A few largecap stocks can claim to be multi-baggers, multiplying investor wealth many times over in a matter of few years. However, the decorative paints major Kansai Nerolac Paints has been a winner for its investors, multiplying their wealth by a eye-popping 123 times in just 15 years. To put the growth into perspective, Rs 10,000 invested in November 2002 would have amounted to more than Rs 12.3 lakhs today. In this year alone the scrip is up by more than 51%. While investors may be regretting the lost opportunity, global research firm CLSA has a buy recommendation on the shares. CLSA has a ‘buy’ on the shares with a target price of Rs 600. Kansai Nerolac Paints shares were trading at Rs 494, up by more than 2.2% from its previous close on NSE. CLSA’s target price implies an upside of more than 21% from the current market prices.
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The company had posted net profit of Rs 144.63 crore in Jul-Sep-17 quarter, just 3.8% higher from 139.31 crore in the same quarter last fiscal. “All segments have performed well this time; it has been an extraordinary quarter. Though we expect the trend of double-digit volume growth to continue, it is unlikely to be this high,” Vice Chairman and managing director H.M. Bharuka said last month.
CLSA says that the more than half of the company’s revenue comes from the decoratives business, which is a major growth driver for the shares. Volume growth was led by the decorative segment in the September quarter thanks to early festive season sales. Besides, for the second consecutive quarter, its industrial segment also posted double-digit volume growth.
The global firm points out that the company has a high leverage to capex revival which augurs well at this juncture. Further, the research firm points out that price hikes, operating leverage and cost savings should drive EPS to above 17% for FY17-20. Notably, Kansai Nerolac has already taken two price hikes of 2.5-3% in March and 3% in May this year.