Update on the Indian Equity Market:
On Tuesday, Nifty closed 0.6% lower at 14,851. Within NIFTY50, COALINDIA (+5.9%), NTPC (+4.9%), and IOC (+4.4%) were top gainers, while JSWSTEEL (-3.4%), HINDALCO (-3.0%), and KOTAKBANK (-3.0%) were the top losing stocks. Among the sectoral indices, PSU BANK (+1.1%), MEDIA (+0.8%), and REALTY (+0.3%) were the highest gainers, while FINANCIAL SERVICES (-1.3%), METAL (-0.9%), and PRIVATE BANK (-0.9%) were the top losers.
More price hikes will be required to mitigate input cost pressures- KANSAINER
Excerpts of an interview with Mr. Anuj Jain, ED, Kansai Nerolac Paints (KANSAINER), aired on CNBC-TV18 on 10th May 2021:
- 4QFY21 was good for KANSAINER on a YoY basis because of low base of last year.
- KANSAINER saw sales growth of 34.7% YoY in 4QFY21. For full year FY21, decorative paints segment saw a positive volume growth but a decline on the revenue/value basis.
- In FY21, KANSAINER gained market share in the industrial paints segment, while growth in the decorative paints was at par with market growth.
- April 2021started on a good sales momentum but the momentum dropped later due to rising Covid-19 cases in India.
- KANSAINER’s 80-90% sales offices are closed in May. Factories are running as they fall under continuous process units but demand has taken a hit.
- KANSAINER took a price hike for the decorative paints segment in March 2021.
- In the Industrial segment, the company has started talks with its clients for price increases and started implementing price hikes in some places as well. But these price hikes are not enough as the raw material inflation is still raging. Mr. Jain thinks that more price hikes will be required to mitigate the input cost pressure.
- KANSAINER’s Auto OEM clients are also facing significant pricing pressures. But it is inevitable for KANSAINER to pass on at least some, if not all, component of the input cost pressure.
- Most Auto OEMs have declared shutdowns, so demand for KANSAINER’s products to the auto space is also expected to be very low till the situation improves.
- FY22E revenues are difficult to predict at this point as paint industry is closely linked to the GDP growth and dependant on how the current situation evolves.
Asset Multiplier Comments
- Companies across industries have been talking about significant input cost pressures. This comes at a time when demand is also impacted due to partial lockdowns imposed in several states in India. This is a double whammy situation for companies. On the one hand they are not able to pass on the entire rise in cost in a fragile demand scenario. At the same time, lower sales means that companies face negative operating leverage- contributing to further pressure on the margins.
- How companies navigate this tough situation remains to be seen and will only get reflected in the 1QFY22E results.
Consensus Estimate (Source: investing. com and market screener websites)
- The closing price of KANSAINER was ₹ 554 as of 11-May-2021. It traded at 50x/ 39x the consensus EPS estimate of ₹ 11.2/14.3 for FY22E/ FY23E respectively.
- The consensus target price of ₹ 612/- implies a PE multiple of 43x on FY23E EPS of ₹14.3/-.
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