Kansai Nerolac Paints Seen Reaching Rs 248 Target: Prabhudas Lilladher Research

Kansai Nerolac Paints Sees Increased Earnings Estimates Amidst Macro Headwinds

Prabhudas Lilladher's research report has raised its earnings per share (EPS) estimates for Kansai Nerolac Paints, citing several factors that are expected to drive growth. The research firm has increased its EPS estimates for FY27 and FY28 by 2.3% and 4.2%, respectively.

The key drivers of this increase include a high single-digit overall price hike, led by a price hike of low teens in the decorative segment. Additionally, a healthy demand outlook for the auto segment, which is expected to continue recovering in the decorative segment, is expected to contribute to the growth. Furthermore, the company's sustained EBITDA margin guidance of 13-14% is expected to remain intact despite macro headwinds.

However, the research firm has also highlighted the potential risks associated with frequent price hikes, which could lead to a buildup of trade inventory. If crude prices decline meaningfully, this could choke trade. In the auto paints segment, which accounts for 30% of total sales, healthy volume growth is expected till 2Q27 due to the carry-over impact of GST rate cuts. However, this growth is subject to the assumption that there is no sharp increase in the cost of ownership due to higher petrol or diesel prices.

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Key Estimates and Projections

The research firm values the stock at 25x Mar28 EPS and has assigned a target price of Rs248 (Rs234 earlier). While the stock offers reasonable upside in the near term, the long-term outlook for the decorative paints segment is cautious. As a result, Prabhudas Lilladher retains its Accumulate rating.