Capitaline

Analyst Meet / AGM 09-May-20

Conference Call

Kansai Nerolac Paints

Decorative segment grew 4% in value terms and 5% in volume terms in FY20 while Auto segment saw a 17% de-growth in value terms and 19% in volume terms

Kansai Nerolac paints held a conference call to discuss the results for the quarter ended March 2020 and way forward. Vice Chairman and Managing Director- Mr.Harishchandra Meghraj Bharuka, Executive Director-Mr. Anuj Jain, Director Finance-Mr. Prashant Pai and Director – Corporate Planning, IT & Materials- Mr. Jason Gonsalves of the company addressed the call.
Highlights of the Concall

Covid-19 has become a financial problem and it has brought lockdown in the entire industry. Prior to covid-19 Auto industry was on a downturn. Last year (FY19) there was no growth in passenger cars and in FY20 also demand destruction is about 16-17% in the entire automobile sector.

Decorative demand also slowed down during the current year (FY20) which was going well in the first two months of the year growing at double digit growth rate. Adjusting for COVID-19 disruption, KNPL would have recorded double digit growth in decorative paints business.

Gross margin has increased during the year. However, EBITDA margin declined primarily due to increase in ad-spends. 85% of staff cost is fixed, while 15% is variable cost. Going forward, Ad-spends will be in line with the sales growth. For FY20, ad-spends was about 5% of sales.

Tier 3 and 4 cities are doing better than Metro and tier 1 as the COVID-19 impact has been lower. Company's salience is slightly better than the industry average in tier 3 and tier 4 cities/towns.

The company has started production in its 5 units of the 6 manufacturing units.

Decorative segment grew 4% in value terms and 5% in volume terms in FY20 while Auto segment saw a 17% de-growth in value terms and 19% in volume terms. Performance coating saw a positive growth.

Nepal segment reported a topline growth of 2% despite liquidity crisis and Ebitda stood at 16.4% against 16.8% in last year.

Bangladesh segment which the company acquired two years back is performing well with a 20% topline growth. The company EBITDA has turned positive and is at 1.8% from at the time of acquisition when it was negative.

Srilanka segment continues to be a drag although topline has grown by 3.5%. The company has changed its strategy in Srilanka from current year from directly supplying to dealers from distribution which yielded positive results. In the first two months it was around 100 percent growth till lockdown was imposed. Ebitda margins have worsened as the company has made huge expenses on marketing.

The company expects to breakeven in Srilanka in next two years.

The company has launched many new products for the decorative segment. The company had lower growth in decorative because Kashmir is biggest market for the company

The company reduced its product prices by 1.8% because of reduction in raw material prices which was passed on to the entire market.

The company expanded its distribution network by 3000 to 25000 dealers in FY20.

The company registered a high single digit growth in performance coatings. About 3 years back the company had no presence in coil coating and now the company has significant traction in Coil Coatings

The company has 35% market share in powder coatings and has made an entry into Rebar Coating, Pipe Coatings, HR Powders for Auto Components, Bonded Metallic Powders & Super Durable Powders

Kansai Nerolac domestic subsidiary, Marpol (Powders), reported an overall growth at -7.4 %, affected due to slowdown in Automotive which contributes significantly to the portfolio. EBITDA margins improved to 8.7% from 5.2% in the previous year. Planned capacity expansion completed for both powders and polyester resin for captive consumption. Capacity of FG increased by 15 % (460 MT) and of resin by 42 % (340MT).

The company expects a capex of Rs 174 crore in FY21- Rs 114 crore for projects related and Rs 60 crore towards normal capex.

The company had made no billing for almost 42 days. After lockdown has been lifted the company has started billing in Green Zone.

The company has 106 depot out of which 90 depot is open. Among the 90 depots also metro town billing is not there and only in interior town billing has started. However there is problem of logistics.

Current cash position is Rs 450 crore.

70% of labour for painting is local. Don't see much risk of labor shortage if demand bounces back.

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