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Healthy growth in the decorative and industrial segments on the back of price hikes has kept Kansai Nerolac Paints’ June quarter performance in good stead.
The revenue of the company increased 11 per cent to ₹1,321 crore for the current quarter over that of the previous year. Both its key segments, decorative and industrial, registered double-digit volume growth. Aggressive marketing and continuous investments by the decorative segment, coupled with revival in the automotive market (along with new product development), spurred volumes.
The company is the largest player in the decorative segment which contributes 55 per cent of its revenue, while the industrial segment contributes the rest (a chunk from automotive coatings).
Operating margins declined marginally to 17.2 per cent for the June quarter 2017, a tad lower than the 17.5 per cent reported the previous year. Higher prices of key raw materials as well as their availability put pressure on margins during the quarter. Titanium dioxide, a derivative of crude oil, witnessed steady price increase over the previous year.
However, product price hike of about 3 per cent in May saved the day in the decorative segment, moderating the margin erosion. The profit grew about 11 per cent year-on-year to ₹141 crore during the June quarter.
The implementation of GST should aid the demand for the company in the long run, despite short-term supply chain disruptions. The company is expected to gain from the government policy decisions, particularly in infrastructure; anticipation of good monsoon should also help in increasing its growth opportunities.
OutlookKansai Nerolac is likely to witness stable growth in revenue, going ahead. Strong volumes in the decorative and industrial segments should drive this growth.
The good growth in infrastructure, automobile and real estate is likely to have a positive effect on the overall demand for paint. Though increase in raw materials costs can hurt margins, price hikes in the decorative segment can cushion the fall to some extent. As crude oil prices are expected in the range of $45-60 a barrel, it could help the cost of crude-based raw materials to be under control.
The current capacity utilisation of the company is at 82 per cent, which provides ample opportunities to expand further.
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