Kansai Nerolac shines as rising auto demand boosts paintmaker's profitability

Kansai Nerolac's managing director (MD) Anuj Jain said that the paint firm benefited from a revival in the auto sector despite inflation.

“This quarter saw a healthy demand for both decorative and industrial paints. There has been a revival in industrial, led by increased demand in automotive due to the gradual easing of the chip shortages. While inflationary trend continued, towards the end of the quarter, there has been some softening of input prices for crude-based items which are yet to be reflected in derivative," Jain said in a company statement.

Like rival Asian Paints and Berger Paints, Kansai Nerolac also raised prices in the decorative and industrial segments amid a sharp depreciation in the rupee.

"We hiked prices in decorative and industrial segments during the quarter and are in continued discussion with original equipment manufacturer customers for a further price increase," Jain added.

The industrial and automotive segment constitutes about 45 percent of its revenue, while the rest 55 percent of sales are in the decorative segment.

Macquarie has raised the target on Kansai Nerolac to Rs 470 apiece and raised FY23/24/25E earnings per share by 15 percent each to factor in strong sales momentum and likely margin expansion from price hikes.

The global brokerage firm, however, noted that the entry of Grasim into the paint market remains a concern.

Additionally, Kansai Nerolac's plan to invest Rs 130 crore for capacity expansion at Jainpur plant in Punjab also aided the sentiment in the stock.

At 9.42 am, Kansai Nerolac share price was quoted at Rs 483.60 on BSE, still up nearly 10.5 percent. The day's high came in at Rs 489. The stock has gained 22 percent in the last two trading sessions.