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M a r g i n s u n d e r p r e s s u r e …
Kansai Nerolac reported its Q3FY12 results with net sales growing by
18.8% to | 665.5 crore from | 560.1 crore in the corresponding quarter
led by decent volume growth and moderate price hikes. The volume
growth was mainly contributed by decorative paints. Raw material cost
(as percentage of sales) increased to 66.4% compare to 67% due to
continuous increase in titanium dioxide prices. Simultaneously, crude
based derivative also remained higher further aggravating pressure on
margins. Higher EBITDA led to net profit growth of 26.7% to | 52.7 crore
compared to | 41.6 crore in Q3FY11.
Operational performance
The company has witnessed strong growth in the decorative segment on
the back of repainting demand led by high festive season dispatches.
However, automotive paints demand has witnessed slower growth due to
muted passenger vehicle growth. With automobile sales witnessing
slower sale of 5.0 million vehicles in Q3FY12 compared to 5.1 million
vehicles in Q2FY12, a slowdown in industries paints demand is evident.
We believe demand for decorative paints would also be subdued in
Q4FY12 and Q1FY13 as housing sales demand have taken a beating.
However, any interest rate cuts can result in a revival in demand for new
housing and automobiles and, hence, volume growth for paints.
Valuation
At the CMP, the stock is trading at 20.1x and 18.0x its FY12 and FY13
estimated EPS of | 43.1 and | 48.3, respectively. With the slowdown in
automobile sales and considering automotive paints constitutes biggest
chuck of the sales for the company, we believe volume sales growth in
the coming quarters would be weak. Simultaneously, rising commodity
prices of crude oil and titanium dioxide would keep the margins under
pressure. Given, margins pressure in the near term, we have valued the
stock at a 20% discount to market leader Asian Paints at 21x its FY13E
EPS and assigned it a BUY rating with a target price of | 1016.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
M a r g i n s u n d e r p r e s s u r e …
Kansai Nerolac reported its Q3FY12 results with net sales growing by
18.8% to | 665.5 crore from | 560.1 crore in the corresponding quarter
led by decent volume growth and moderate price hikes. The volume
growth was mainly contributed by decorative paints. Raw material cost
(as percentage of sales) increased to 66.4% compare to 67% due to
continuous increase in titanium dioxide prices. Simultaneously, crude
based derivative also remained higher further aggravating pressure on
margins. Higher EBITDA led to net profit growth of 26.7% to | 52.7 crore
compared to | 41.6 crore in Q3FY11.
Operational performance
The company has witnessed strong growth in the decorative segment on
the back of repainting demand led by high festive season dispatches.
However, automotive paints demand has witnessed slower growth due to
muted passenger vehicle growth. With automobile sales witnessing
slower sale of 5.0 million vehicles in Q3FY12 compared to 5.1 million
vehicles in Q2FY12, a slowdown in industries paints demand is evident.
We believe demand for decorative paints would also be subdued in
Q4FY12 and Q1FY13 as housing sales demand have taken a beating.
However, any interest rate cuts can result in a revival in demand for new
housing and automobiles and, hence, volume growth for paints.
Valuation
At the CMP, the stock is trading at 20.1x and 18.0x its FY12 and FY13
estimated EPS of | 43.1 and | 48.3, respectively. With the slowdown in
automobile sales and considering automotive paints constitutes biggest
chuck of the sales for the company, we believe volume sales growth in
the coming quarters would be weak. Simultaneously, rising commodity
prices of crude oil and titanium dioxide would keep the margins under
pressure. Given, margins pressure in the near term, we have valued the
stock at a 20% discount to market leader Asian Paints at 21x its FY13E
EPS and assigned it a BUY rating with a target price of | 1016.
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