KANSAINER - Kansai Nerolac Paints Share Price

Management provided an optimistic outlook for the upcoming quarters, expecting improvements driven by seasonal factors and a resurgence in demand. Specifically, for Q2 FY '26, they anticipate better performance in the decorative segment due to the timing of the Diwali festival, which is earlier than last year. Management noted that construction activities showed positive signs in June, which could bolster this segment, and predicted that August and September might outperform the prior year.

In the automotive sector, management projected that demand for 2-wheelers and passenger vehicles would remain stable, while tractor segments are expected to perform well due to favorable monsoon conditions. Overall, they foresee contributions from both the auto and industrial segments, as well as a resurgence in decorative products.

Management highlighted several forward-looking points:

• The Paint+ product range continues to gain traction, now contributing over 12% to total sales.
• They successfully launched new products, contributing 10% to the decorative segment and bolstering their competitive edge.
• Expansion efforts resulted in a mid-single-digit growth in their direct dealer network, reaching over 30,000 dealers.
• The company's EBITDA margin is projected to stabilize at around 13-14% for FY '26, with goals to enhance margins due to a shift towards premium offerings.
• They communicated awareness regarding geopolitical tensions that might impact supply chains and commodity prices but remain hopeful for steady growth.

In terms of financials, total revenue growth for the standalone business was reported at 1.8%, with an EBITDA decline of 6.7%. Consolidated numbers reflected a 1.4% revenue growth and an EBITDA drop of 8%.

Major Q&A from Kansai Nerolac Q1 FY '26 Earnings Call

1. Question: What is the volume growth in deco for the quarter? And what is the growth in auto and non-auto industrials on a value basis?

   Answer: As for volume in decorative, it was almost flat this quarter. In terms of industrials, we experienced a higher single-digit growth, which reflects the demand we're seeing in that segment.

2. Question: What are your thoughts on network expansion and its growth being mid-single digits? Have you lost any dealers or tinting machines?

   Answer: Network expansion in direct dealers was mid-single digit, but we added a higher double-digit sub-dealer network through distribution initiatives. We are cautious about growing our network and haven't lost any CCDs; in fact, many dealers are returning as they reinstate their confidence in our brand.

3. Question: On industrial growth, can you provide guidance on auto and non-auto growth numbers and margins?

   Answer: We expect mid-single-digit growth in the auto segment and higher single-digit to double-digit growth in non-auto industrials. Margin improvement is expected as we focus on premiumization and innovative products.

4. Question: Can you elaborate on ESG initiatives and capital allocation for the upcoming years?

   Answer: We are enhancing our capital expenditure on green energy projects, particularly solar and wind. We're currently water positive and anticipate further investment to enhance our sustainability profile.

5. Question: Bangladesh reported a loss of INR 11.9 crores. Which geographies contributed to this loss?

   Answer: The majority of our losses stem from our operations in Bangladesh, which have been challenging due to the economic environment affecting discretionary spending in the paint segment.

6. Question: How are you viewing the recent changes in margins with respect to raw material cost pressures?

   Answer: We maintain a pass-through policy for raw material costs and aim to protect our margins. Currently, we're facing modest inflation from titanium dioxide, only around 1% to 1.3% for decorative products.

7. Question: Given the rising competition, how do you plan to maintain market share?

   Answer: We focus on enhancing product offerings rather than engaging in price wars. Our strategy includes leveraging premium products to protect margins and market share despite competitive pressures.

8. Question: Can you comment on the regional performance, specifically in North, East, and South India?

   Answer: North and East are performing well, while South remains a challenge due to competition. Despite temporary disruptions in projects, we expect a rebound in growth as conditions stabilize.

9. Question: Are dealers returning from the competition, and what factors are influencing this trend?

   Answer: Yes, dealers are coming back, mainly due to dissatisfaction with short-term gains from competitors. They're realizing that sustained profitability is better with Nerolac based on brand strength.

10. Question: Do you foresee any significant disruptions from rare earth shortages affecting the automotive sector?

    Answer: At this point, we don't anticipate major disruptions. However, there may be minor impacts on EV production, which currently represents a small portion of our overall output.