Kansai Nerolac Paints (500165) Q1 24/25 earnings summary

Executive summary

• Q1 FY2025 saw a 1% year-over-year revenue decline, but gross margin expanded by 170 bps and profit before tax rose 6.2% due to operational efficiencies and cost controls.

• Automotive coatings demand was strong, especially in two-wheelers and passenger vehicles, while decorative segment demand was muted due to heatwave, elections, and labor shortages.

• Premiumization and new product launches drove growth in the decorative segment, with premium products and new business lines like wood finishes and waterproofing growing strongly.

• Urban markets outperformed rural, though rural is showing gradual improvement; subsidiaries showed mixed performance with Bangladesh growing and Nepal/Sri Lanka facing challenges.

• Unaudited standalone and consolidated financial results for the quarter ended 30 June 2024 were approved, with statutory auditors expressing an unqualified review opinion.

Financial highlights

• Standalone revenue from operations declined 1.0% year-over-year to ₹2,050.35 crore; consolidated revenue down 1.1% to ₹2,133.06 crore.

• Standalone PBT before exceptional items rose 6.2% to ₹323.41 crore; consolidated PBT at ₹308.09 crore.

• Standalone net profit after tax was ₹241.10 crore; consolidated net profit after tax was ₹224.87 crore.

• Gross margin expanded by 1.7 percentage points year-over-year, driven by premiumization and cost-saving initiatives.

• Standalone EPS (before exceptional items) was ₹2.98, up from ₹2.77 year-over-year.

Outlook and guidance

• Management expects gradual improvement in decorative demand with a favorable monsoon and post-election environment.

• High single-digit volume growth for the year is possible, with better performance anticipated in the second half.

• Performance coating (non-auto industrial) expected to see strong demand due to infrastructure growth and new projects.

• Price increases have been implemented and more are planned to offset raw material inflation.