Please Share:: 
Kansai Nerolac Target- |2396
• KNL is the biggest industrial paint company in India with ~35%
market share in industrial paints and third largest player with an
overall market share 14%. With sustainable growth in decorative
paints and subdued industrial demand, KNL has increased its
revenue contribution of decorative paints from 50% in FY09 to
55% currently. KNL has strong brands in interior, exterior and
metal paints like Impressions, Excel, Surkasha, etc. and continues
to invest in brands with 4-5% of sales going into A&P. We believe
decorative paints would continue to grow strongly with the
presence of limited players and strong repainting demand. We
expect a revival in industrial paints demand (75% automotive
paints), led by a recovery in automotive segments. We expect
blended volume growth of 14.1% and 15.5% YoY in FY16E and
FY17E, respectively
• Despite the company consciously increasing its decorative paints
contribution to 55% of sales from 50%, we believe the stock is
still trading at a discount to Asian Paints. With improving margins
and better return ratios, we believe the discount to Asian Paints
would shrink and the stock would command a premium to its
historic average of 22x. Further, we expect industrial and
decorative volume growth of 16% and 15% YoY, respectively, in
FY17E resulting in revenue CAGR of 19.3% in FY14-17E.
Moreover, stable raw material prices are expected to lead to an
expansion in operating margins by 250 bps by FY17E over FY14.
At the CMP, the stock is trading at 27.4x its FY16E earnings and
22.2x its FY17E earnings. We value the stock on 28x multiple to
arrive at a target price of | 2396/share
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
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Kansai Nerolac Target- |2396
• KNL is the biggest industrial paint company in India with ~35%
market share in industrial paints and third largest player with an
overall market share 14%. With sustainable growth in decorative
paints and subdued industrial demand, KNL has increased its
revenue contribution of decorative paints from 50% in FY09 to
55% currently. KNL has strong brands in interior, exterior and
metal paints like Impressions, Excel, Surkasha, etc. and continues
to invest in brands with 4-5% of sales going into A&P. We believe
decorative paints would continue to grow strongly with the
presence of limited players and strong repainting demand. We
expect a revival in industrial paints demand (75% automotive
paints), led by a recovery in automotive segments. We expect
blended volume growth of 14.1% and 15.5% YoY in FY16E and
FY17E, respectively
• Despite the company consciously increasing its decorative paints
contribution to 55% of sales from 50%, we believe the stock is
still trading at a discount to Asian Paints. With improving margins
and better return ratios, we believe the discount to Asian Paints
would shrink and the stock would command a premium to its
historic average of 22x. Further, we expect industrial and
decorative volume growth of 16% and 15% YoY, respectively, in
FY17E resulting in revenue CAGR of 19.3% in FY14-17E.
Moreover, stable raw material prices are expected to lead to an
expansion in operating margins by 250 bps by FY17E over FY14.
At the CMP, the stock is trading at 27.4x its FY16E earnings and
22.2x its FY17E earnings. We value the stock on 28x multiple to
arrive at a target price of | 2396/share
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
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