KANSAINER - Kansai Nerolac Paints Share Price

The management of Kansai Nerolac Paints Ltd provided an optimistic outlook for the company's future, emphasizing India's strategic significance as a key growth market. They aim to double their growth ambitions driven by three pillars: Automotive, Industrial, and Decorative segments, targeting a long-term growth rate of 10% annually with an EBITDA margin of 14% to 15% over the next 2-3 years, ultimately aspiring to reach 18%.

For the short-term, the management has set an annual EBITDA margin growth target of approximately 9% amidst a slightly softening market. They outlined strategic plans to solidify their leadership in the automotive sector and achieve the number one position in industrial coatings. The management anticipates India's GDP growth to remain robust at around 6%-7%, with the coatings market expected to surpass global averages.

Key financial targets include:

• Long-term aspiration: 10% annual growth rate.
• Near-term EBITDA margin goal: 14%-15% in 2-3 years, aiming for 18% thereafter.
• Short-term annual margin growth: approx. 9%.

Management also highlighted strategic investments and expansions in industrial coatings and the automotive segment, leveraging technological advancements and a focus on premiumization. Moreover, they plan to enhance operational efficiency through improved resource allocation and digital transformation.

Overall, the leadership team is confident in navigating competitive pressures and believes that investments in premium segments and strategic reinforcements will sustain consistent growth and profitability in the evolving market landscape.

Here are the major questions asked during the Q&A session along with detailed answers:

1. Nishiyama San - Citigroup Securities: "What is your evaluation of the competitive landscape? Please elaborate further."

I appreciate your question. Competition is ever-present, and while new players may emerge, we hold the number one position in auto and powder for over three decades. Our group's homogenization under "One Kansai" gives us a unique advantage in premiumization, with robust access to global resources. As India's economy matures, we're well-positioned to meet the premium demands emerging from the industrial space. Despite potential new entrants, our extensive R&D and customer service strength prepare us to tackle competition effectively.

2. Nishiyama San - Citigroup Securities: "What market share do you hope to achieve in the Decorative sector in three years?"

The Decorative segment currently faces intensified competition. However, we anticipate that this competition will stabilize over time. Given Nerolac's legacy and our market connections, we foresee significant growth opportunities in project segments, construction chemicals, and wood finishes, which will help us maintain our market position. Our immediate goal is to stabilize our share in retail while investing in areas where we're competitive, preparing for market growth once conditions normalize.

3. Obina San - UBS Securities: "How are you thinking about the growth rate in terms of price and volume in each segment?"

In Decorative, we face downtrading driven by urban pressures, affecting volume growth. However, I expect value and volume to align going forward. For Industrial, our strategy leans toward premiumization, resulting in higher value growth than volume. The Automotive sector is anticipated to maintain a steady growth rate. Overall, we're focusing on optimizing our product lines toward higher value offers, especially in Decorative through emulsions and premiumization strategies.

4. Nikita San - Goldman Sachs Securities: "Is there any focus on spinning off Decorative paint to focus on auto and industrial coatings?"

Currently, we see significant potential in the Decorative market, particularly as India's per capita consumption is considerably lower than the global average. Competition is likely to stabilize and return to historical growth rates. Our focus remains on leveraging our strengths while enhancing Decorative's potential. Therefore, we see no reason to contemplate a spin-off at this time, as the segment continues to be strategic for our overall growth.

5. Yoshida San - Mizuho Securities: "Are you considering M&A for the Industrial segment? What is your timeline?"

We aim for M&A in the Industrial segment as a priority, while the focus on Decorative and Auto remains low. We're currently assessing potential partners to fulfill synergies and gaps. Our intention is not to forcibly acquire for sales growth, but to enhance Nerolac's value through strategic partnerships. While we have multiple contacts for promising opportunities, specifics on size or timeline are still under study. Our outlook remains flexible depending on the fit of potential partners.

6. Avi San - Macquarie: "Should we expect higher volatility in margin profiles given your focus on industrial segments?"

Historically, margins in Industrial are more volatile, but we're transitioning from low-value items to premium products. Our exit from unprofitable SKUs positions us well, hence we anticipate our industrial margins to improve steadily. As for reaching our target margin of 14-15% in the next 2-3 years, we have planned various initiatives, including cost optimization and leveraging global sourcing benefits, which collectively should support our margin expansion plans.

7. Aditya San - Participant: "Why do you feel that margins could come under pressure despite your KPIs showing improvement?"

The margin pressures we identify primarily stem from short-term competitive challenges within the Decorative segment. Given that the entire industry has faced margin reductions, we project these challenges to be temporary. Our focus will remain on targeted markets to maximize efficiency. We believe that, supported by our ongoing operational efficiency programs, overall margins can still meet the estimated targets in the midterm while navigating these short-term pressures effectively.

These responses provide an insight into Kansai Nerolac's strategy and expectations within a dynamic market landscape.