Strong growth in the decorative segment, cushioning of margins due to price hikes and boost from other income, have kept Kansai Nerolac Paints’ March quarter performance in good stead.

Post demonetisation the recovery in the decorative segment has been sharp, and the company’s 7 per cent growth YoY in total revenue was driven by a strong volume growth and healthy price realisation in the decorative segment.

Volumes in the decorative segment grew 16-17 per cent during the March quarter, over the same period last year. However, growth in industrial segment remained sluggish because of slow recovery from the after-effects of demonetisation.

The company is the largest player in the decorative segment which contributes 55 per cent of its revenue, while industrial segment contributes 45 per cent (chunk from automotive coatings).

At the operating level, the company’s margins were impacted due to rise in raw material prices. Titanium dioxide, a derivative of crude oil, for instance, witnessed a sharp price increase over the previous year.

Nonetheless, the company’s operating margins went up substantially by over 2 percentage points to 17.5 per cent YoY during the March quarter. The price hike taken by the company in the decorative segment of about 2.5 per cent in March has aided margins.

Thanks to the healthy operational performance and a sharp spike in other income, adjusted net profit for the company grew about 38 per cent YoY during the March quarter.

This excludes the one-time gain the company reported during the March quarter of FY16 fiscal on sale of its Perungudi’s fixed assets. If this is taken into account, the company’s reported profit delivered 81 per cent YoY fall during the latest March quarter.

Outlook

Kansai Nerolac is likely to witness a 7-8 per cent growth in revenue, going ahead. Strong volumes in the decorative segment should drive this growth. Industrial segment, on the other hand, could continue to witness a subdued performance in the coming quarters.

Though, increase in raw materials costs can hurt margins, price hikes in the decorative segment can cushion the fall to some extent. The company announced a price hike of 3 per cent in decorative segment in the month of May.

The company’s board has recently approved setting up of manufacturing unit in Andhra Pradesh with an outlay of Rs 304 crore having a capacity of 60,000 kilo litres.

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