Kansai Nerolac paints held a conference call on 06 February 2023 to discuss the results for the quarter ended Dec'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 quarter witnessed good demand in automotive coatings. Within automotive also the growth was higher from passenger vehicle and commercial vehicles. The two wheeler growth remained muted.

• Demand in the auto industry continues to be on an upward trajectory. Passenger Vehicle (PV) demand was good followed by commercial vehicles and tractors. Semi-conductor demand challenge remains for high-end models.

• Decorative growth was slightly negative. The company took price increase of 3% YTD in decorative paints, mostly in Q1 and Q2.

• The company initiated various measures to increase growth in decorative. The measures include increase in feet on street, digital interventions, network expansion, new product launches and brand strengthening.

• The company was able to conclude the price increases with all its key OEMs during the quarter which will help partly offset the high inflation witnessed over the last two years. Overall price increase in industrial is 8-9%.

• The quarter continued to witness high exchange volatility with the rupee sharply depreciating further.

• Raw material prices showed a decline during the quarter.

• Premiumization of the decorative portfolio continued with new launches. Demand in Decorative was impacted on account of early Diwali, extended monsoons and higher than normal channel stocking due to price increases during Oct 21 & Nov21.

• The company is focused towards premiumization in performance coatings. It is actively working to get approvals across key infrastructure segments. The company has got few approvals in last quarter like bullet train, Vandhe Bharat, Mumbai coastal project.

• The company is also introducing higher margin technology products in coil coatings and has got few approvals from appliances.

• The company has introduction of new paint products in paint plus category is almost completed where it has differentiated products. The next part in which the company is working for last few quarters is in the area of influencer. The role of influencer is very very important in paints. And these influencers include painter contractors, architect and interior decorators. So its strategy is to focus on key painters and architects and interior decorator and demonstrate advantage of ageless products to them.

• Gross margin improved by around 170 bps in Q3FY23 compared to Q2FY23 led by better product mix, price increase in industrials and also declining trend in raw material prices.

• The company expects operating margins to improve after 2-3 quarters as currently it is carrying high cost inventory.

• The company is targeting a double digit growth in decorative segment.

• New business especially construction chemicals & projects are expected to grow well with fillip in new construction. Passenger Vehicle industry is likely to sustain the growth momentum. Commercial Vehicle and tractors will continue to remain strong. Pick up in 2 W demand expected. Demand in Infrastructure segment is expected to remain strong.