ICICI Direct is bullish on Kansai Nerolac has recommended buy rating on the stock with a target price of Rs 480 in its research report dated January 30, 2019.
Kansai Nerolac (KNL) recorded strong topline growth of ~18% led by volume growth of ~14% (I-direct estimate). The volume growth was largely driven by strong festive demand of decorative paints but industrial paint (topline contribution of ~45%) offtake remain sluggish due to inferior automotive paint demand from its key client. On the margin front, gross margin stayed under pressure (down 550 bps YoY) mainly due to higher raw material prices and inability to pass on higher raw material prices in the industrial paint category. As a result, EBITDA margins fell ~370 bps YoY.Despite higher sales growth, lower EBITDA margin weighed on the bottomline, which declined ~10% YoY in Q3FY19 According to the management, crude oil prices have started cooling off from November onwards but prices of crude derivatives (like TiO2, monomers and resins) would start to decline with some lag. We believe a price hike to the tune of ~4% coupled with cooling of raw material prices would benefit the company, going ahead. KNL expects double digit volume growth across the paint category led by the decorative segment in the next two years owing to improvement in repainting demand.
Outlook
We model revenue, earning CAGR of 17%, 12%, respectively, led by ~13% volume CAGR in FY18-21E (largely driven by decorative paint segment while industrial segment to grow at moderate rate). We expect a gradual recovery in EBITDA margin, going forward, with recent price hikes and cooling off raw material prices from its peak. We roll over our valuation on FY21E earnings and value KNL at 35x FY21E earnings with a revised target price of Rs 480 and BUY rating.
TO FREE OF COST FINANCIAL CONSULTATION FROM THE EXPERTS, CLICK ON Option Trading Tips OR GIVE ONE MISSED CALL ON 9644405056 TO SUBSCRIBE US!
No comments:
Post a Comment