Kansai Nerolac first-half operating cash flow turns negative

Kansai Nerolac reported a Rs 78.04 crore net cash outflow from operating activities for the six months ended 30 September 2026, compared with a Rs 201.71 crore inflow a year earlier, as a Rs 515.02 crore increase in receivables and a Rs 392.34 crore inventory increase absorbed cash despite higher profit.

Why did Kansai Nerolac’s operating cash flow turn negative?

Kansai Nerolac’s operating cash flow turned negative because working-capital movements absorbed Rs 560.51 crore in the first half of 2026-27, against an absorption of Rs 232.16 crore in the corresponding six months of 2025-26. That change more than offset the increase in operating profit before working-capital changes to Rs 569.72 crore from Rs 544.97 crore.

The largest cash use was the Rs 515.02 crore increase in trade and other receivables, compared with a Rs 340.34 crore increase a year earlier. Inventories produced a further Rs 392.34 crore cash outflow, reversing a Rs 30.63 crore cash inflow in the prior-year half, while a Rs 346.85 crore increase in trade payables, other financial liabilities and provisions partly offset those outflows.

How did profit compare with cash generation at Kansai Nerolac?

Kansai Nerolac generated higher reported profit in the half year even as operating cash generation weakened. Consolidated profit before tax rose to Rs 500.74 crore for the six months ended 30 September 2026 from Rs 477.13 crore a year earlier, while profit for the period increased to Rs 372.40 crore from Rs 346.90 crore.

Revenue from operations increased to Rs 4,690.97 crore from Rs 4,116.21 crore in the same comparison. Depreciation and amortisation rose to Rs 126.00 crore from Rs 107.25 crore, while fair-value gains on financial instruments recognised through fair value through profit or loss, or FVTPL, increased to Rs 54.05 crore from Rs 43.39 crore; both were adjustment items in the reconciliation of profit before tax to operating cash flow.

Cash generated from operations fell to Rs 9.21 crore from Rs 312.81 crore before tax payments. Direct taxes paid, net of refunds, were lower at Rs 87.25 crore versus Rs 111.10 crore, but the lower tax payment did not offset the deterioration in cash conversion before taxes.

Which working-capital items used Kansai Nerolac’s cash?

Kansai Nerolac’s receivables were the biggest single cash use, rising by Rs 515.02 crore during the six-month period. That was Rs 174.68 crore more than the Rs 340.34 crore receivables increase recorded in the year-earlier period, meaning more cash was outstanding in trade and other receivable balances than in the comparable half.

Inventory movements changed direction most sharply. Kansai Nerolac recorded a Rs 392.34 crore increase in inventories in the six months to September 2026, whereas inventories released Rs 30.63 crore of cash in the prior-year period, a Rs 422.97 crore adverse swing in this cash-flow line.

The increase in trade payables, other financial liabilities and provisions provided Rs 346.85 crore of cash, against Rs 77.55 crore a year earlier. This larger funding effect reduced, but did not eliminate, the combined Rs 907.36 crore cash absorption from receivables and inventories; the resulting net working-capital outflow was Rs 560.51 crore.

What happened to Kansai Nerolac’s investing and financing cash flows?

Kansai Nerolac generated Rs 239.75 crore from investing activities in the first half, compared with Rs 237.90 crore in the prior-year period. Proceeds from sale or redemption of current investments were Rs 2,071.33 crore, exceeding Rs 1,600.06 crore spent on purchasing current investments, while purchases of property, plant and equipment and other intangible assets were Rs 135.17 crore.

Cash used in financing activities was Rs 238.24 crore, lower than Rs 303.18 crore a year earlier. Dividend payments were Rs 202.18 crore, compared with Rs 365.50 crore in the previous first half, while payment of lease liabilities including interest was Rs 30.17 crore and interest paid was Rs 5.73 crore.

The Rs 78.04 crore operating outflow, Rs 239.75 crore investing inflow and Rs 238.24 crore financing outflow together resulted in a Rs 76.53 crore net decrease in cash and cash equivalents during the six months ended 30 September 2026. The cash-flow statement was prepared under the indirect method set out in Indian Accounting Standard 7, Statement of Cash Flows.

What has Kansai Nerolac said about demand and costs?

Kansai Nerolac said September-quarter revenue growth was supported by momentum in both Decorative and Industrial businesses. Management said the Industrial business benefited from customer relationships, technology capabilities and a diversified portfolio, while the Decorative business continued to focus on construction chemicals, waterproofing, wood finishes and projects.

Management said raw-material and foreign-exchange volatility continued to pressure input costs in the quarter ended 30 September 2026. It disclosed calibrated pricing actions and efforts on product mix, formulation optimisation, sourcing efficiencies and cost management, while saying it remained watchful of geopolitical uncertainty, commodity prices and currency movements.

Kansai Nerolac reports paints and related products as one Paints segment because its management committee monitors them as a single activity and sales are substantially domestic. The unaudited consolidated results for the quarter and six months ended 30 September 2026 were approved by the board on 4 November 2026, and the statutory auditors issued an unqualified review conclusion.

Conclusion

Kansai Nerolac’s first-half results show a divergence between accounting profit and cash generation: consolidated profit before tax rose by Rs 23.61 crore to Rs 500.74 crore, but operating cash flow moved from a Rs 201.71 crore inflow to a Rs 78.04 crore outflow. The change principally reflected larger cash tied up in receivables and inventory, despite the larger increase in payables and related liabilities.

The next reporting period will indicate whether the Rs 515.02 crore receivables increase and Rs 392.34 crore inventory increase reverse or remain a use of funds. Management has identified pricing, product mix, sourcing efficiencies and cost management as priorities, while it expects supportive demand conditions across Decorative and Industrial businesses and continues to monitor commodity prices and currency movements.