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In for a shiny coat: Kansai Nerolac to be a major beneficiary of the expected auto sector revival

Kansai Nerolac has started passing on the reduction in raw material cost to the consumers and this has helped the company increase its sales volume.

, ET Bureau|
Updated: Jun 15, 2015, 08.39 AM IST
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Kansai Nerolac has started passing on the reduction in raw material cost to the consumers and this has helped the company increase its sales volume. 
Kansai Nerolac has started passing on the reduction in raw material cost to the consumers and this has helped the company increase its sales volume. 
Kansai Nerolac Paints reported lacklustre numbers for the fourth quarter of 2014-15. Though its net profit grew 35 per cent compared to the same period last year, it fell 8 per cent compared to the preceding quarter.

Kansai Nerolac has started passing on the reduction in raw material cost to the consumers and this has helped the company increase its sales volume. Consequently, the company’s quarterly top line grew 8 per cent year-on-year. Since the impact of fall in crude prices was fully realised in the last quarter, there was improvement on the operating margin front as well.

The country’s third-largest paint company with a 14 per cent marketshare, and the largest industrial paint company with around 35 per cent marketshare, Kansai Nerolac will be the major beneficiary of a pick-up in industrial demand. The company has a strong client base of automobile OEMs (original equipment manufacturers)— led by Maruti Suzuki—and, therefore, is best-placed among the paint companies to ride on the cyclical recovery in the automobile sector. Kansai Nerolac is a subsidiary of Japanese company Kansai Paints, a world-leading automotive coatings company, and the technical support from the parent and strong relationships with key auto customers provide it with a competitive advantage. In addition to the pent up demand in the auto sector, the expected improvement in the infrastructure cycle, over the next three years, should also help the company.

In for a shiny coat: Kansai Nerolac to be a major beneficiary of the expected auto sector revival

Analysts are getting bullish on the counter mostly because of the expected industrial revival.

During the last few years, while there was sustainable growth in the decorative paints segment, industrial demand remained subdued. To compensate this, Kansai Nerolac has taken steps to increase its reach in the decorative paints segment. New product launches and increased advertising has also yielded results for the company. For example, the contribution of decorative paints to Kansai Nerolac’s sales has gone up from 50 per cent in 2008-09 to 55 per cent in 2014-15. With continued investment in brand promotion—around 5 per cent of the sales go towards advertising and other promotional activities—the decorative paints segment should grow strongly in the coming years. Kansai Nerolac has started reducing prices slowly and this should also help it increase the sales in the decorative segment.

In for a shiny coat: Kansai Nerolac to be a major beneficiary of the expected auto sector revival

Selection Methodology: We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts. You can see similar consensus analyst rating changes during the past week in the ETW 50 table.

In for a shiny coat: Kansai Nerolac to be a major beneficiary of the expected auto sector revival
In for a shiny coat: Kansai Nerolac to be a major beneficiary of the expected auto sector revival


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