Stock corner: ‘Hold’ Akzo Nobel India, valuation is lowest among peers

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Published: March 26, 2019 12:37:28 AM

Company plans to use global technology for profitability; valuation is lowest among peers; ‘Hold’ maintained

Akzo will focus on recouping its market share in products by targeting growth at 1.5x GDP for its premium product portfolio.

We recently met the management of Akzo Nobel India (Akzo). While the company’s brand strength among top paint companies remains unquestionable, Akzo is now focused on expanding its distribution network and footprint of tinting machines. From 1,000 additions a year, the company has started adding 2,000 tinting machines annually. While it has recently launched waterproofing products (under the brand Aquatech) in line with other paint companies, it continues to maintain low-key focus on low-value products such as putty and distemper.

Management plans to leverage global technology and improve efficiency in industrial paint segments to improve overall profitability. We maintain our estimates and expect consolidated sales and earnings CAGRs of 10.8% and 12.3% respectively over FY18-FY21e. Maintain Hold with a target price of Rs 1,720. At CMP, Akzo trades at 31.1x Sep’20e EPS, the lowest among its peers.

Focused on distribution and tinting machine additions

The company’s wholesale model has witnessed good traction and its distribution network has increased from 9,000 dealers and distributors in FY12 to 18,000 now.

Strong portfolio expansion
Akzo will focus on recouping its market share in products by targeting growth at 1.5x GDP for its premium product portfolio. Its share in premium category is double its overall market share.

Industrial paints—leveraging global technology; improving efficiency
Industrial paints contribute 35% to Akzo’s total revenues. In this segment, Akzo expects double-digit volume growth in auto refinish coatings, specialty coatings and powder coatings over the long term. Globally, AkzoNobel N.V. is a strong leader in several industrial paint segments due to its technology prowess, which management plans to leverage in India.


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