Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Top line growth of approximately 1% and gross margin expansion by 1.7%, with profit before tax up by 6.2%.
- Strong demand in automotive coatings, especially in specialty passenger vehicles and two-wheelers.
- Introduction of new high-end technology solutions in the industrial segment, focusing on sustainability and efficiency.
- Increased saliency of premium products in the decorative segment, contributing to gross margin expansion.
- Successful launch and positive reception of new products in the Paint+ range, including premium wood finishes and construction chemicals.
Negative Points
- Muted demand in the decorative segment due to unprecedented heat waves and elections.
- Subdued demand in the performance coating segment, particularly in non-auto sectors, due to election-related disruptions.
- Rural market demand still lagging behind urban areas, despite some quarter-on-quarter improvement.
- Increased competitive intensity from new market entrants offering additional warranties and digital tinting machines.
- Potential margin pressure in upcoming quarters due to rising raw material costs and the exhaustion of low-cost inventory.
Q & A Highlights
Q: How is Kansai Nerolac Paints responding to competitive pressures from new market entrants like Birla Opus?
A: Anuj Jain, Managing Director, explained that while new competitors have entered the market, the impact has been minimal so far. The company believes that the paint industry is large enough to accommodate new players, and it takes time for new entrants to establish themselves. Kansai Nerolac continues to focus on its strengths, including technology and customer relationships, to maintain its market position.
Q: What is driving Kansai Nerolac's strong market share in the electric vehicle (EV) segment?
A: Anuj Jain highlighted that the company's success in the EV segment is due to its technological expertise and strong implementation capabilities at customer sites. The company has been proactive in participating in emerging trends and has a robust supply chain to meet the volatile demands of new EV players.
Q: How is the rural demand for decorative paints compared to urban demand?
A: Anuj Jain noted that while rural demand is still lagging behind urban demand, there are signs of improvement. The company expects rural demand to catch up in the coming quarters, driven by factors like a good monsoon and increased infrastructure spending.
Q: What are the expectations for decorative paint demand in the coming quarters?
A: Anuj Jain mentioned that the company expects a gradual improvement in decorative paint demand, particularly in the second half of the year. Factors like a good monsoon and increased infrastructure projects are expected to drive demand. The company is targeting high single-digit volume growth for the year.
Q: How is Kansai Nerolac managing its margins amid rising raw material costs?
A: Anuj Jain stated that the company has taken price increases to offset rising raw material costs. Additionally, cost-saving measures and a better product mix have helped maintain margins. The company is confident that these initiatives will help sustain margins in the coming quarters.
Q: What is the outlook for the industrial segment, particularly auto and non-auto coatings?
A: Anuj Jain explained that the auto segment is expected to grow in line with the production growth of auto manufacturers, estimated at 6-7% for the year. The non-auto segment, particularly performance coatings, is expected to see strong demand driven by infrastructure projects and new orders.
Q: How are innovations in industrial paints contributing to Kansai Nerolac's financial performance?
A: Anuj Jain highlighted that continuous innovation helps the company maintain or grow its market share and improve margins. Innovations in technology and product offerings have led to better pricing and higher margins, particularly in the premium segments.
Q: What is the company's strategy for expanding its distribution network?
A: Anuj Jain mentioned that the company targets an 8-10% annual growth in its distribution network. While the process of opening new counters has become more competitive, the company is focusing on offering better packages and support to dealers to meet their expectations.
Q: How significant is the project business for Kansai Nerolac's overall decorative segment?
A: Anuj Jain stated that the project business currently contributes a high single-digit percentage to the overall decorative segment. The company is focusing on this area and expects it to grow to double digits over time.
Q: What is the company's outlook for the next five years in the auto segment?
A: Anuj Jain expressed optimism about the auto segment's growth prospects, driven by low penetration rates and continuous infrastructure development in India. The company has a strong pipeline of new technologies and expects both volume and value growth in the auto segment over the next five years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
