Kansai Nerolac paints held a conference call on 3 November 2022 to discuss the results for the quarter ended Sep'22 and way forward. Mr. Anuj Jain- Managing Director, Mr. Prashant Pai- Director (Finance), Mr. Jason Gonsalves- Director (Corporate Planning, IT & Materials) of the company addressed the call.

Highlights of the Concall

• The company recorded top line growth of 19.3% in Q2FY23 compared to Q2FY22 while Ebitda growth was 19.8%. Topline growth is led by passenger vehicles. Decorative growth was double digit in terms of value while volume was flat.

• Paint industry growth in Q2 was led by putty and low value products.

• Raw material prices are gradually cooling off but at YTD level the inflation continues and it is about 7-8%.

• The company has taken price increase in both Decorative and Industrial and continues to be in discussion with OEMs for further price increases.

• The company continues to increase its market share in automotive segment.

• The company is trying to improve margins in automotive segment. So one initiatives is it has taken about 3% price hike in H1FY23. The company is still in discussion with few customers for price increase while discussion with some has concluded.

• The company is also planning to introduce new technology products to improve margin. These new technology requires approvals from the customers and in some of the cases it first have to make certain changes in their lines.

• The government is taking the initiative of blending the petrol with ethanol. As of now it is the mix of 15% but the potential is to go to around 30% ethanol. The company has developed one new product which is successfully introduced also in the market to help in blening more ethanol with petrol.

• The company has developed a good technology product which will be used in decal market which is for the two wheeler. The company was not present in the decal market.

• The company has also introduced product for PVC sealer and underbody which basically basically goes under the car body.

• The company is also introducing products for alloy wheels market.

• The company is also making made some entry in the high end anticorrosive coatings for auto fasteners - zinc based coatings

• The company is also trying to improve product mix in performance coating which is a non auto industrial part. It is partly exiting the business which is very low profitable and increase salience of premium products.

• The performance coating business is dependent on lot of approvals. It need a lot of approval for this premium coatings products from say infrastructure, oil gas sector.

• The company took took the approach of shifting to higher margin technology products in coil coatings which is part of non auto business where the margins have been very low in the last year. Appliance segment is better place in terms of margins, while the roof coatings are not. So, it has exited lot of non profitable business and increases its sales in the premium segment. It has also got some approval from the leading appliances in the country.

• The company is also focused to increase its premium product in powder coating business where it is market leader.

• The company is looking towards adding more premium and super premium products in decorative segment. Decorative volume growth in Q2 was flattish while putty growth was slightly negative.

• The company has added about 3000 new retail outlets at YTD level so far in this year.

• The company expects project business to gain from the recovery of construction activity as monsoon is now over. New business is expected to maintain momentum. Passenger Vehicle industry growth momentum is likely to sustain while two Wheeler segment demand, though expected to be better will remain below pre-covid levels. Commercial Vehicle is expected to continue to do well.

• The company expects demand in Q3 could be subdued for decorative in view of a very high base, early Diwali and prolonged monsoon.