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Higher raw material costs dampen margin…
Kansai Nerolac’s Q4FY11 results were below our expectations on the
back of volume growth that was leaner than expected. The company’s
topline grew ~24% YoY to | 520.5 crore vs. | 420.9 crore in Q4FY10.
Though the company took several price hikes during the year (~12.5%
YTD), the proportionate increase in raw material costs (~14% YTD)
remained higher, hence pulling down margins to the lowest in the last
eight quarters at 11.3%. Margin pressure continued to strain its
bottomline also and it declined by ~| 3 crore to | 33.5 crore against |
36.3 crore in the corresponding quarter last year.
Highlights of the quarter
During the quarter, the company divested its stake in its associate
company, Nipa Chemicals Limited, for a consideration of | 25.7 crore.
Hence, its adjusted net profit was higher and stood at | 58.9 crore.
Raw material costs at all-time high
Kansai’s margins for the quarter have been the lowest in the past two
years. With crude prices (crude derivatives PAN and PENTA are the major
raw materials) reigning at ~$120/bbl and the shortage of titanium dioxide
that is constantly driving up its prices, the company’s raw material costs
surged ~600 bps to 67% of sales compared to 61% of sales in Q4FY10.
However, the management has indicated that these should soften by
H2FY12 providing some relief to margins in FY12-13E.
Valuation
At the CMP of | 857, the stock is trading at 22x and 19x its FY12 and FY13
estimated EPS of | 39.8 and | 44.5, respectively. With a slowdown
expected in auto sales, we believe Kansai’s topline growth would remain
staggered. However, there could be a slight improvement in the margins
as commodity prices soften. We value the stock at 20x its FY13E EPS of |
44.5 assigning the stock a HOLD rating with a target price of | 890.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Higher raw material costs dampen margin…
Kansai Nerolac’s Q4FY11 results were below our expectations on the
back of volume growth that was leaner than expected. The company’s
topline grew ~24% YoY to | 520.5 crore vs. | 420.9 crore in Q4FY10.
Though the company took several price hikes during the year (~12.5%
YTD), the proportionate increase in raw material costs (~14% YTD)
remained higher, hence pulling down margins to the lowest in the last
eight quarters at 11.3%. Margin pressure continued to strain its
bottomline also and it declined by ~| 3 crore to | 33.5 crore against |
36.3 crore in the corresponding quarter last year.
Highlights of the quarter
During the quarter, the company divested its stake in its associate
company, Nipa Chemicals Limited, for a consideration of | 25.7 crore.
Hence, its adjusted net profit was higher and stood at | 58.9 crore.
Raw material costs at all-time high
Kansai’s margins for the quarter have been the lowest in the past two
years. With crude prices (crude derivatives PAN and PENTA are the major
raw materials) reigning at ~$120/bbl and the shortage of titanium dioxide
that is constantly driving up its prices, the company’s raw material costs
surged ~600 bps to 67% of sales compared to 61% of sales in Q4FY10.
However, the management has indicated that these should soften by
H2FY12 providing some relief to margins in FY12-13E.
Valuation
At the CMP of | 857, the stock is trading at 22x and 19x its FY12 and FY13
estimated EPS of | 39.8 and | 44.5, respectively. With a slowdown
expected in auto sales, we believe Kansai’s topline growth would remain
staggered. However, there could be a slight improvement in the margins
as commodity prices soften. We value the stock at 20x its FY13E EPS of |
44.5 assigning the stock a HOLD rating with a target price of | 890.
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