Kansai Nerolac Paints (500165) Q2 24/25 earnings summary

Executive summary

• Maintained a diversified portfolio with strong presence in both decorative and industrial paints, leveraging technology, premiumization, and sustainability initiatives.

• Decorative segment saw premium products outperform, while economy products like putty and distemper experienced degrowth; new product launches contributed over 10% to segment sales.

• Industrial segment, especially automotive and performance coatings, gained market share and saw robust growth.

• Demand in decorative was subdued due to extended monsoons, while project business and new segments such as wood finishes and construction chemicals showed double-digit growth but remain under-indexed.

• Q2 FY25 net revenue was ₹1,864 Cr, up 1% year-over-year; H1 revenue was flat at ₹3,914 Cr.

Financial highlights

• Standalone Q2 net revenue grew 1.0% year-over-year to ₹18,638 million; EBITDA declined by 20.3% YoY to ₹215 Cr; PAT fell 27.6% YoY to ₹130 Cr.

• Consolidated Q2 net revenue declined 0.3% YoY to ₹19,514 million; PBDIT down 22.4%, PAT down 31.7%.

• Standalone H1 net revenue was flat at ₹39,141 million; PBDIT down 9.0%, PAT down 59.8% due to an exceptional item in H1 FY23-24.

• Standalone gross margin for Q2: 37.4%; standalone net profit margin for Q2: 7.0%.

• EPS (Q2, standalone): ₹1.61; (Q2, consolidated): ₹1.52.

Outlook and guidance

• Management expects demand to improve in H2, especially in Decorative, supported by festive and marriage season, favorable monsoon, and rural demand trending upward.

• Automotive and Performance Coatings are projected to maintain strong momentum due to robust order pipeline and sector growth.

• Raw material prices, initially inflationary, are now softening, which may support margins going forward.

• Maintain EBITDA margin guidance in the 13%-14% range for the full year, likely at the lower end due to subdued top-line growth.

• Anticipate market growth to align with GDP in the next year or two, aiming to outpace market growth at the segment level.