Kansai Nerolac Stock Analysis

Date: 25 January, 2017

Price: Rs. 343.00

View: Buy

Kansai Nerolac (“Kansai Nerolac” or the “Company”) services customers in both decorative as well as industrial segments. The Company has coating solutions across the decorative, wood coatings, general industrial, high performance coatings, powder coatings, automotive, and auto refinish market segments.


Leadership Position in Industrial Segment

Kansai Nerolac is the market leader in industrial coating segment, and has managed to retain its leadership position over the years owing to innovative product and service offerings to industrial customers. The Company has 60% market share in the automotive paints segment and 40% in industrials, which mainly includes white goods such as washing machines, refrigerators and air conditions, and other industries such as infrastructure and power.

Major Clients in Auto Paints – Maruti, Bajaj Auto, Tata Motors, Honda Cars, Mahindra & Mahindra etc.

Major Clients in White Goods Industry – Godrej, Whirlpool, Samsung, Blue Star, Daikin, Voltas, Haier, Videocon, Siemens, Havells and Hitachi

Kansai Nerolac’s revenue from automotive segment has grown at a CAGR of 11.6% in the last five years as against 7% growth in automobile industry volumes during the same period. The Company has increased market share from 55% to 60% in FY 2016. The Company is likely to be a big beneficiary of any revival in the growth rates of the automobile industry and will grow at a rate higher than Industry average led by 1) technological advantage 2) new client additions & strong relationships and (4) timely capacity additions.

Increasing Focus on Decorative Paints

Demand from decorative segment form ~70% of the overall paint industry. Kansai Nerolac is the largest industrial paint company in India with more than 35% market share in industrial paints and third largest player with an overall market share of 14%. With sustainable growth in decorative paint, the Company has increased its revenue contribution from decorative paints from 50% in FY 2009 to 55% in FY 2016. The Company has strong brands in interior, exterior and metal paints like Impressions, Excel, Surkasha, Satin Enamel, Lotus Touch, Beauty, Pearl and Little Master. Kansai Nerolac continues to invest in brands with 4-5% of revenue going towards advertisement and promotion. We believe decorative paints would continue to grow at a more rapid pace with the presence of limited players and strong repainting demand.

Retail Network & Distribution

Kansai Nerolac has been increasing its distribution reach and adding depots and dealers steadily. The Company’s distribution network has increased from ~11000 dealers in FY 2011 to 16000 dealers in FY 2016 and has installed 11000 tinting machines, which are owned by Kansai Nerolac. The Company is planning to increase the number of dealers to ~20000 with 80% having a Tinting machine by FY 2018.

Manufacturing Facilities – The Company serves its customers through a network of 4 manufacturing facilities strategically located at Lote in Maharashtra, Bawal in Haryana, Jainpur in U.P. and Hosur in Tamil Nadu. The Company is planning to set up two new state-of-the-art facilities in Gujarat and Punjab.

Apart from the Indian business, Kansai Nerolac also conducts business outside India through successful joint ventures. The Company has JV in Nepal with Kansai Nepal and also has a JV in Sri Lanka with Capital Holdings Maharaja Group to set up the paint business in Sri Lanka.

Wide Product Portfolio

Kansai Nerolac has differentiated its product portfolio by offering eco-friendly, lead free, low VOC & economical series of affordable emulsion paints with High Definition Colour Technology (HD). The Company is using technological expertise of its parent Kansai in launching new products like Nerolac Impressions HD Colour, Excel Rain guard (waterproofing to protect against rainfall) and statue paint for coating statues.

Kansai Nerolac’s products are comparable with its peers across categories and price.

  • Impressions and Pearl compete with Asian Paints ‘Royale’ and ‘Apcolite’ in the interior paints.
  • Excel exterior paints which compete with Apex from Asian Paints and Weather Coat from Berger.

In order to increase its presence in the economy segment of paints, the Company has launched “Little Master” to compete with Asian Paint’s “Tractor Emulsion” which aims at upgrading the customer who is using Distemper to an Emulsion-based paint. Little Master has been priced at 10-20% discount to its peers.

Kansai Nerolac Product Portfolio

[1] Decorative Paint Products

Interior Paint Range

  • Economy
    • Nerolac Little Master
    • Nerolac Beauty Smooth
  • Popular
    • Nerolac Beauty Silver
    • Nerolac Beauty Gold
  • Premium
    • Nerolac Lotus Touch
    • Nerolac Pearl
  • Super Premium
    • Nerolac Impressions 24 Carat
    • Nerolac Impressions Eco Clean

Exterior Paint Range

  • Economy
    • Nerolac Suraksha Superior
  • Popular
    • Nerolac Suraksha Plus
    • Nerolac Suraksha Advanced
  • Premium
    • Nerolac Excel Anti Peel
    • Nerolac Excel Total
  • Super Premium
    • Nerolac Rainguard Vertical
    • Nerolac Rainguard Horizontal

Wood Coating Paint Range

  • Economy
    • Wonderwood 1K PU
  • Popular
    • Wonderwood 2K PU
    • Wonderwood NC Sanding Sealer
  • Premium
    • Wonderwood Melamine

[2] Industrial Paint Products

  • Automotive Coatings
  • High Performance Coating
  • General Industrial
  • Powder Coatings


Increasing competition

Entry of new foreign players like Nippon, Sherwin Williams and National Paints; and aggressive capacity addition by existing players indicates increasing competitive intensity. However, Kansai Nerolac has been able to not only protect its market share but continuously increasing it with aggressive market strategies and by anticipating early the next growing trend in the industry.

kansai nerolac

Demand Slowdown in Various Sectors

A slowdown in discretionary consumption affects Kansai Nerolac decorative paints business, while a weaker growth in industries like automobile, manufacturing, infrastructure directly impacts the demand for industrial paint.

Written by Priyanka Laroiya