Kansai Nerolac Paints Limited (KNPL) has cemented its position as one of the leading players in the Indian paint industry. As a subsidiary of the Japan-based Kansai Paint Company Ltd., KNPL benefits from global expertise while catering to the diverse and rapidly growing Indian market. The company offers a wide range of products, serving both the decorative and industrial segments with equal proficiency.
As of FY24, KNPL boasts an annual production capacity of 61 crore liters, with a strategic plan to scale up to approximately 70 crore liters by FY25. This growth trajectory is driven by the ongoing construction of a new manufacturing facility in Vishakhapatnam. Once completed, this unit will significantly boost the company’s overall production capacity and help meet the rising demand across its various product categories.
The company’s distribution network is extensive, with a strong presence in tier-2, tier-3, and rural areas, which collectively contribute to a significant portion of its revenue. However, KNPL is also keenly focused on expanding its footprint in tier-1 cities, where it sees substantial growth potential. Currently, approximately 55% of the company’s revenue is generated from the decorative segment, while the industrial segment contributes the remaining 45%. Within the industrial segment, the automotive industry is a key driver, accounting for over 70% of revenues.
Over the years, KNPL has diversified its offerings to include adhesives, construction chemicals, and waterproofing membranes. This diversification is not limited to product lines; the company has also expanded geographically. Today, it operates subsidiaries in Sri Lanka, Nepal, and Bangladesh, enhancing its market position in South Asia. With a robust clientele that includes major automotive manufacturers like Maruti Suzuki, Toyota Kirloskar, Tata Motors, and Mercedes Benz, KNPL is well-positioned to capitalize on future growth opportunities.
Product Portfolio and Market Segmentation
KNPL’s product range is diverse, catering to a wide array of needs across both the decorative and industrial segments. The company’s comprehensive product portfolio is designed to meet the varied demands of its clients, ranging from individual homeowners to large industrial entities.
Decorative Segment:
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- Interior and Exterior Paints: KNPL offers a wide range of paints for interior and exterior applications, including emulsions, enamels, and distempers. The company’s interior range is known for its rich textures and vibrant colors, while the exterior range provides durability and protection against harsh weather conditions.
- Designer Range: This includes premium paints that cater to high-end interior decoration needs. These products are designed for customers seeking a unique look for their homes or commercial spaces.
- Enamel and Wood Finishes: Specialized coatings designed to provide a smooth, long-lasting finish for wood and metal surfaces.
- Primers and Waterproofing Solutions: Products designed to prepare surfaces for painting and provide protection against water damage.
- Adhesives: KNPL’s range of adhesives is used in various construction and home improvement applications, ensuring strong bonding and durability.
Industrial Segment:
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- Automotive Coatings: KNPL’s automotive coatings are widely used in passenger vehicles, two-wheelers, three-wheelers, and commercial vehicles like tractors and trucks. The company is a market leader in this segment, supplying coatings to major Original Equipment Manufacturers (OEMs) across India.
- Performance Coatings: These coatings are used in a variety of industrial applications, including petroleum, chemicals, fertilizers, infrastructure projects, and railways. The products are designed to withstand harsh industrial environments and provide long-lasting protection.
- Powder Coatings: Applied to consumer durables like refrigerators, washing machines, and other electrical items, these coatings offer excellent durability and aesthetic appeal.
- Auto Refinish: KNPL’s auto refinish solutions are used for repainting and touch-up jobs on vehicles, ensuring a flawless finish that matches the original paintwork.
Financial Performance Analysis
Sales Growth: KNPL reported net sales of ₹7,801 crore in FY24, reflecting a 3.4% year-on-year (YoY) growth. This growth was driven primarily by strong demand in the automotive and performance coatings segments. The decorative segment, however, faced challenges due to severe weather conditions and a general economic slowdown that affected consumer spending.
Despite these headwinds, the decorative segment managed to maintain positive volume growth, supported by new product launches such as premium wood finishes and increased demand for construction chemicals and waterproofing solutions. These new business lines contributed approximately 10% to the segment’s overall growth.
In the automotive coatings segment, robust demand was witnessed, especially from the two-wheeler industry. On the other hand, the performance coatings segment experienced subdued demand due to delays in infrastructure projects, which impacted sales. Nonetheless, KNPL’s five-year compound annual growth rate (CAGR) remains healthy at 7.5%, showcasing steady performance over the years.
2. EBITDA Growth: EBITDA for FY24 stood at ₹1,028 crore, representing a 26% YoY increase. This growth can be attributed to softening raw material prices, which improved the company’s gross margins. Additionally, KNPL ramped up its advertising spend, particularly in the decorative segment, to boost brand visibility and support sales.
For Q1 FY25, EBITDA was ₹330 crore, a marginal YoY increase of 0.6%. This was despite a 16% rise in employee costs, reflecting the company’s commitment to maintaining operational efficiency and cost control in a challenging environment.
3. PAT Growth: Profit After Tax (PAT) for FY24 was reported at ₹1,176 crore, indicating a five-year CAGR of 21.3%. However, the YoY comparison is influenced by a one-time exceptional gain of ₹661 crore from the sale of land. Excluding this gain, the PAT margin remained stable, underscoring the company’s strong underlying profitability. In Q1 FY25, the PAT was ₹225 crore, further solidifying KNPL’s position as a consistently profitable entity.
Profitability and Operational Efficiency
1. EBITDA Margin: The EBITDA margin for FY24 increased to 13.2%, up by 171 basis points YoY. This improvement was due to a favorable product mix and a decline in raw material costs. In Q1 FY25, the EBITDA margin remained stable at 15.5%, highlighting the company’s strong pricing power and cost management strategies.
2. PAT Margin: Excluding the exceptional gain, KNPL’s PAT margin for FY24 stood at approximately 9%. For Q1 FY25, the PAT margin increased to 10.5%, showcasing the company’s ability to sustain profitability even in a competitive market.
3. ROCE and ROE: Return on Capital Employed (ROCE) reached 27% in FY24, while Return on Equity (ROE) was at 23%. Excluding exceptional items, the ROE would be around 14%, indicating strong profitability and efficient utilization of shareholder funds.
Solvency and Financial Stability
1. Debt to Equity Ratio: KNPL has maintained a conservative capital structure, with a debt to equity ratio of 0.02x as of FY24. The company’s long-term and short-term borrowings amounted to ₹15 crore and ₹106 crore, respectively, as of March 31, 2024.
2. Interest Coverage Ratio: The interest coverage ratio, which measures a company’s ability to meet its interest obligations, highlights KNPL’s strong financial position. The company’s interest coverage ratio remains healthy, indicating robust profitability and low leverage.
3. Current Ratio: With a current ratio of 3.12, KNPL has sufficient resources to cover its short-term liabilities. As of March 31, 2024, the company’s current assets included inventories worth ₹1,688 crore, trade receivables of ₹1,335 crore, and investments totaling ₹1,323 crore.
Valuation and Shareholder Returns
1. Price to Earnings (P/E) Ratio: As of the latest fiscal year, KNPL was trading at a trailing twelve-month (TTM) P/E ratio of 35.87x. This relatively high P/E ratio reflects strong investor confidence in the company’s growth prospects, driven by its leadership in the automotive paints industry and its strong presence in the decorative segment.
2. Dividend Yield: The board of directors declared a total dividend of ₹3.75 per equity share for FY24, which includes a special dividend of ₹1.25 per share. This represents a dividend payout ratio of 26%, providing consistent returns to shareholders.
3. Key Levels: KNPL’s share price has shown strong support between ₹240 and ₹260, making it a favorable zone for long-term investors. The stock reached a lifetime high of ₹453 in January 2021, demonstrating its potential for capital appreciation.
Sector Potential and Competitive Landscape
The Indian paint industry, valued at over ₹80,000 crore, comprises two major segments: decorative and industrial paints. Approximately 75% of the demand comes from architectural paints, while industrial paints contribute the remaining 25%. The automotive sector remains a significant driver of demand in the industrial segment.
India’s per capita paint consumption is steadily increasing, driven by rising incomes, urbanization, and a growing middle class. However, the current level is still below the global average, suggesting significant growth potential for the future.
KNPL holds a leading position in the automotive paints segment, with a market share of around 70%. The company’s recent forays into new segments, such as electric vehicle (EV) coatings and infrastructure-related coatings, have further strengthened its market presence and diversified its revenue streams.
Management and Shareholding Pattern
KNPL’s leadership is spearheaded by Mr. Anuj Jain, who was appointed as Managing Director for a five-year term beginning April 1, 2022. Ms. Sonia Singh, an independent director, was reappointed for a second term starting July 29, 2022. These appointments reflect the company’s commitment to maintaining strong corporate governance and leadership stability.
As of Q1 FY25, the promoter’s shareholding remained steady at 74.99%. Foreign Institutional Investors (FIIs) increased their stake to 5.09%, while Domestic Institutional Investors (DIIs) saw a slight decrease in their holdings to 10.74%.
Future Outlook and Strategic Initiatives
KNPL’s strategic focus remains on expanding its production capacity, enhancing its product portfolio, and increasing its presence in tier-1 cities. The company is also investing significantly in research and development to improve its product offerings and cater to emerging segments like electric vehicle coatings.
In the coming years, KNPL aims to capitalize on the growth of India’s infrastructure and the rising consumer demand for premium decorative paints. With a solid balance sheet, a clear growth roadmap, and a commitment to innovation, KNPL is well-positioned to capture a larger share of both the Indian and international paint markets.
Conclusion
Kansai Nerolac Paints Limited has consistently demonstrated growth and profitability, supported by a diversified product portfolio, strong industry relationships, and a strategic focus on expansion. The company’s solid financial position and emphasis on innovation and quality make it a compelling choice for long-term investors.
With a comprehensive product range catering to both the decorative and industrial segments, a strong presence in key markets, and continued investment in capacity expansion and product innovation, KNPL is poised for sustainable growth in the years to come. As the Indian paint industry continues to evolve, KNPL’s strategic initiatives and robust operational capabilities will play a crucial role in maintaining its leadership position and driving further value creation for its shareholders.
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