Kansai Nerolac’s 's topline delivery of 118% YoY exceeded expectations. In the decorative segment, volume lagged value growth as realisations were aided by multiple price hikes, make-up in recovery (urban performed better than rural) and  better mix.

Decorative performance is likely to have lagged the market leader APNT. Industrial coatings recovered too (on a low base). GM (Gross Margin) was under pressure, given higher industrial skew in the mix YoY and RM inflation (high double digits YoY). Price hikes (since Mar-21) remain incommensurate to the RM spike.

1QFY22 highlights: Revenue grew 118% YoY to INR 13bn (HSIE: INR11.7bn). In the decorative segment, volume lagged value growth as realisations were aided by (1) multiple price hikes, (2) make-up in recovery (urban performed better than rural) and (3) better mix (emulsions did well). Performance still lags APNT (HSIE: 2-yr CAGR: APNT: +5% vs KNPL: -2%). Management highlighted that dealer additions will pick up in 2H. Industrial segment recovered too (off a low base). New products now account for 10% of sales. GM contracted 744bps YoY to 34.2% (in-line), given (1) higher industrial skew in the mix and RM inflation YoY. Price hikes (since Mar-21) remain incommensurate to the RM spike. Better cost control cushioned the impact of EBITDAM (14.4%; +92bp). The 2-year PAT CAGR stood at -10% (INR 1.18bn).

Outlook: The double whammy of demand impact (courtesy the second and probable third waves) and runaway RM inflation are likely to be felt by KNPL the most within the top-tier paint companies, given it has an industrial-heavy revenue skew (already factored in).