Kansai Nerolac Paints Limited (KNPL) is gearing up for a recalibrated growth path under the stewardship of its new leadership, with an eye on margin expansion and long-term market share gains across segments. Asit C. Mehta Investment Interrmediates Ltd. (ACMIIL) has reaffirmed a ‘BUY’ recommendation on the stock, setting a target price of Rs 335, suggesting a potential upside of nearly 30% from its current market price of Rs 258. The key levers of this projection include robust performance in automotive and industrial coatings, premiumisation in decorative paints, and ongoing margin optimization.

Growth Outlook: Strategy Continuity with Focused Realignment

The management's strategic direction under the new MD remains aligned with previous goals, emphasizing industrial and new business growth. Short-term growth aspirations have been moderated to 9% over the next three years, acknowledging current market softness. However, a strong margin expansion plan—targeting an EBITDA range of 14-15% by FY27 and 18% by 2030—signals a shift toward sustainable profitability.

KNPL plans to deepen its reach in project-specific construction chemicals and wood coatings while stabilizing its decorative segment through premium offerings and regional strongholds, especially in North and East India.

Industrial and Automotive Segments: The Next Frontier

Kansai Nerolac continues to dominate automotive and powder coatings, where it already holds the #1 market position. The shift in automotive preferences toward larger SUVs is creating a tailwind, increasing surface areas that require painting. Over the past five years, the company’s automotive business has doubled in sales, driven by strong ties with both Indian and Japanese OEMs, and is now positioning itself to engage with Korean manufacturers as localization trends intensify.

In industrial coatings, sub-segments like powder, general industrial (GI), and high-performance coatings (HPC) have grown 40–70% over the last three years. Newer verticals such as alloy wheel coatings and infrastructure-grade solutions are expected to drive the next wave of growth, supported by global technology transfers and recent acquisitions by the parent firm.

Decorative Segment: Stability with Premiumisation

Though KNPL ranks third in the decorative paints category, it has carved out a niche in higher-growth sub-segments. Focus areas such as construction chemicals, wood finishes, and the projects vertical are showing faster-than-market growth. The strategy hinges on expanding distribution, strengthening engagement with painters and influencers, and rolling out differentiated products with higher margins.

The decorative business is also witnessing a trend of value growth matching volumes, as demand shifts toward emulsions and functional premium paints despite pressure from downtrading in urban pockets.

Margin Expansion: From Optimization to Automation

KNPL’s EBITDA margin stood at 12.9% for the first nine months of FY25. The company aims to expand this to 14–15% by FY27 and 18% by 2030. This will be achieved through a blend of premiumisation, automation, digital supply chain improvements, and cost efficiencies via global sourcing. Notably, industrial segment margins have now nearly caught up with decorative, reflecting the benefit of pruning low-margin businesses and focusing on premium sub-segments.

KNPL’s medium-term profitability aspirations are now backed by tangible levers rather than aspirational projections alone, lending credibility to ACMIIL’s bullish stance.

Geographic and Segmental Growth Plans

India has emerged as the group’s highest-growth market, contributing 24.3% to the parent company’s topline. Rural demand continues to outperform urban, especially in the decorative segment. Regionally, North and East India account for 80% of the deco business, with renewed initiatives in the South to improve market presence.

On the industrial front, KNPL is building scale via its One-Kansai approach—cross-leveraging technology, distribution, and R&D assets globally. Expansion in high-growth verticals such as construction, infrastructure, and automotive augurs well for long-term sustainability.

Financial Snapshot and Valuation Metrics

KNPL is forecasted to deliver a 15% CAGR in adjusted PAT and 15.6% CAGR in EBITDA over FY25–27E. Revenue is expected to grow at a compound rate of 9.5%, with return ratios also improving gradually. The ROCE is projected to rise from 12.4% in FY25 to 14.5% in FY27, while ROE inches up to 12.5%.

ACMIIL rolls forward its valuation to FY27 earnings per share (EPS) estimate of Rs 11.2 and retains a target P/E multiple of 30x, yielding a fair value of Rs 335. The BUY call reflects confidence in KNPL’s margin trajectory, leadership strength, and focused growth strategy.

Competitive Landscape: Stabilization in Sight

KNPL sees early signs of a plateau in competitive intensity within the decorative segment. According to management, new entrants have maxed out their dealer footprint, and further market share gains will depend more on brand strength and influencer engagement—domains where incumbents like KNPL possess an edge.

This expected stabilization, coupled with a normal monsoon and easing inflation, is likely to improve performance from the second half of CY25 onward.

Long Term Investment Thesis: Growth with Stability

At the current market price of Rs 258, Kansai Nerolac offers a 29.8% upside to the target price of Rs 335, making it a compelling mid-cap investment in the paints and coatings space. With robust earnings visibility, strategic margin uplift, and smart capital allocation, KNPL is well-positioned to benefit from India’s infrastructure push and rising consumer preference for quality decorative solutions.

Investors seeking long-term exposure to industrial paints, backed by strong R&D, global synergies, and domestic scale, may find KNPL a worthy contender.