Kansai Nerolac Paints : Conference Call with Investors Trascript

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August 04, 2021
1. Corporate Relationship Department	2. Manager - Listing
BSE Limited,	National Stock Exchange of India Ltd.
Phiroze Jeejeebhoy Towers,	Exchange Plaza, C-1, Block G,
Dalal Street,	Bandra Kurla Complex, Bandra (E),
Mumbai - 400001.	Mumbai - 400051.

Sub.: Q1 FY 21-22Financial Results Conference Call - Transcript

Ref.: 1. Regulation 30(6) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

2. Scrip Codes : BSE - 500165, NSE - KANSAINER

Dear Sirs,

This refers to the intimation done by the Company on July 30, 2021 with regard to the conference call to be hosted by the Management of our Company to discuss Q1 FY 2021-22 Financial Results of the Company, and intimation done on July 31, 2021, an Investor Presentation was enclosed for the same.

The Conference call was hosted by the Management of our Company on Monday, August 2, 2021 at 11 a.m. (IST) and we are enclosing herewith the transcript of the Conference call for your information and reference.

For KANSAI NEROLAC PAINTS LIMITED

Digitally signed by G

G TT GOVINDARAJAN GOVINDARAJAN Date: 2021.08.04

13:04:40 +05'30'

G. T. GOVINDARAJAN

COMPANY SECRETARY

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"Kansai NerolacPaints Limited

Q1 FY2022 Earnings Conference Call"

August 02, 2021

ANALYST: MR. ANIRUDDHA JOSHI - ICICI SECURITIES

MANAGEMENT: MR. ANUJ JAIN - EXECUTIVE DIRECTOR - KANSAI

NEROLAC PAINTS LIMITED

MR. PRASHANT PAI - DIRECTOR (FINANCE) -

KANSAI NEROLAC PAINTS LIMITED

MR. JASON GONSALVES - DIRECTOR -

(CORPORATE PLANNING, IT & MATERIALS) -

KANSAI NEROLAC PAINTS LIMITED

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Kansai Nerolac Paints Limited

August 02, 2021

Moderator:Ladies and gentlemen, good day and welcome to the Kansai Nerolac Q1 FY2022 Earnings Conference Call, hosted by ICICI Securities. As a reminder all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing "*" then "0" on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you and over to you Sir!

Aniruddha Joshi: Thanks Karuna. On behalf of ICICI Securities, we welcome you all to the Q1 FY2022 Results Conference Call of Kansai Nerolac Paints Limited. We are pleased to introduce the senior management represented by Mr Anuj Jain, Executive Director, Mr Prashant Pai, Director (Finance) and Jason Gonsalves, Director (Corporate Planning, IT and Materials).

As everybody knows that the paint sector has revived very fast from COVID wave 1 and there is again even after COVID wave 2, there is a strong growth visible in June month onwards; however, the import prices continue to remain impacted but we see Kansai has been able to report strong numbers aggressively leading by the industrial and automotive recovery too as well as strong performance in decorative paints.

So, we continue to remain positive on Kansai and we have add rating on the stock. Now I hand over the call to the management for their initial comments and then we will open the floor for question-and-answer. Thanks and over to you Sir.

Anuj Jain:Thank you, Aniruddha. Thank you. Good morning everyone. It is nice to connect with all of you. Hearty welcome to this Kansai Nerolac investor call for Q1 of financial year 2021- 2022.

I will give some brief about the Q1 and then we will open the forum for the questions. During first quarter, we recorded topline growth of 117.6%, all businesses divisions did well. Industrial growth was higher on account of low base. Decorative specific the value growth was ahead of value growth therefore we improved our product mix.

Demand was this time better in urban towns, so if you compare the last year the demand was better in the upcountry market, this time, it was better in the local towns, and some of the key highlights for the Q1 for decorative is that as I said, emulsions, we did well and therefore the product mix improved.

We increased the number of machine counter, tinting machine counters because emulsion sale is dependent on the penetration of machine counters. There are multiple new products, which we started launched in last year and we kept on expanding this to new and new

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Kansai Nerolac Paints Limited

August 02, 2021

geographies and therefore our contribution from the new products have increased. Most of these new products are in the emulsions and the new businesses like construction chemicals and the premium wood finishes.

The Beauty Gold Washable, which is one of our little different offing to the market that has a composition of antibacterial, and washable on a consumer proposition of "Saaf bhi, Safe bhi", which is in line with our approach of paint plus to the market was accepted very well and we are getting a good traction and trending of this product.

New businesses, where we were little late in terms of introducing construction chemicals, premium wood finishes, but we got a good traction, I think our range of products, we completed in the last quarter and in the remaining geographies also, we expanded in the first quarter. So, these businesses have picked up and trending well in our portfolio.

In terms of price increase, we took three price increase; one was in the last week of March and then two during the quarter, so three price increases we have taken so far, in decorative. Our focus continues to be on paint, emulsion, distribution, new products and new segments like construction chemical and premium wood for decorative.

Coming to industrial, the overall growth was good, higher on account of low base, but still there are challenges, as passenger vehicle is facing some shortages of semiconductor chips and therefore, the production is not going to be as earlier level. Two-wheelers demand was sluggish, mainly the demands were lower from the rural centre. Commercial vehicle and tractor demand was better; however, our area of focus in industrial is new business, niche segments like oil coating, functional powder, high performance coating, and we are increasing our traction here in all these new business of niche segments.

Even in the existing accounts, we continue to put focus on increasing our share wherever it is possible and they are of course related to seeking price increases because the inflation has been high.

Coming to subsidiaries, if you look at the local subsidiaries, Marpol which is power coating, Perma, which is construction chemical, Nerofix, which is adhesives, all these businesses, recorded high growth in Q1.

In International, Bangladesh did well, but Nepal and Sri Lanka was relatively impacted the most, because the lockdown was for a longer period in Nepal and Sri Lanka while in Bangladesh till June it was very fine, and only in the last week of June, there was a lockdown which was announced in Bangladesh.

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Kansai Nerolac Paints Limited

August 02, 2021

Some of the other highlights, as the inflationary trends continues, our focus is continued on cost reduction, formulation management, and judicious overhead management. So, that is one area, where the entire team is working pretty hard to see that how we can improve on that. The customer visits, which we started sometime around, January, February and then again because of this lockdown there was some gap, but it has restarted now and the entire team and the management has started going to the market. While we are going, we are still following all the precautions and guidelines in our factories, offices, and whenever we are visiting the markets.

Recently, there was a rating on ESG by CRISIL and they have rated the Indian companies on ESG. So, there are total 225 companies and we are rated in the top quartile. So the overall company is also which includes, banking, IT, manufacturing, all kinds of sectors, we are rated in the top quartile and even in the specific paint industry we are rated in the top quartile.

Coming to the financials for the quarter, the net revenue was 1301.2 Crores, a growth of 117.6% over the corresponding quarter of the previous year. In terms of EBITDA the absolute figure was 187.1 Crores, which is a growth of 132.4% over the same quarter of the previous year and PAT was 118.7 a growth of 177% over the same quarter. So, even if you look at EBITDA in terms of percentage, we have a little improvement compared with the corresponding quarter of the last year.

Looking forward, we feel that the vaccination program which is underway and hopefully it has picked up some traction on a month-on-month basis and we feel that with the vaccination going up also our forecast of good monsoon, demand should recover, but there is always uncertainty related to when we started the first quarter we never thought that we would like to face the lockdown again, that uncertainty will always remain.

From the company side, because there is high inflation period we would be aggressive in seeking price increases and our focus will continue to be on new segments where we have picked up the traction, new products, which we have expanded and we will continue to do that, digitalization, and cost optimization.

So that is the brief from our side on the Q1. Now we welcome the questions.

Moderator:Thank you very much. We will now begin the question-and-answer session. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Prachi from Bay Capital. Please go ahead.

Prachi Kodikal: Good morning Sir. Sir, I just wanted to understand in the last quarter, you have mentioned that you had been negotiating for price increases with OEMs and were not very successful.

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