The paints industry has been under increased attention with heightened competition from the recent entry of Birla Opus Paints and the resulting pressure on operating margins of existing large players. And amidst the above operating environment, Imperial Chemical Industries and Akzo Nobel have announced the sale of their 50.46% promoter stake in the Indian operations to JSW Paints.
The valuations for Akzo Nobel India seem fairly reasonable – at Rs 2,762 per share, the transaction has been valued using the multiple, enterprise value (EV) to consolidated FY 25 sales at about 2.63 times. Akzo Nobel India had consolidated revenue from operations of Rs 4,091.2 crore for FY 25.
The Akzo Nobel India stock rose 8.6 % in early Friday trading to Rs 3,467. The open offer for minority shareholders is at Rs 3,417.7 per share. The stock has shown signs of recovering from its 52-week low of Rs 2,775 that was reached on 23 July 2024.
The market leader, Asian Paints, trades on the valuation multiple, EV to consolidated FY 25 sales at about 6.5 times. Asian Paints’ revenue from operations amounted to Rs 33,905 crore for FY25.
Over the past few weeks, Reliance Industries, the largest company in the Indian private sector, had raised nearly Rs 9,626 crore from selling its stake in Asian Paints. Reliance Industries via Siddhant Commercials Private Limited had a 4.9 % stake in Asian Paints at the end of the March 2025 quarter.
Asian Paints in early Friday trading was up 1.1 % at Rs 2313 and not too far from its 52-week low of Rs 2,125 that was reached on 4 March 2025. The Asian Paints stock has dropped nearly 20 % over the past one year vis-à-vis a 5.7 % rise in the broader Sensex.
Weakening financials of paint companies
Akzo Nobel India’s consolidated revenue from operations amounted to Rs 4,091.2 crore in FY 25, a rise of barely 3.3% on a y-o-y basis while its operating profit margin declined 30 basis points y-o-y to 15.7% in the financial year. Paint companies use inputs derived from crude oil and there has been substantial volatility in these prices over the past few quarters, given the tensions in the Middle East and the Russia-Ukraine war. Its consolidated net profit rose nearly 2% y-o-y to Rs 432.9 crore during FY25.
Meanwhile, Asian Paints’ consolidated revenue from operations declined nearly 4.5% y-o-y to Rs 33,905.6 crore during FY25 while its operating profit margin declined 960 basis points y-o-y to 17.7% in the financial year. Its consolidated net profit also fell nearly 33 % y-o-y to Rs 3,709.7 crore during FY25.
Investors on Dalal Street
The RBI has taken several steps to stimulate growth in the economy via reduction in repo rates and this in turn should boost construction activity in the country. And, paint companies are also expected to see better demand conditions in the post monsoon season when painting activities will pick up.
Small shareholders of Akzo Nobel India will be closely monitoring the open offer price of Rs 3,417.7 per share and the price prevailing on the bourses.
Meanwhile, Asian Paints trades at a P/E of nearly 55 times estimated FY26 earnings, and is quite expensive. And for investors on Dalal Street, it makes more sense to sit on the sidelines and wait for competitive intensity to further reduce in the paints sector over the next few quarters and then consider making any fresh investments in stocks in this sector for the long-term.
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
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