Stock @ ₹250 | P/E 34x | ROE 9.85% | FY25 PAT ₹1,109 Cr
Title Alt: Japan ka Rang, India ka Dard: Kansai Nerolac’s Midlife Margin Crisis
1. 🧠 At a Glance
Kansai Nerolac is India’s second-largest paints company by industrial coatings but fourth by investor excitement. Despite being a 100-year-old veteran with Japan’s Kansai Paint holding 75%, the company has struggled to match the pizzazz (and margins) of its fancier cousins like Asian Paints or Berger. Recent land sales have added some color to its P&L, but the core paint biz remains a bit… matte.
2. 🎬 Introduction with Hook
Once upon a time in 1920, a humble paint company was born in Bombay. Fast forward a century, Kansai Nerolac now finds itself stuck between an Asian Paints and a hard place. It’s got a legacy, it’s got the tech (courtesy Japan), it’s got industrial clients — but it doesn’t have pricing power, profit growth, or the ability to make analysts swoon.
So, is this a turnaround story covered in primer, or a slow fade?
3. 🎨 WTF Do They Even Do? (Business Model)
- Core biz: Decorative & industrial paints (automotive coatings, powder coatings, general industrial).
- Key segments:
- Automotive paints for OEMs like Maruti Suzuki, Tata Motors.
- Decorative paints: where Asian Paints eats their breakfast.
- Powder coatings: metals, white goods.
- Global Parent: Kansai Paint Co., Japan (holds 75%). Lots of R&D, tech tie-ups.
- Revenue Mix (est.): ~50% Auto/Industrial | ~50% Decorative.
4. 📊 Financials Overview – Profit, Margins, ROE, Growth
| Metric | FY23 | FY24 | FY25 | Trend |
|---|---|---|---|---|
| Revenue | ₹7,543 Cr | ₹7,801 Cr | ₹7,823 Cr | Flat AF |
| Net Profit | ₹468 Cr | ₹1,176 Cr | ₹1,109 Cr | Mostly land sale fuelled |
| EBITDA Margin | 11% | 13% | 12% | Recovering but patchy |
| ROE | 10% | 14.7% | 9.85% | Meh |
| 5Y Sales CAGR | 8% | 5Y PAT CAGR | 3% |
💡 FY24 profit includes ₹753 Cr other income, mostly from land sales. Core paint profit? Less inspiring.
5. 🔍 Valuation – Is It Cheap, Meh, or Crack?
- P/E: 34x TTM (but if you adjust for land sale, P/E becomes… unwatchable).
- P/BV: 3.15x
- EV/EBITDA: ~21x (core biz)
✅ Looks cheap vs Asian Paints (60x)
❌ But it’s earned that discount — weak pricing power, erratic margins, and dependence on auto cyclical demand.
🎯 Fair Value Range:
- Bear Case (Auto weak, no land profits): ₹180-200
- Base Case (Normal ops + 12% OPM): ₹240-260
- Bull Case (Auto+Decor both fire + OPM 14%): ₹300-320
FV = 18x core EPS of ₹14–₹16 range (excluding other income)
6. 🍿 What’s Cooking – News, Triggers, Drama
- Sale of Lower Parel land: ₹726 Cr in FY24
- Vizag Plant Commercialized: Capacity ramp-up in Q1FY25
- Sayakha Auto Paint Expansion: 4,200 KL/annum
- GST Dispute Update: Relief received, demand reduced to ₹15 Cr
- Leadership Change: Pravin Chaudhari replaces Anuj Jain as MD in April 2025
🎯 Upcoming trigger: Q1FY26 results + clarity on growth in industrial orders
7. 📉 Balance Sheet – How Much Debt, How Many Dreams?
| Item | FY23 | FY24 | FY25 |
|---|---|---|---|
| Equity | ₹81 Cr | ₹81 Cr | ₹81 Cr |
| Reserves | ₹4,480 Cr | ₹5,502 Cr | ₹6,342 Cr |
| Debt | ₹160 Cr | ₹276 Cr | ₹296 Cr |
| Total Assets | ₹6,306 Cr | ₹7,410 Cr | ₹8,217 Cr |
🔧 Debt/equity: Still very low, under 0.05 — paint company hai, not infra.
8. 💵 Cash Flow – Sab Number Game Hai
- FY25 CFO: ₹672 Cr (healthy)
- FCF: Positive, capex largely covered
- Investing CF: -₹379 Cr (mostly into real estate again?)
- Financing CF: -₹366 Cr (dividends + repayment)
Kansai = Cash + Land = Investor confusion
9. 📐 Ratios – Sexy or Stressy?
| Metric | Value | Comment |
|---|---|---|
| ROCE | 13% | Low for paints segment |
| Inventory Days | 133 | Stable |
| Debtor Days | 63 | Normal |
| Dividend Yield | 1% | Steady payout |
| Dividend Payout | 27% | Healthy but not indulgent |
| Net Profit Margins | ~14% (adjusted) | Unreliable due to other income |
10. 🧾 P&L Breakdown – Show Me the Money
Core Revenue: ~₹7,800 Cr
- Paints = ₹7,000 Cr est
- Other/Resale/Services = ₹800 Cr
FY25 PBT = ₹1,478 Cr
- Of which ₹769 Cr = “Other Income”
So actual operations = ~₹700 Cr PBT
Core EPS = closer to ₹7-8
Headline EPS = ₹14.14
11. 🥊 Peer Comparison – Who Else in the Game?
| Company | P/E | ROE | OPM | FY25 PAT | FY25 Sales | Comment |
|---|---|---|---|---|---|---|
| Asian Paints | 61x | 20.6% | 17.7% | ₹3,925 Cr | ₹33,900 Cr | The God Tier |
| Berger Paints | 58x | 20.5% | 16.1% | ₹1,180 Cr | ₹11,500 Cr | Strong mid-tier |
| Akzo Nobel | 39x | 32.2% | 15.7% | ₹428 Cr | ₹4,091 Cr | Premium foreign |
| Kansai Nerolac | 34x | 9.85% | 12% | ₹1,109 Cr* | ₹7,823 Cr | *Includes land sale |
| Indigo Paints | 40x | 14.6% | 18.1% | ₹144 Cr | ₹1,277 Cr | Fast & furious |
📉 Nerolac sits awkwardly: not high growth, not high margin, not high ROE. Just… there.
12. 🧑💼 Miscellaneous – Shareholding, Promoters
- Promoter holding: 75% (Kansai Paints Japan)
- FIIs: Increasing slowly – now 5.3%
- Retail holding: ~9.6%, up steadily
- No pledging ✅
- Board update: Pravin Chaudhari is the new MD as of April 2025
👨🎨 Also owns significant real estate — Lower Parel, Kavesar Thane — more REIT than paint?
13. 🧑⚖️ EduInvesting Verdict™
Kansai Nerolac is that 100-year-old uncle with land in Mumbai but weak knees.
If Asian Paints is Ranveer Singh in a paint ad, Nerolac is your tax-paying middle-class cousin who invested in property in the ’80s and now survives on rent.
Yes, the valuation is lower.
Yes, they’re industrial leaders.
Yes, there’s cash.
But unless you count “other income” as your favorite color, this story still needs a few coats of growth.
FV Range: ₹200–₹320
No “buy,” no “sell.” Just brush strokes.
✍️ Written by Prashant | 📅 July 10, 2025
Tags: Kansai Nerolac, Paints Sector, Industrial Coatings, Asian Paints Comparison, FY25 Earnings, Land Sale, Dividend Stocks, Japan MNC India, Midcap Paint Stocks, EduInvesting Paint Wars
