270% Dividend: Paint Company Making Right Moves In Rising Competition; PL Says Accumulate On Midcap

Unlike Asian Paints which is the leader in the paint sector in terms of market share, Kansai Nerolac Paint was likely to face tough competition from Grasim Industries foray into the similar industry. However, in the latest brokerage, Prabhudas Lilladher stated that Kansai has been making the right moves in this competitive environment. Accordingly, the brokerage has suggested accumulating Kansai shares. Notably, Kansai stocks have fallen significantly in the past three sessions, giving an opportunity for buying-on-dips.

Kansai's share price has been on a losing streak for three consecutive trading sessions. On December 12, the stock dipped by 0.71% to end at Rs 326.85 apiece on BSE with a market cap of Rs 26,421.89 crore. YTD, the stock is up nearly 12%.

Kansai is also among dividend-paying stocks. In 2023, so far, the company paid a dividend of 270% amounting to Rs 2.7 per share. This is more than double the dividend payout of 100% aggregating to Re 1 each last year.

At present, Kansai has a dividend yield of 0.83%.

Brokerage Prabhudas Lilladher stated that it attended the India strategy Session of Kansai Paints, Japan where KPIL (Mkt Cap USD3.2bn) highlighted its key initiatives and growth strategies.

As per the brokerage, KPIL is following a 360 degree growth strategy which involves 1) 11 new Deco launches aimed at increasing the share of premium products 2) Distribution expansion with a focus on increasing traction in less indexed south and west India 3) online incentive to influencers to push sales 4) technology-led innovations in Auto paints (including EV) to increase traction 5) Extension of B2B segment to 75 cities 6) Technology backed products to sustain leadership in powder coatings and gain from rising Infra spends in other industrial paints including Railways 8) aim to increase the share of waterproofing and allied segments from 5% to 10% of sales.

Further, the brokerage believes that KPIL has been taking all the right steps, however, valuations at 27.2xFY26 are
factoring in the expected increase in competition and consequent threat to market share and profitability post Grasim's entry.

It added, "We believe improving sales traction and profitability in Industrial paints (45% of sales), could be a saving grace given for KPIL given parent's strength in Industrial Paints. We estimate a 27.9% PAT CAGR over FY23-26 and a 13.3% CAGR over FY24-26.
Retain accumulate with target price of Rs370 based on 32xSept25EPS (Rs.351
earlier based on 32xFY25 EPS)."

From the current price level, KPIL shares have the potential of over 13% upside.

Kansai Nerolac is the second largest coating company in India and a market leader in Industrial Coatings. Also, the company is second largest paint company in the country.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.