Kansai Nerolac reports strong numbers for third quarter, pins hope on rural revival

Kansai Nerolac Paints Ltd (KNPL) today reported strong growth on several fronts during the Oct-Dec quarter despite a challenging economic environment, including slow demand from rural areas.

Net revenue for the quarter rose 5.7% year-on-year to Rs 1,814.9 crores. EBIDTA jumped 27.3% to Rs 239.9 crores while profit after tax surged 40.4% to Rs 157.6 crores.

For the nine months period, net revenue was up 4.7% at Rs 5,731.6 crores while EBIDTA grew 31.5% to Rs 843.7 crores.

The growth was driven by good demand conditions in both decorative and industrial paint segments. Decorative paints volume registered double-digit growth, helped by the festive season. Industrial paints also saw robust demand during the quarter.

Raw material prices were stable despite volatility in crude oil prices globally. This allowed the company to improve gross margins compared to last year.

“The quarter saw good demand for Industrial coatings,” said Managing Director Anuj Jain. “Decorative demand was also good as it registered double digit volume growth, driven by the festive season.

“Going forward with the election round the corner, rural demand is expected to pick up which should support overall volume demand in the near term. Given the evolving geo-political situation, raw material prices may experience volatility,” he added.

KNPL continued to make progress in key focus areas like increasing feet-on-street, digital marketing initiatives, new product launches and expanding distribution reach. With the upcoming elections, demand from rural markets is expected to rise further.

The Indian paint industry witnessed steady growth in 2023, estimated to be around 15-20%, buoyed by increased infrastructure and construction activity. The industry size crossed Rs 70,000 crores, with decorative paints accounting for 75% market share.

After facing margin pressures in 2021 and 2022 due to high input costs, players saw recovery in profitability from Q2 2023 as commodity prices stabilized. With crude oil prices easing, key raw material costs like titanium dioxide, monomers and packaging materials saw sequential correction resulting in gross margin expansion.

Demand from Tier 2, 3 cities and rural housing drove volume growth for leading decorative paint brands like Asian Paints, Berger Paints and Nerolac. Players pushed distribution enhancement to tap small town demand. Brands also launched new products with anti-bacterial, premium exterior paints and launched integrated painting solutions to drive premiumization.

Industrial paint demand witnessed an uptick across auto, infrastructure and ancillary sectors. Increased capital expenditure across coal, cement, steel and energy industries sparked higher industrial paint consumption. However, the slowdown in Indian automotive industry posed some headwinds.

Increased infrastructure spending and growth in real estate is expected to drive long term paint demand, Kansai Nerolac Paints said.