Kansai Nerolac’s consolidated performance was significantly better than our estimates, as the sequential moderation in margins due to seasonality was limited to just a 100 bps vs much higher levels in the past. Revenue of Rs 19,537 mn grew by 7.5% YoY (-1.4% QoQ) and was 1.3% better than estimated. EBITDA margin was at 11.1% (+196 bps YoY/ -101 bps QoQ) vs. our estimate of 8.8%, reflecting an outperformance of 229 bps. EBITDA grew by 30.6% YoY (-9.7% QoQ) to Rs 2,165 mn, a significant 28% better than estimated. Sequential dip in margins due to seasonality was limited due to better fixed cost absorption and better mix across both industrial and deco segments. Reported PAT was impacted by exceptional items related to fire incident in UP warehouse and impairment of goodwill for the Bangladesh subsidiary. Adj. PAT grew by 15.3% YoY (-18.7% QoQ) to Rs 1,251 mn, and was 19% better than estimated.
Demand improvement sustains in both the deco and industrial segments
The industrial segment benefited from the sustained demand in the auto sector, leading to close to double-digit growth. With good traction also witnessed in liquid performance coatings and powder coatings, overall industrial paint growth was in high single digits. Deco volume and value growth were slightly lower than mid single digits. This is an improvement over flat deco volume and revenue in Q3FY26. Post several rounds of price actions taken in March and April, management has seen continued demand traction.
Improved mix and better scale lead to a resilient margin
Q4 generally sees a sequential margin hit due to an adverse mix tilted towards the industrial segment. This time around, the dip was restricted to 100 bps QoQ, in part due to better volumes, and in part due to better mix across both deco and industrial segments. Focus on premium products has continued.
Pricing actions are largely done if crude stays around USD 100/barrel.
Overall price increase to the tune of high single digits has been implemented in the deco business. While industrial negotiations come with a lag, several auto OEMs have already granted price hikes. Management believes the current pricing is sufficient in the event crude settles at levels of USD 100/barrel.
Valuation and view
The deco demand for KNPL has seen an improving trend in the last few months. The industrial segment is also benefiting from the continued traction in auto volumes, as well as continued infra activity in the country. The company’s stated focus on premiumization is reflected in the margin performance in Q4FY26.
The current price hikes implemented are enough if crude prices stabilise around the USD 100 per barrel mark. However, we may see some near-term margin constraints due to the overall inflation pressures, leading us to cut our FY27E EPS by ~9%. We broadly retain our FY28E estimate, considering normalisation of the situation by next year.
Accordingly, we retain our valuation at 24x FY28E EPS of Rs 11.2 and maintain price target at Rs 270. With an upside of 33.5%, retain BUY rating.
| Y/E March (Rs in mn) | FY24 | FY25 | FY26 | FY27E | FY28E |
| Revenue | 78,014 | 78,230 | 80,519 | 88,659 | 95,551 |
| Growth (%) | 3.4 | 0.3 | 2.9 | 10.1 | 7.8 |
| EBITDA | 10,278 | 9,423 | 9,746 | 10,599 | 12,760 |
| EBITDA (%) | 13.2 | 12 | 12.1 | 12 | 13.4 |
| Adj. PAT | 6,778 | 6,488 | 6,347 | 7,281 | 9,038 |
| Adj. EPS | 8.4 | 8 | 7.9 | 9 | 11.2 |
| Adj. EPS Growth (%) | 43.1 | -4.3 | -2.2 | 14.7 | 24.1 |
| ROE (%) | 13.3 | 10.8 | 9.7 | 10.5 | 12 |
| ROCE (%) | 15.7 | 11.7 | 10.8 | 11.2 | 13 |
| P/E (x) | 24.1 | 25.2 | 25.8 | 22.5 | 18.1 |
| Source: Company, ACMIIL Research | |||||
Quarterly Performance – Consolidated
| Y/E March (Rs mn) | Q4FY26 | Q4FY25 | YoY (%) | Q3FY26 | QoQ (%) | ACMIIL Est. | Var (%) | FY26 | FY25 | YoY (%) |
| Net Revenue | 19,537 | 18,167 | 7.5 | 19,820 | -1.4 | 19,283 | 1.3 | 80,519 | 78,230 | 2.9 |
| Expenses: | ||||||||||
| Total Raw Material Cost | 12,739 | 11,886 | 7.2 | 12,746 | 0 | 51,966 | 50,693 | 2.5 | ||
| Employee Cost | 1,364 | 1,315 | 3.8 | 1,345 | 1.4 | 5,421 | 5,019 | 8 | ||
| Other Expenses | 3,269 | 3,309 | -1.2 | 3,332 | -1.9 | 13,386 | 13,094 | 2.2 | ||
| Total Operating Cost | 17,372 | 16,509 | 5.2 | 17,423 | -0.3 | 70,773 | 68,807 | 2.9 | ||
| EBITDA | 2,165 | 1,657 | 30.6 | 2,397 | -9.7 | 1,696 | 27.7 | 9,746 | 9,423 | 3.4 |
| EBITDA (%) | 11.1 | 9.1 | 196 bps | 12.1 | -101 bps | 8.8 | 229 bps | 12.1 | 12 | 6 bps |
| Depreciation | 609 | 516 | 18 | 600 | 1.6 | 2,281 | 2,017 | 13.1 | ||
| EBIT | 1,556 | 1,141 | 36.3 | 1,797 | -13.4 | 7,465 | 7,406 | 0.8 | ||
| Other Income | 297 | 371 | -20 | 352 | -15.7 | 1,459 | 1,392 | 4.9 | ||
| Interest | 84 | 77 | 9.5 | 88 | -4.3 | 323 | 313 | 3.3 | ||
| Extraordinary Items | -184 | 0 | NA | -447 | NA | -632 | 6,295 | NA | ||
| PBT | 1,584 | 1,435 | 10.4 | 1,614 | -1.8 | 7,970 | 14,780 | -46.1 | ||
| Tax | 486 | 411 | 18.2 | 444 | 9.4 | 2,211 | 3,687 | -40 | ||
| Effective Tax Rate (%) | 30.6 | 28.6 | 201 bps | 27.5 | 316 bps | 27.7 | 24.9 | 280 bps | ||
| Minority interest | -23.8 | -60.3 | 60.5 | -43.1 | 44.8 | -136.3 | -336.2 | 59.5 | ||
| RPAT | 1,123 | 1,085 | 3.5 | 1,214 | -7.5 | 5,895 | 11,430 | -48.4 | ||
| APAT | 1,251 | 1,085 | 15.3 | 1,538 | -18.7 | 1,054 | 18.7 | 6,347 | 6,488 | -2.2 |
| APAT (%) | 6.4 | 6 | 43 bps | 7.8 | -136 bps | 7.9 | 8.3 | -41 bps | ||
| Reported EPS (diluted) (Rs) | 1.4 | 1.3 | 3.7 | 1.5 | -7.3 | 7.3 | 14.1 | -48.4 | ||
| Adj. EPS (Rs) | 1.5 | 1.3 | 15.3 | 1.9 | -18.7 | 7.9 | 8 | -2.2 |
Source: Company, ACMIIL Research
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