KANSAINER - Kansai Nerolac Paints Share Price

During the investor meet on May 7, 2025, Kansai Nerolac Paints Limited's management provided an optimistic outlook despite the ongoing challenges in the paint industry. Key points from the discussion highlighted that while the decorative segment has faced competitive stress and demand fluctuations, there has been a recent slight improvement indicating a growth trajectory.

Management outlined specific financial expectations moving forward:

• The revenue growth for Q4 was reported at 4.7%, while for the entire fiscal year ended in March 2025, standalone revenue growth stood at 1.4%.
• For consolidated results, net revenue increased by 2.7% for the quarter and by 0.3% for the year.
• The company's EBITDA margin guidance is maintained between 13-14%, indicating stable profitability.

Looking ahead, the management highlighted several forward-looking points:

• Rural demand is projected to remain robust, supporting the growth in decorative paints.
• An expected increase in construction activities is anticipated to benefit the industry overall.
• The automotive sector is showing promising signs, with growth expected in passenger vehicles and two-wheelers due to strong momentum.
• Concrete action plans are in place to enhance industrial segment performance, with improvement in product premiumization as a critical strategy.

Overall, management remains confident about sustaining growth, particularly in the industrial segment, while managing competitive pressures in the decorative category. The company's commitment to innovation remains strong, with over 20 new products launched in the past year and a focus on improving profit margins through operational efficiencies and premium offerings.

1. Question: "If I were to look at the company's performance on EBITDA margin front for the last, say, from 2019 onwards, we have seen EBITDA margin contract by almost about 100 basis points from 19 to 25. Can you qualitatively give us a sense on where has this margin expansion been sharper, especially as we focus on growing more through industrial?"

   Answer: "The contraction has primarily been driven by raw material inflation from 2019 to 2022, hampering our ability to pass costs through to industrial margins. While decorative margins saw increased investment in advertising and workforce to maintain market share, the recent years have improved our margin profile. Going forward, I believe our industrial sector growth will benefit from premiumization and increased demand for high-quality performance coatings, which should gradually improve margins."

2. Question: "Is decorative margin more than 100 and industrial less than 100 or is it equal? If you focus more on industrial, does that change the margin dynamics?"

   Answer: "We expect our EBITDA margin guidance to remain at 13-14% for the current year. Both decorative and industrial sectors are facing pressures but they will adjust as we begin to stabilize investments in our operations. The industrial focus should indeed alter margin dynamics positively in the longer term, allowing for better performance as we leverage growth opportunities."

3. Question: "As far as decorative is concerned, looking at quarters 3 and 4, what growth expectations do you foresee for the second half?"

   Answer: "I anticipate that decorative growth will improve in the second half due to better rural demand and favorable monsoon predictions. This growth is also supported by government incentives, though competition remains fierce. By the second half, we expect to see a more positive trend compared to the first half of the year."

4. Question: "Is there any margin divergence between two-wheelers versus four-wheelers?"

   Answer: "No, we do not see a significant margin divergence between two-wheelers and four-wheelers. Our strategies are consistent across both segments to maximize profitability."

5. Question: "How do you see the participation and market strategy with the entry of competitors like Aditya Birla and JSW Paints?"

   Answer: "While new competition may increase brand awareness, our established legacy and stronghold in key markets help us maintain recognition. Our strategy adapts by enhancing digital marketing and targeted advertising. We'll focus on retaining market share in our strong regions and continue innovating to stay competitive."

6. Question: "Could you elaborate on the challenges with subsidiary performance?"

   Answer: "Our subsidiaries in Sri Lanka and Bangladesh are currently facing local challenges affecting performance. However, we're experiencing better results in Nepal, and we've revamped domestic operations to ensure improved future performance. We expect substantial progress in the year ahead."

7. Question: "What kind of volume growth can we expect for Q1 and Q2?"

   Answer: "For Q4, we estimate mid-single-digit volume growth. This trajectory should continue similarly into Q1 and Q2, supported by improving demand conditions."

8. Question: "Given the correction in crude oil prices, what benefits can we expect for our gross margins?"

   Answer: "For the benefit from recent crude corrections to manifest, it needs to be sustained. Immediate inventory and contract impacts mean we can't gauge benefits until the situation stabilizes, but we expect to retain some margin from industrial segments, while decorative will see direct pass-through."

9. Question: "Given the new capacity in southern India, do you plan to target market share in that region?"

   Answer: "Yes, our expansion in Vizag aims to service Andhra and Telangana. With our Kanpur plant saturating, it's essential to establish a presence in southern markets, allowing us to better meet local demand and reduce transportation costs."

10. Question: "Can you comment on the growth prospects for the unorganized segment in the paint industry?"

    Answer: "The unorganized sector has shrunk over the years, particularly in markets with higher capital demands and post-GST challenges. While some niche markets still thrive, as organized players penetrate rural areas, they undoubtedly lose market share. However, precise quantification is challenging due to the lack of systematic data."