Introduction

Kansai Nerolac Paints Limited (formerly known as Goodlass Nerolac Paints Ltd) is the
largest industrial paint and third largest decorative paint company of India based
in Mumbai. It is a subsidiary of Kansai paints of Japan. As of 2015, it has the third largest
market share with 15.4% in the Indian paint industry. It is engaged in the industrial,
automotive and powder coating business. It develops and supplies paint systems used on the
finishing lines of electrical components, cycle, material handling equipment, bus bodies,
containers and furniture industries.

Financial Statement analysis

Profit and loss

Profit for the company has increased to 50% in the last 4 years for the company. Its net profit
is 3rd best in its category after Asian Paints and Burger paints.

Income Statement

● Over the last 5 years, revenue has grown at a yearly rate of 6.81%, vs industry avg of
6.68%.

● Over the last 5 years, market share increased from 16.25% to 16.35%

● Over the last 5 years, net income has grown at a yearly rate of 13.71%, vs industry
avg of 15.04%.

Balance Sheet

● Over the last 5 years, debt to equity ratio has been 2.36%, vs industry avg of 9.46%.

● Over the last 5 years, current ratio has been 293.03%, vs industry avg of 183.81%.

 Cash Flow Statement

 ● Over the last 5 years, free cash flow growth has been 10.73%, vs industry avg of
18.84%.

 Revenue Forecast

● Expected revenue growth of -9.17% for next year is less than last 3-year CAGR
revenue growth of 5.12%.

 Earnings Per Share Forecast

● Expected earnings growth of -6.27% for next year is less than last 3-year CAGR
earnings growth of 0.79%.

Promoter Holdings Trend

● In last 6 months, promoter holding in the company has almost stayed constant

● Pledged promoter holdings are insignificant

Institutional Holdings Trend

● In last 3 months, mutual fund holding of the company has almost stayed constant.

● In last 3 months, foreign institutional holding of the company has almost stayed
constant

2. Indian Paint Industry Analysis

 The Indian paint industry is over 100 years old. Its beginning can be traced back to
the setting up of a factory by Shalimar Paints in Calcutta (now Kolkata) in 1902.
Until World War II, the industry consisted of small producers and two foreign
companies.
 The domestic paint industry is estimated to be a Rs 500 billion industry with the
decorative paint category constituting almost 75% of this market. The decorative
paint market includes multiple categories depending on the nature of the surface
 like exterior wall paints, interior wall paints, wood finishes, enamels as well as
ancillary products like primers, putties, etc.
 The industrial paint category constitutes the balance 25% of the paint market and
includes a broad array of segments like automotive coatings, marine coatings,
packaging coatings, powder coatings, protective coatings and other general
industrial coatings.
 The paints sector is raw material intensive, with over 300 raw materials (50%
Petro-based derivatives) involved in the manufacturing process. Since most of the
raw materials are petroleum based, the industry benefits from softening crude
prices.
 Under the make in India initiative, the government of India aims to increase the
share of the manufacturing sector to the gross domestic product (GDP) to 25% buy
2022 from existing 16%.
 Manufacturing sector has the potential to reach US$ 1 trillion by 2025 and India is
expected to rank amongst the three growth economies and manufacturing
destinations of the world by 2020. These factors expected to significantly boost
industrial paint consumption.

The paint, varnishes, coatings and lacquers industry are one the most heavily regulated
industries in the world. The Indian paint industry was the second largest in the world in 2019.
The sector witnessed significant growth over the past few years. In 2019, the Wholesale Price
Index of paints and varnishes stood at 112.7, its highest value compared to the last five years.
In 2019, the trade value of the country’s paint industry was over 57 trillion Indian rupees.
Despite being the second largest industry globally, the export value of India’s paint
industry amounted to around 18 trillion rupees as opposed to the import value worth
approximately 39 trillion rupees.

Segmentation

The paint sector across the south Asian country was broadly classified into two segments –
industrial and decorative. Exterior and interior wall paints, enamel and ancillary products and
wood finishes made up the decorative segment. Automotive, powder and protective coatings
on the other hand summed up the industrial segment. The Indian market was dominated by
the decorative segment accounting for about 75 percent of the market share compared to
industrial segment which had just over 25 percent of the share. Less technical know-how and
the involvement of organized as well as unorganized players contributed to this major
difference in market shares.

Market leaders
Asian Paints was the leading company in 2019, with a market share of about 39 percent. In
the organized segment, Asian Paints led the decorative market segment, while the industrial
segment was led by Kansai Nerolac. As of 2019, the Indian paint industry saw around 12
percent growth in its output volumes and about 15 percent growth in terms of its total value.
Future growth in the industry is likely to depend on a several factors such as disposable
incomes, stability of crude oil prices and growth in the automotive and real estate sectors.

SWOT Analysis

Strengths

a) Importance of brand image as barriers to new entrants

b) Good technology backup

Weakness

a)     Scarcity of Raw Materials

b)    Requirement of high working capital

C)    Real Estate in a depression phase

Opportunities

a)     Fiscal incentives provided by the government

b)    Shift from commodity market segment to FMCG

c)    Rise in disposable income of the household

Threats

A. Foreign companies are moving as sole players (E.g., Valentino Paints from Italy) 

Key drivers:

 Gradual shift in the preferences of people from the traditional whitewash to high-
quality paints like emulsions and enamel paints.
 Rise in disposable income of the average middle class.
 Increasing investment on education; urbanization; development of the rural market.
 Launches of innovative products, like friendly, odour free, and dust & water-resistant
paints

Product Diversification

 Decorative Paints Market – Residential/Commercial

Interior Paints and Exterior Paints

 Industrial Paints Market -

Automotive Coating, High-Performance Coating, Powder Coating, Coil Coating, Marine

PESTEL analysis

Political

 Fiscal incentives given to housing sector will benefit paint industry in long term.
 Make in India initiatives are helping Indian brands to expand.
 Reduced tax (GST) rates have induced the sales

Economical
  100% FDI
 Rise in Income and increase in industrialization.
 Slowdown in economy due to COVID-19 led to downfall in demand.
 Dependency on crude oil.
 Increased expenditure in rural areas.

Social

 Shift in consumers preferences from traditional to high quality products.

 Emerging low socio income group in India, seeking upscale housing.
 With increased socialistic measures of govt the demand of more cleaned and upscaled
housing and infrastructure sector increased

Technological

 Use of Augmented Reality for testing colour of paints because of advance

technologies.
 Modernization of paints -
 Waterproof paints
 Teflon coated paints
 Lead free paints
 Germs repellent paints.
 Dust repellent paints etc.

Environmental

 Ecological and toxicological disruption due to solvents, monomers and softening

agents.
 Use of harmful components impacts health – irritate eyes, skin rashes.
 VOCs add to depletion of ozone.


Legal
  Environmental laws
 Health and safety law
 Pollution control law

Kansai Nerolac

Find complete Data in following link Kansai Nerolac

KN Regrn. Beta

SUMMA
RY
OUTPUT

Regressio  
n
Statistics
Multiple 0.2219
R 03437
R Square 0.0492
41135
Adjusted 0.0488
R Square 55119
Standard 0.0189
Error 63591
Observati 2465
ons

ANOVA
  df SS MS F Signific
ance F
Regressio 1 0.0458 0.0458 127.56 7.0849
n 73645 73645 22249 9E-29
Residual 2463 0.8857 0.0003
38618 59618
Total 2464 0.9316      
12263

  Coeffic Standa t Stat P- Lower Upper Lower Upper

 ients rd value 95% 95% 95.0% 95.0%
Error
Intercept 0.0010 0.0003 2.7051 0.0068 0.0002 0.0017 0.0002 0.0017
33441 82021 95301 73436 84326 82556 84326 82556
X 0.4002 0.0354 11.294 7.0849 0.3307 0.4697 0.3307 0.4697
Variable 89495 41586 34482 9E-29 9111 87881 9111 87881
1

Beta 0.4002
89495

Graphical Beta Output

Find complete Data in following link Graphical Beta Output

30.000%

20.000%

10.000%

0.000%
f(x) = − 50000.000%
0.000% 0x+0 100000.000% 150000.000% 200000.000% 250000.000% 300000.000%
R² = 0
-10.000%

-20.000%

-30.000%

Rm Calculation

Date Price
Nov 05, 948.82
1995
Nov 12, 898.86 -0.05409 0.001683 weekly
1995
Nov 19, 871.11 -0.03136 8.75% Annually
1995
Nov 26, 873.05 0.00222 2.19% Quarterly
1995 5
Dec 03, 887.12 0.01598
1995 7
Dec 10, 883.41 -0.00419
1995
…to be continue
Mar 08, 9,955.20 -
2020 0.09884
Mar 15, 8,745.45 -
2020 0.12956
Mar 22, 8,660.25 -
2020 0.00979
Mar 29, 8,083.80 -
2020 0.06888

Find complete Data in following link Rm Calculation

Unlevered Industry Beta

Standard Tax Rate 30%

Company Name Levered Beta Unlevered Beta Unlevered Beta

Asian Paints Ltd. 0.69 0.658007598 0.644859813
Berger Paint 0.685002712 0.486484879 0.600879572
Shalimar Paints Ltd. 2.09 1.948017956 1.564371257
Eelantas beck india ltd 0.8 0.793462877 0.8
Akzo Nobel India Ltd. 0.63 0.335617718 0.608695652
Kansai Nerolac Paints Ltd. 0.400289495 0.284283235 0.351131136

Industry Beta 0.979000542 0.844318206 0.843761259

2015-2016 2016-2017

Total Total D/E Total Equity Total Debt D/E

Equity Debt
59257.3 1270 0.021432 70947.5 1261.8 0.017785
15921.4 55.1 0.003460 19127.7 6187.6 0.323489
8
1667.3 306.9 0.18407

11625 692 0.059526 10089 848 0.084052

 9
25028.7 328.4 0.013120 28053.2 183.3 0.006534
9

2017-2018 2018-2019

Total Total D/E Total Total D/E

Equity Debt Equity Debt
77981.6 1204.8 0.01545 88429.6 6061.3 0.068544
21436.1 8493.6 0.396229 23547.9 12979.2 0.551183
1210.6 318.8 0.26334 2884.7 267.3 0.092661
2776.3 50.8 0.018298 3390.2 47.4 0.013981
12902 705 0.054643 11356 810 0.071328
31251.2 97.1 0.003107 34244.7 34 0.0010

2019-2020

Total Equity Total Debt D/E D/E

94532.9 6566 0.069457 0.1
26250.4 15302.7 0.582951 0.2
2564.3 267 0.104122 0.48
3840.4 45.2 0.01177 0
12373 15504 1.253051 0.05
37868.7 490.4 0.01295 0.02

Cost of Equity
 9.0000%

8.0000%

7.0000%

6.0000%

5.0000%

4.0000%

3.0000%

2.0000%

1.0000%

0.0000%
0.4 0.84

Cost of Debt

Rs in
Millions
Finance Costs 206.90
Total Borrowings 917.24 22.56%
Return on Debt 56.80%
PAT 521
Time 15
Market Value of Borrowings 917.24
YTM/cost of Debt 22.56%
Tax Rate 30%
After Tax Cost of debt 5.28%

WACC

Calculation of WACC
1 When cost of equity is calculated
by CAPM
Cost of Debt 5.28%
Cost of Equity 12.26% WACC 12.03
%
Weight of Debt 3.38%
Weight of Equity 96.62%

2 When cost of equity is calculated

by regression
Cost of Debt 5.28%
Cost of Equity 6.40% WACC 6.36%
Weight of Debt 3.38%
Weight of Equity 96.62%