Risk Reward Update

Research evidence excerpt

Risk Reward Update

UpdateM

RiskRisk RewardReward– Kansai-NerolacKansaiPaintsNerolacLtd (KANE.NS)Paints Ltd (KANE.NS)

Intensifying competition and margin headwinds keep us UW

PRICE TARGET Rs193.00 UNDERWEIGHT THESIS

Probability-weighted residual income model with 20%, 50% and 30% weightings to our bull-, ▪KNP continues to lag on market share

base- and bear-case values, respectively. We assign a higher weighting to our bear case given trends in the decorative segment.

the rising competitive intensity and margin uncertainty. Our bull case weighting reflects ▪Improved industrial business performance

KNP's potential to maintain strong earnings growth. is a positive, but we believe KNP could take

Key RI assumptions: longer to bridge the gap vs peers in terms of

Cost of equity: 12.3% across scenarios growth in the decorative segment and

Terminal growth: 6% base, 6.3% bull, 5.8% bear overall margins.

we remain less constructive on Rs249.75 ▪Overall,

paints than other consumer discretionaryConsensus Price Target Distribution Rs191.00 Rs302.00 categories in the medium term owing to MS PT

Source: Refinitiv, Morgan Stanley Research Mean Morgan Stanley Estimates rising competitive intensity, which will likely

keep medium-term margins under pressure

for paint companies and lead to continued

further de-rating.

RISK REWARD CHART ▪The outlook for the auto segment remains

strong given the GST cuts.

INR

Rs318.00Rs318.00(+50.14%)Rs318.00(+50.14%)(+50.14%) Consensus Rating Distribution

320 56% Overweight

25% Equal-weight

19% Underweight

Rs211.80Rs211.80Rs211.80 MS Rating

Rs193.00Rs193.00(-8.88%)Rs193.00(-8.88%)(-8.88%) Source: Refinitiv, Morgan Stanley Research

Rs147.00Rs147.00(-30.59%)Rs147.00(-30.59%)(-30.59%) Risk Reward Themes

80 Contrarian: Negative

Secular Growth: Negative