cent from Rs 1,324.81 crore in December 2019. Its PBIDT was Rs 304.44 crore in December 2020, up 54.01 per cent from Rs 197.67 crore in December 2019. It reported quarterly net profit at Rs 204.50 crore in December 2020 against net profit of Rs 115.81 crore in December 2019, an increase of 76.58 per cent.
The industrial paint segment volume grew at 19 per cent and was led by strong demand revival in the automotive industry. On the decorative front, volume growth at 21 per cent YoY was supported by strong festive demand from rural and semi-urban regions. Also, the opening up of metro and Tier I cities aided volume growth during the period. In time to come, KNL is going to focus on launching new products in the decorative category and add to its dealer network. This, along with revival in industrial paint demand led by the automotive industry and continuous demand from the non-automotive industry, would help in boosting overall volume growth for company.
It has also increased its focus on launching new products in the construction chemical business. While in Q3 the company launched three new products in the decorative paint segment, the emphasis on construction chemical business has been beefed up with its newly acquired subsidiary, Perma. According to the management, the construction chemical business is 10 per cent of the total paint industry in size and is growing at a higher rate than the paint industry. Further, to reduce dependency on the automotive industry, the company has also increased its focus on such segments as coil, rebar, floor, pipe coatings and other specialty coatings in industrial business.
This, along with revival in industrial paint demand led by the automotive industry, especially in tractor and passenger vehicle sales and continuous demand from consumer durables would help overall volume growth for the company. Also, given the strong push by the government on infrastructure projects, the demand outlook is likely to be robust in the coming period. The company will also continue its cost optimisation measures. It has also reduced debt and is almost debt-free with the total debt to equity ratio at 0.047. On the returns front, it has ROE and ROCE of 14.37 per cent and 18.43 per cent, respectively. By virtue of these factors, we recommend our reader-investors to BUY this stock.
