The stock of Kansai Nerolac Paints declined about 6.4 per cent on Monday, following the announcement of its September quarter results. The steady increase in raw material costs has impacted its margins adversely.

The continued increase in crude oil prices has resulted in spiking the cost of one of its key raw materials, Titanium dioxide, which is a crude derivative. Raw material cost as a percentage of sales has increased sharply to 64 per cent in the recent quarter, compared to 54 per cent in the same period last year. Other factors such as rupee volatility have also impacted the earnings of the company.

Though the company has increased the selling price in decorative segment by 2.4 per cent with effect from October 1 and had increased prices by 2 per cent six months earlier, operating margins registered a steep decline of 4 percentage points to 16 per cent in the September quarter. The company expects to make additional price hikes, particularly in its industrial segment. The net profit was 16 per cent lower (₹122 crore) compared to the corresponding quarter in the previous year (₹145 crore).

The company’s revenue grew about 11 per cent to ₹1,286 crore in the recent quarter. It reported single digit volume growth of 9 per cent in its major segments such as decorative and industrial, which is mainly attributed to the destocking by dealers due to the rate reduction in GST in July this year and postponement of festive season this year. The management is confident of double digit volume growth in the next quarter since the GST impact was only for one month (July).

Cause for concern

Going ahead, the volatility in crude prices is a cause for concern as a chunk of its raw materials are derived from crude. But robust decorative demand and price hikes in major segments, can cushion the fall to some extent.

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