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Kansai Nerolac - Margin pressure to prevail…
Kansai Nerolac reported its Q3FY11 results. The topline was in line with
our estimates witnessing growth of ~33% (27% volume growth) to |
560.1 crore against | 420.9 crore in Q3FY10. The higher raw material
costs continued to pressurise the margins that dipped by 220 bps to
12.2% from 14.4% in Q3FY10. Margin pressure continued to drag the
net profit margins also that, consequently, slipped by ~162 bps to 7.4%
(| 41.6 crore) from 8.6% (| 36.3 crore) in Q3FY10. Though the company
managed to pass on 80% of the hike in raw material prices for the
decorative business (50% of sales), passing on the costs to industrial
customers (50% of sales) was difficult. Hence, the earnings remained
staggered during the quarter.
ƒ Raw material cost concerns
Raw material costs for the quarter were up by ~530 bps to 66.4% of
net sales (| 371.8 crore) against 61.1% of net sales (| 257.3 crore) in
Q3FY10. Though the company took calibrated price hikes of ~10%
(YTD), raw material costs were higher by ~12%. Hence, earnings
could not be insulated completely. Moreover, with crude trading at
~$90/barrel, we believe higher raw material (crude based
derivatives Pan and Penta) costs would continue to remain a
concern. Also, Q3FY11 being a festive quarter higher sales by 33%
YoY seems fair. However, the momentum would slow down in the
coming quarters.
Valuation
At the CMP of | 891, the stock is trading at 26.9x its FY11E EPS of | 33.1
and 18.1x its FY12E EPS of | 40.4. We believe that strong automotive
demand would continue to drive industrial paints sales. However,
demand for decorative paints would remain moderate. Also, margins
would remain low as higher costs would be passed on (through price
hikes) only partially led by tough competition in the industrial paints
segment. Hence, we have valued the stock at 22x its FY12E EPS of | 40.4
and assigned a target price of | 886 with a REDUCE rating
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Kansai Nerolac - Margin pressure to prevail…
Kansai Nerolac reported its Q3FY11 results. The topline was in line with
our estimates witnessing growth of ~33% (27% volume growth) to |
560.1 crore against | 420.9 crore in Q3FY10. The higher raw material
costs continued to pressurise the margins that dipped by 220 bps to
12.2% from 14.4% in Q3FY10. Margin pressure continued to drag the
net profit margins also that, consequently, slipped by ~162 bps to 7.4%
(| 41.6 crore) from 8.6% (| 36.3 crore) in Q3FY10. Though the company
managed to pass on 80% of the hike in raw material prices for the
decorative business (50% of sales), passing on the costs to industrial
customers (50% of sales) was difficult. Hence, the earnings remained
staggered during the quarter.
ƒ Raw material cost concerns
Raw material costs for the quarter were up by ~530 bps to 66.4% of
net sales (| 371.8 crore) against 61.1% of net sales (| 257.3 crore) in
Q3FY10. Though the company took calibrated price hikes of ~10%
(YTD), raw material costs were higher by ~12%. Hence, earnings
could not be insulated completely. Moreover, with crude trading at
~$90/barrel, we believe higher raw material (crude based
derivatives Pan and Penta) costs would continue to remain a
concern. Also, Q3FY11 being a festive quarter higher sales by 33%
YoY seems fair. However, the momentum would slow down in the
coming quarters.
Valuation
At the CMP of | 891, the stock is trading at 26.9x its FY11E EPS of | 33.1
and 18.1x its FY12E EPS of | 40.4. We believe that strong automotive
demand would continue to drive industrial paints sales. However,
demand for decorative paints would remain moderate. Also, margins
would remain low as higher costs would be passed on (through price
hikes) only partially led by tough competition in the industrial paints
segment. Hence, we have valued the stock at 22x its FY12E EPS of | 40.4
and assigned a target price of | 886 with a REDUCE rating
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