<h1>Kansai Nerolac Targets Growth Amidst Market Shifts</h1>

Ashwin Thakker

— 2 min read
  • Q2 FY26 decorative sales outlook improved, driven by construction and early Diwali.
  • August and September sales expected to be better than last year's festive trend.
  • H2 FY26 industry outlook projects more stable conditions with fewer new players.
  • FY25 margin target is 13-14%.
  • FY26 objective is margin expansion, supported by benign raw material prices and formula optimization.
  • Sales volume expected to remain flat, with value seeing lower single-digit degrowth.
  • Industrial business robust due to infrastructure focus, while automotive remains sluggish.
  • North and East regions are performing well, but West and South show weakness.
  • International markets, specifically Bangladesh and Sri Lanka, are concern areas.

Kansai Nerolac Paints discussed its Q1 FY26 performance, highlighting a mixed but hopeful outlook for the coming quarters. Despite a flat volume and slight value degrowth in Q1, the company projects a stronger second half, emphasizing strategic initiatives and market stabilization. This earnings call provided critical insights into their future sales and margin strategies.

Kansai Nerolac projects an improved Q2 FY26, particularly for its decorative segment, buoyed by increased construction activity and an earlier Diwali festive season. Management anticipates a stronger August and September, mirroring last year's positive festive trends. While Q1 saw flat sales volume and slight value degrowth, the company expects this trend to persist, aiming for a more stable industry environment in the second half as competition adjusts. Industrial business remains robust, driven by government infrastructure focus, despite a sluggish automotive sector. Monsoon effects impacted May sales and some project work.

"we believe that quarter 2 should be better as far as decorative is concerned. It is also due to our Diwali being slightly ahead of time than last year. I think we'll have season, August and September, I think, should be better than what it was last year."

Targeting Margin Expansion and Competitive Stability

Kansai Nerolac aims to maintain and expand margins via a pass-through policy, adjusting prices as needed. Despite a 1-1.3% inflation impact on decorative products from TiO2 duties, raw material prices are currently 'benign.' The company targets 13-14% margins for FY25, with an objective for expansion in FY26, supported by favorable raw material trends and formula optimization. Competitive intensity shows signs of easing, with some rivals withdrawing aggressive offers. This shift contributes to market stabilization and dealer returns.

The company's objective for FY26 is "margin expansion in FY '26 considering where the RM prices are as a basket, which are trading lower than last year." For FY25, the target is "13% to 14%".

Kansai Nerolac's Q1 FY26 earnings call paints a picture of strategic adaptation amid dynamic market conditions. The company's forward-looking guidance points to an optimistic second half, driven by festive demand, construction activity, and stabilizing competition. With a clear focus on margin maintenance and expansion, along with product innovation and network expansion, Kansai Nerolac aims to consolidate its market position and navigate future uncertainties effectively.

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