Kansai Nerolac Paints Ltd, a leading name in the Indian paint industry, has recently announced its fiscal first-quarter results for the period ending June 30, 2024. Known for its innovative and high-quality products.
Kansai Nerolac has a significant presence in both decorative and industrial paints. The company faced several challenges this quarter, leading to a significant drop in profits, but there are also some positive takeaways.
Let’s break down the key details and understand what this means for the company and its investors.
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Profit plummet: A 69% drop
Kansai Nerolac’s net profit fell sharply by 68.72% year-over-year to ₹230.83 crore in Q1 FY25 from ₹738 crore in Q1 FY24. This dramatic decline can be attributed to an exceptional gain of ₹661.25 crore in the same quarter last year, which set a high comparison base.
Despite this substantial drop in profits, the company’s stock saw a surprising increase of over 10% on July 30, 2024, reaching ₹314.2 per share on the National Stock Exchange (NSE).
Kansai Nerolac Paints’ stock performance
Despite the challenges, Kansai Nerolac’s stock has shown resilience. The company delivered a return of 3.97% in the last week, though it has faced negative returns of -16.61% in the last six months and -15.09% year-to-date.
Revenue and operational performance
The company reported a slight dip in its consolidated revenue from operations, which fell by 1.1% year-over-year to ₹2,133 crore in Q1 FY25, compared to ₹2,156.8 crore in Q1 FY24. This decline in revenue is largely due to muted demand for decorative paints, driven by an unprecedented heat wave, labour shortages, and election activities.
However, Kansai Nerolac managed to improve its gross margins compared to the same period last year. The company’s EBITDA stood at ₹334.4 crore, marking a modest increase of 0.2% year-over-year, while profit before tax (PBT) grew by 6.2% year-over-year to ₹323.4 crore before accounting for the exceptional item.
Kansai Nerolac Paints’ sectoral performance
The automotive coatings segment continued to show strong demand, which helped offset some of the negative impacts from the decorative paints segment. The demand for performance coatings remained subdued but showed signs of picking up in June.
The company also announced the appointment of Hirokazu Kotera as the Whole-time Director and Executive Director, effective from August 1, 2024. Kotera brings extensive experience from his roles in international companies like Nestle Japan and Nissin Foods, as well as his tenure at Kansai Paint, Japan.
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Kansai Nerolac Paints’ financial metrics
| Period (Figures in Rs. Cr.) | Q1Jun’24 | Q4Mar’24 | Q-o-Q Growth | Q1Jun’23 | Y-o-Y Growth |
| Total Revenue | 2133.06 | 1769.39 | +20.55% | 2156.8 | -1.1% |
| Selling/ General/ Admin Expenses Total | 124.53 | 115.78 | +7.56% | 107.19 | +16.18% |
| Depreciation/ Amortization | 48.14 | 47.96 | +0.38% | 46.68 | +3.13% |
| Total Operating Expense | 1851.59 | 1638.34 | +13.02% | 1871.98 | -1.09% |
| Operating Income | 281.47 | 131.05 | +114.78% | 284.82 | -1.18% |
| Net Income Before Taxes | 308.09 | 156.56 | +96.79% | 956.15 | -67.78% |
| Net Income | 230.83 | 116.03 | +98.94% | 738 | -68.72% |
| Diluted Normalized EPS | 2.85 | 1.43 | +99.3% | 1.9 | +50.16% |
Market expectations and future prospects
Looking ahead, Kansai Nerolac is optimistic about the improved demand for decorative paints, which is driven by favourable monsoon conditions. The company also expects strong demand for performance coatings due to infrastructure growth, new projects, and a robust order pipeline.
Conclusion
Kansai Nerolac Paints Ltd’s Q1 results present a mixed bag. While the significant drop in profits and the slight dip in revenue is concerning, the company’s ability to improve gross margins and the positive outlook for future demand are encouraging.
With a focus on cost control, efficiency improvements, and strategic market initiatives, Kansai Nerolac aims to bounce back in the coming quarters. The stock’s recent performance and the optimistic management outlook suggest that the company is on a path to recovery, making it a watch-worthy player in the paint industry.
