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.
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.
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.
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