Kansai Nerolac hits 52-week low, falls 17% in February on weak Q3 results

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Shares of hit a 52-week low of Rs 468.85, down 3 per cent on the BSE in Wednesday’s intra-day trade due to weak demand. The stock of the paint company fell below its previous low of Rs 470.75 hit on February 14, 2022.

Thus far in the month of February, the stock has declined 17 per cent after the company reported a 34.7 per cent year-on-year (YoY) de-growth in profit after tax (PAT) at Rs 132 crore due to lower industrial volume offtake and delay in passing of higher raw material prices and higher operational cost.

Net revenue from operations grew 13 per cent YoY at Rs 1,694 crore, and were largely driven by decorative paint segment. However, industrial paint demand remained weak.

Sharp rise in raw material prices and delay in passing on the same dragged gross & earnings before interest tax and depreciation and amortization (EBITDA) margin down by 710 bps and 721 bps YoY, respectively.

The management had said the quarter witnessed a good demand for decoratives. In Auto, demand was muted on account of the semi-conductor chips shortages. On raw material costs, the quarter continued to witness inflationary pressures along with volatility in crude and exchange rates. Supply chain tightness also continued during the quarter and the company has not been able to encash the full benefit of demand, it said.

The good growth in infrastructure, core sector as well as automobile and real estate is likely to have a positive effect on the overall demand of paint for the industry in the long run, the company said.

Analysts at ICICI Securities believe the decorative paint sector will continue to grow 2x of GDP growth considering shortening of repainting cycle, growing urbanisation and increased distribution reach of organised players.

The revival in passenger vehicle sales and strong demand momentum in industrial paints would help in a recovery in 45 per cent of Kansai Nerolac’s revenue portfolio. The focus on improving product mix towards premium products would help drive profitability going forward, the brokerage said.

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