Maruti’s robust sales gives some comfort to Kansai Nerolac investors

MUMBAI: Finally, there is some light at the end of the tunnel for investors in the Kansai Nerolac stock. Robust vehicles sales by its largest client Maruti Suzuki Ltd in the September quarter means better demand for industrial paints.

"Kansai’s industrial volume growth mirrors the trend of Maruti Suzuki sales, although the declines and growth are lower due to presence of non-Maruti auto and industrial paints. Maruti has reported 16% wholesale volume growth in 2Q21 which will enable positive volume growth for Industrial paints after seven quarters of decline" analysts at Prabhudas Lilladher Pvt. Ltd said in a report on 6 October.

Kansai Nerolac was among the key casualties of the slowdown in the automobile sector which began in mid-2019. It is a market leader in the industrial paints segment, which accounts for 45% of its revenue, with the auto industry having the highest share.

Maruti Suzuki is the company’s biggest client. As per analysts estimates, Maruti accounts for around 70% of the auto paints revenue for the company. It was a double whammy of sorts and the pandemic accentuated pressure on its already struggling industrial paints business.

In the September quarter, Maruti's sales growth was aided by inventory restocking by dealers ahead of the upcoming festival season. However, it remains to be seen whether this improvement in demand, especially from the retail side, holds up even after the festive season.

In the decorative paint segment, demand is likely to be driven by smaller cities and towns as the economy is gradually reopens. A low base in its key market of Jammu & Kashmir, where Kansai Nerolac has around 70% market share, would aid sales growth. Restocking by dealers ahead of the festive season is another positive.

Meanwhile, akin to peer Asian Paints Ltd, the company has also diversified into adjacent segments. In the industrial paints sector, it has entered niche segments like coil coatings, bridges and pipe coatings and floor coatings, among others. It is also expanding its footprint in segments such as adhesives, construction chemicals and wood coatings.