Kansai Nerolac Paints Ltd - NSE

GICS Industry : Chemicals l Sub Industry : Commodity Chemicals l Website : www.nerolac.com

Kansai Nerolac Paints Ltd Key Stock Indicators NSE Ticker : Bloomberg Ticker : Face value / Share: Div. Yield (%):

KANSAINER KNPL:IN 10.0 1.9

CMP (as on 17 Feb 2011 Rs/Share) 52-weekrange up to 17 Feb 2011 (Rs)(H/L): Market Cap as on 17 Feb 2011 (Rs Mn): Enterprise Value as on 17 Feb 2011 (Rs Mn): Div. Yield (%): 0.0

771.0 1656.1/746.5 41,548 42,237

Shares outstanding (mn) : Free Float (%) : Average daily volumes (12 months) : Beta (2 year) :

Incorporated in 1920, Kansai Nerolac Paints Limited (KNPL) is the second-largest coating company in India. It is a subsidiary of Kansai Paints, a Japanese company, which holds ~69.3% stake. KNPL operates in the decorative as well as the industrial paints segments, and is the market leader in automotive and powder coating segments. It manufactures decorative paints, automotive coatings, general industrial coatings, high performance coatings, powder coatings and speciality coatings. Its manufacturing plants are located at Ratnagiri (Maharashtra), Kanpur Dehat (Uttar Pradesh), Perungudi and Hosur (Tamil Nadu) and Bawal (Haryana). Its employee strength is ~2,000.

KEY HIGHLIGHTS Market leader in industrial paints segment KNPL derives 50% of its revenues from industrial paints. It is the leader in this segment — with a market share of ~40% — on account of strong support from its parent with respect to process design and technology. The automotive paints business dominates the industrial paints segment. The company has good relationships with the major original equipment manufacturers (OEMs) and has a well-established client base from the automotive industry including Maruti Suzuki, Tata Motors, Bajaj Auto, Ashok Leyland, Mahindra & Mahindra, etc. The company has a wide range of products in the automotive, powder and coatings and pre-treatment chemicals domain.

53.9 30.7 7,801 0.7

Key Financial Indicators Mar-08 14,859.7 12.7 1,183.5 8.0 0.2 43.9 17.1 3.3 25.1 20.9 11.2

Revenue (Rs mn) EBITDA ma rgins (%) PAT (Rs mn) PAT ma rgins (%) Gea ring (x) EPS (Rs /s ha re) PE (x) P/BV (x) RoCE (%) RoE (%) EV/EBITDA (x)

Mar-09 15,015.8 10.6 1,024.8 6.8 0.1 38.0 12.1 1.9 20.0 16.1 7.9

Mar-10 18,141.9 14.6 1,655.0 9.1 0.1 61.4 12.6 2.7 29.8 23.1 8.1

n.m. : Not meaningful

Shareholding (As on September 30, 2010)

Capacity expansion n plans

FII 6%

KNPL’s most recent capacity addition was a new plant at Hosur, which commenced operations in the last quarter of FY10 with a capacity of ~15,000 tonnes. The company plans to spend another ~Rs 2.5 billion (bn) to expand manufacturing capacity at Hosur to 0.28 million (mn) tonnes per annum. A further Rs 1.5 bn will be spent on increasing production capacity in other plants, taking total capex to Rs 4 bn.

DII 5% Others 20%

KEY RISKS • • • •

Rise in crude oil prices Dependent on auto sector De-growth in construction and housing sector Limited pricing flexibility in the decorative paint segment

Promoter 69%

Stock Performances vis-à-vis market

Indexed price chart Returns (%)

200

350 300

150

250

100

200 150

50

100 50

Volumes (RHS)

KANSAINER

Jan-11

Dec-10

0 Oct-10

0 Nov-10

13

Sep-10

45

-8

Jul-10

-16

-2

Aug-10

-14

5

('000) 400

Jun-10

19

(index) 250

Apr-10

12-m

May-10

Note: 1) YTD returns are since Apr 01, 2010 to Feb 17, 2011. 2) 1-m, 3-m and 12-m returns are up to Feb 17, 2011.

3-m

Feb-10

NIFTY

1-m

Mar-10

KANSAINER

YTD

NIFTY

CRISIL COMPANY REPORT | 1

Kansai Nerolac Paints Ltd BACKGROUND Incorporated in 1920, KNPL is a subsidiary of Kansai Paints (Japan). It operates in the decorative as well as the industrial paints segments. The company is the market leader in auto paints. It also manufactures decorative paints, automotive coatings, general industrial coatings, high performance coatings, powder coatings and speciality coatings. The company has a strong distribution network of ~12,000 distributors, 5,000 colour tinting machines and 69 sales locations, as of FY10. The installed capacity for various products as of FY10 is: Paints, varnishes, enamels and powder coatings 2.08 million tonnes (MT), Synthetic resins 79,380 tonnes and pre-treatment chemicals 2,400 tonnes. Exports contributed less than 1% of FY10 revenues. The proximity of the company’s plants to the customers’ plant locations offers KNPL a strong logistical advantage.

COMPETITIVE POSITION Peer Comparison

Revenue (Rs mn) EBITDA ma rgi ns (%) PAT (Rs mn) PAT ma rgi ns (%) Gea ri ng (x) EPS (Rs /s ha re) PE (x) P/BV (x) RoCE (%) RoE (%) EV/EBITDA (x)

Kansai Nerolac Paints Ltd. Mar-10 18,141.9 14.6 1,655.0 9.1 0.1 61.4 12.6 2.7 29.8 23.1 8.1

Asian Paints Ltd Mar-10 69,629.0 18.1 8,839.1 12.7 0.1 92.2 28.7 19.2 71.7 59.6 20.3

Akzo Nobel India Ltd. Mar-10 10,426.0 11.5 1,593.0 15.3 43.3 16.2 2.6 20.4 16.3 21.5

Berger Paints India Ltd. Mar-10 19,197.7 11.5 1,203.9 6.3 0.7 3.8 25.3 4.7 26.8 30.1 16.0

n.m: Not meaningful

FINANCIAL PROFILE

Key Financial Indicators

Double-digit percentage growth in top-line, margin improves

Revenue Top-line increased by ~21% to Rs 18.1 bn in FY10 from Rs 15 bn in FY09, due to increase in sales volumes, as both decorative and industrial paints segments saw higher demand. Sales of paints, varnishes, enamels and powder coatings increased to 193,052 tonnes, from 157,024 tonnes in FY09. Operating margin increased by 400 basis points (bps) to 14.6% due to decrease in raw material prices, employee costs and other expenses by 81 bps, 97 bps and 49 bps, respectively. PAT stood at Rs 1.6 bn in FY10, against Rs 1 bn in FY09, as interest and finance charges decreased by ~36% year-on-year.

Units

Mar-08

Mar-09

Mar-10

Rs mi ll ion

14,859.7

15,015.8

18,141.9

12.7

10.6

14.6

1,183.5

1,024.8

1,655.0

8.0

6.8

9.1

EBITDA ma rgins Per cent PAT

Rs mi ll ion

PAT ma rgins

Per cent

Revenue growth Per cent

8.6

1.1

20.8

EBITDA growth

Per cent

7.0

-15.4

66.2

PAT growth

Per cent

14.1

-13.4

61.5

Gea ring

Times

0.2

0.1

0.1

RoCE

Per cent

25.1

20.0

29.8

RoE

Per cent

20.9

16.1

23.1

INDUSTRY PROFILE Paints The paints industry is broadly categorised into – Decorative paints and Industrial paints. While decorative paints mainly find their utility in the construction sector, application of industrial paints are confined to industries such as automobiles, auto ancillaries, consumer durables, marine vessels, and industrial plant and machinery. Decorative paints account for a lion’s share of the market with 90 per cent of total paint volumes. The organized paints industry sector accounts for around 65 per cent of the domestic paints industry (value-wise) making this industry fairly organized. The period between 2005-2010 witnessed the organized industry registering a healthy CAGR of 15 per cent driven largely growth in the construction, housing, automobiles and consumer durables sector. However the global crisis during mid 2008 affected growth in this sector. With the economic revival post mid 2009, growth prospects in this sector have brightened. While demand for industrial paints is expected to be driven by a revival in the automobile and OEM sector, growth in construction and real estate is likely to provide a fillip to the decorative paints segment.


Kansai Nerolac Paints Ltd ANNUAL RESULTS Income Statement (Rs million ) Net Sales Operating Income

Mar-08 14,851.7 14,859.7

Mar-09 15,007.0 15,015.8

Mar-10 18,123.9 18,141.9

1,884.5 12.7

1,594.0 10.6

2,649.9 14.6

420.4 26.7 258.3

382.9 25.5 197.9

442.6 16.4 193.3

1,689.1 1,183.5

1,440.5 1,024.8

2,394.6 1,655.0

8.0

6.8

9.1

No. of shares (Mn No.)

26.9

26.9

26.9

Earnings per share (EPS)

43.9

38.0

61.4

Cash flow (Rs million ) Pre-tax profit Total tax paid Depreciation Change in working capital

Mar-08 1,695.6 -544.5 420.4 408.9

Mar-09 1,383.4 -417.7 382.9 1,124.6

Mar-10 2,384.2 -748.9 442.6 -292.5

Cash flow from operating activities Capital Expenditure Investments and others

1,980.4 -670.6 -786.4

2,473.2 -445.0 -827.7

1,785.4 -767.6 -985.6

EBITDA EBITDA Margin Depreciation Interest Other Income PBT PAT PAT Margin

Balance sheet (Rs million ) Equity share capital Reserves and surplus Tangible net worth Deferred tax liablity:|asset| Long-term debt Short-term-debt Total debt Current liabilities Total provisions Total liabilities Gross block Net fixed assets Investments Current assets Receivables Inventories Cash Total assets

Mar-08 269.5 5,805.5 6,075.0 -103.9 1,083.2 170.3 1,253.5 1,929.9 698.7 9,853.2 4,150.4 2,628.8 2,202.0 5,022.3 2,363.7 1,992.7 342.5 9,853.1

Mar-09 269.5 6,360.5 6,630.0 -106.0 917.9 18.5 936.4 2,442.2 697.9 10,600.5 4,336.5 2,742.4 3,029.8 4,828.3 2,095.7 1,706.3 761.6 10,600.5

Mar-10 269.5 7,442.1 7,711.6 -115.2 818.1 281.7 1,099.8 3,043.2 809.6 12,549.0 5,140.9 3,050.9 4,015.4 5,482.7 2,323.7 2,474.4 410.8 12,549.0

Revenue growth (%) EBITDA growth(%) PAT growth(%)

Mar-08 8.6 7.0 14.1

Mar-09 1.1 -15.4 -13.4

Mar-10 20.8 66.2 61.5

EBITDA margins(%) Tax rate (%) PAT margins (%)

12.7 32.2 8.0

10.6 29.0 6.8

14.6 31.3 9.1

27.3 12.0 225.5 20.9 25.1

31.6 12.0 246.0 16.1 20.0

24.4 15.0 286.2 23.1 29.8

0.2 70.5 0.7

0.1 62.4 0.6

0.1 161.6 0.4

3.8 2.5

3.5 2.4

3.8 2.2

122

116

109

Ratio

Cash flow from investing activities Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries)

-1,457.0 14.4 -12.7 -378.3 -24.8

-1,272.7 0.0 -317.1 -378.3 -86.1

-1,753.2 0.0 163.4 -471.3 -75.1

Cash flow from financing activities Change in cash position Opening cash

-401.4 122.0 220.6

-781.5 419.0 342.5

-383.0 -350.8 761.6

342.5

761.6

410.8

Closing cash

Dividend payout (%) Dividend per share (Rs) BV (Rs) Return on Equity (%) Return on capital employed (%) Gearing (x) Interest coverage (x) Debt/EBITDA (x) Asset turnover (x) Current ratio (x) Gross current assets (days)

QUARTERLY RESULTS

Profit and loss account (Rs million) No of Months Revenue EBITDA Interes t

Dec-10

% of Rev

3

Dec-09 % of Rev 3

Sep-10

% of Rev

3

Dec-10 % of Rev 9

Dec-09

% of Rev

9

5,647.1

100.0

4,248.9

100.0

5,391.5

100.0

16,344.7

100.0

12,989.6

100.0

730.8

12.9

647.0

15.2

887.2

16.5

2,477.9

15.2

2,215.1

17.1

2.4

0.0

2.6

0.1

2.0

0.0

7.5

0.0

8.2

0.1

Depreci a tion

127.9

2.3

110.9

2.6

121.4

2.3

361.5

2.2

309.7

2.4

PBT

600.5

10.6

533.5

12.6

763.8

14.2

2,108.9

12.9

1,897.2

14.6

PAT

415.9

7.4

362.9

8.5

536.1

9.9

1,471.2

9.0

1,315.8

10.1


Kansai Nerolac Paints Ltd FOCUS CHARTS & TABLES

Sales

Sales growth y-o-y (RHS)

Rs/share 25

Net Profit

Per cent 25

EPS

20

20

15

15

Sep-10

Jun-10

Mar-10

Dec-09

0

Dec-10

100 Sep-09

Jun-10

Sep-10

Mar-10

Dec-09

Sep-09

Jun-09

Mar-09

Dec-08

Sep-08

Mar-08

Jun-08

0

200

Jun-09

1,000

300

Mar-09

2,000

400

Dec-08

3,000

500

Sep-08

4,000

Per cent 120 100 80 60 40 20 0 -20 -40

Quarterly PAT & y-o-y growth

Jun-08

5,000

Rs mn 600

Mar-08

Per cent 40 35 30 25 20 15 10 5 0 -5 -10 -15

Quarterly sales & y-o-y growth

Dec-10

Rs mn 6,000

Net profit growth y-o-y (RHS)

Movement in operating and net margins

10

10

5 5

Jun 2010 69.3 5.0 5.5 20.2

Sep 2010 69.3 5.7 5.3 19.7

OPM

Board of Directors Director Name Ja ms hed Ji ji Ira ni (Dr.) Ha ri s hcha ndra Meghra j Bha ruka (Mr.) Pra vi n Diga mba r Cha udha ri (Mr.) Sus i m Mukul Da tta (Mr.) Hiros hi Is hino (Mr.)

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Sep-09

Jun-09

Mar-09

Dec-08

Sep-08

Jun-08

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Sep-09

Jun-09

Mar-09

Dec-08

Sep-08

Jun-08

Mar-08

Shareholding Pattern (Per cent) Dec 2009 Mar 2010 Promoter 69.3 69.3 FII 4.5 4.6 DII 5.4 5.4 Others 20.8 20.7

Mar-08

0 0

NPM

Designation Non-Executive Cha i rma n Ma na gi ng Di rector Director Non-Executive Di rector Promoter-Di rector

Devendra Motil a l Kotha ri (Mr.)

Non-Executive Di rector

Hitos hi Nis hiba ya s hi (Mr.)

Promoter-Di rector

Pra dip Pa na l a l Sha h (Mr.) Yos hika zu Ta ka ha s hi (Mr.) Noel Na va l Ta ta (Mr.)

Non-Executive Di rector Promoter-Di rector Non-Executive Di rector

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