Kansai Nerolac falls 6% on disappointing March quarter results

Shares of Kansai Nerolac Paints slipped 6 per cent to Rs 395 on the National Stock Exchange (NSE) after the company reported 12 per cent decline in its net profit at Rs 93 crore in March quarter (Q4FY19), due to lower demand for industrial products. The company had a profit of Rs 106 crore in year-ago quarter.

Operational income during the quarter under review grew 4 per cent at Rs 1,142 crore against Rs 1,098 crore in the corresponding quarter of previous fiscal.

Analysts, on an average, had expected profit of Rs 113 crore on revenue of Rs 1,258 crore for the quarter.

Ebidta (earnings before interest, depreciation and tax) was at Rs 150 crore, de-growth of 11 per cent over the same quarter of the previous year. Ebitda margin contracted 230bps at 13 per cent from 15.3 per cent.

The management said the growth in decorative was lower than previous quarters. The automotive segment witnessed a negative growth this quarter. A similar slackening in demand was also seen on other OEM (original equipment manufacturer) segments. This has led to an overall lower demand for Industrial products in general.

The company has been able to pass on the cost increase in decorative. In Industrial, the company has been able to only partly get price increases to offset increase in material costs. This is reflected in the bottom-line, the management said.

The company expects the growth momentum to be subdued for the immediate future though it is hopeful for a good momentum for the year as a whole.

Analysts at Prabhudas Lilladher expect automotive paints demand to remain pressured in near term, although pre-buying ahead of BSVI is expected to boost demand in Q319. 

The brokerage firm expects other industrial paints demand to recover post elections. Structural growth levers (Shift towards organized sector, Tier2/3 cities, lower painting cycle, housing push) for decorative paints demand remain intact which will enable double digit volume growth in coming years.

“We believe that Inputs cost pressures have peaked out given 180bps QoQ margin expansion, despite high prices of crude derivatives. We believe current input cost scenario provides an opportunity to accumulate stock for medium to long term gains, although returns will be back ended,” the brokerage firm said with retain ‘accumulate’ rating on the stock and target price of Rs 464 per share.

At 11:09 am, the stock was down 3 per cent at Rs 408 on the NSE, as compared to 0.28 per cent rise in the Nifty 50 index. A combined 247,430 shares changed hands on the counter on the NSE and BSE so far.