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

Executive summary

• Q2 FY25 saw 1% top-line growth and stable demand in automotive and infrastructure, but decorative segment demand was subdued due to extended monsoons; industrial and performance coatings outperformed, driven by new launches and technology upgrades.

• Premiumization trend continued, with premium products and new launches contributing over 10% to sales; premium segment outperformed, while economy products like putty and distemper saw degrowth.

• EBITDA margin declined by around 20% year-over-year, with gross margin down 1.7% due to adverse revenue mix, residual price reductions, and material inflation.

• Net revenue for Q2 FY25 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; PBDIT declined 20.3% and PAT fell 27.6%.

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

• EBITDA margin for the quarter was in the 13%-14% range, though at the lower end due to lower revenue growth.

• Staff costs increased to support new initiatives, expected to be absorbed as growth picks up.

• Dividend of ₹303.14 Cr paid in H1.

Outlook and guidance

• Management expects demand to pick up in H2, especially in Decorative, supported by festive and marriage seasons, with a return to growth rates closer to GDP in the next 1-2 years.

• Margin guidance maintained at 13%-14% for the full year, with the expectation of being at the lower end if revenue growth remains subdued.

• Premiumization and differentiated products will continue to be a focus, with targets to increase their contribution.

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

• Performance coating outlook remains strong with a robust order pipeline.