Kansai Nerolac announces enhancement in proposed capacity expansion

Capacity at the Punjab plant will now be ramped up to 52,800 KLpa vs 36,000 KLpa announced earlier

Jan 18, 2018 09:01 IST India Infoline News Service

Kansai Nerolac Paints
India’s third largest paints company, Kansai Nerolac Paints Ltd (KNPL) , announced enhancement in the quantum of proposed capacity expansion at its plant in Goindwal Sahib near Amritsar in Punjab. The proposed capacity expansion has been enhanced from 36,000 Kilo Liter per annum (KLpa) to 52,800 KLpa. This was announced by KNPL to stock exchanges on January 18, 2018.

While proposed capacity expansion will be enhanced by 47% (in KLpa terms), the budgeted cost of the project will rise by only 20%. It will now be Rs216.50cr against Rs180.50cr announced earlier. This indicates that the incremental cost of expansion will be lower.

KNPL stated in its announcement to the exchanges that the upward revision in the capacity expansion was made “...looking at the condition of the site and change in design...”.

Our Take

KNPL’s capacity enhancement augurs well for the company as it indicates better demand environment going ahead. The management has indicated that capacity will be enhanced in phases from 3,64,000 KLpa in FY17 to 4,31,000 KLpa in FY18 and 5,43,800 KLpa in FY20. The slated long term company expansion; 50% in absolute terms and 11% CAGR over FY17-FY21, is an indication that the company is out of the woods so far as near term disruptions are concerned – GST, demonetization and RERA implementation.  As on September 30, 2017, KNPL has a debt free balance sheet and cash and liquid investments worth Rs641cr on its books. Hence, it will be able to fund the expansion entirely through internal accruals.

KNPL derives 56% revenues from decorative paints, 43% from industrial paints and 1% from exports. In Industrial segment, automotive coatings segment constitutes 75% of sales. Within the decorative coatings segment, KNPL’s product range spans the entire portfolio from the high-end emulsion to low-end distempers and primers. KNPL has a presence in decorative coatings paint market of Nepal and recently has entered into JV with Maharaja group to cater to Sri Lankan paints market. The company has a manufacturing capacity of 350,000MT across four plants in India and has the third-largest distribution network comprising 15,000 dealers.

KNPL is currently trading at Rs544, up by Rs0.2 or 0.04% from its previous closing of Rs543.8 on the BSE. The scrip opened at Rs549.4 and has touched a high and low of Rs549.65 and Rs543.65 respectively. So far 1,19,666 (NSE+BSE) shares were traded on the counter. The current market cap of the company is Rs29,306.45cr.

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