There May Be Underlying Issues With The Quality Of Kansai Nerolac Paints' (NSE:KANSAINER) Earnings

Kansai Nerolac Paints Limited's (NSE:KANSAINER) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Kansai Nerolac Paints

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Kansai Nerolac Paints' profit received a boost of ₹6.6b in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Kansai Nerolac Paints' positive unusual items were quite significant relative to its profit in the year to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Kansai Nerolac Paints' Profit Performance

As we discussed above, we think the significant positive unusual item makes Kansai Nerolac Paints' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Kansai Nerolac Paints' underlying earnings power is lower than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 26% over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Kansai Nerolac Paints, you'd also look into what risks it is currently facing. When we did our research, we found 3 warning signs for Kansai Nerolac Paints (1 shouldn't be ignored!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Kansai Nerolac Paints' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.