AkzoNobel India Paints Company Analysis

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1) About Company:
➢ AkzoNobel has a passion for paint.

➢ Company is making paints and coatings,
setting the standard in color and protection
since 1792.
➢ Company’s portfolio of brands –Dulux,
International, Sikkens and Interpon – is
trusted by customers around the globe.
➢ Akzo Nobel India has been present in India for
SNAPSHOT: over 60 years and currently operates in the
Paints & Coatings segment.
• Market Cap: Rs. 10,101 Cr.
• Book Value: Rs. 243 2) Product Portfolio:
• Stock P/E: 42
• OPM: 14.9 %
• ROCE: 31 %
• Equity capital: 45.5 Cr.
• Enterprise Value: 10,500 Cr.

• Enterprise Value to EBIT: 29
• Promoter holding: 74.74 %
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3) Industry Structure:
➢ Organized players accounting for 65-70% of the industry’s sales. (Further scope as
value migration happens from unorganized sector → Organized sector)
➢ Key differentiators between the players:
Product quality, performance and service levels
➢ Paints Business:
B2C → Only brands would be able to dictate the price.
(Demand depends on housing sector and good monsoons)
➢ Coatings business:
B2B → Hence technology intensive (The focus area here is on selling the solution
rather than the product)
Demand is linked to user industries like auto, engineering, infrastructure projects and
consumer durables and is dependent on business cycle and economic conditions.
➢ Per capita paints and coatings consumption in India continue to be low compared to
developed economies.
➢ GST Slab applicable: 18% (Earlier it was 28%) – However, the benefits arising from the
rate reduction has been passed on to consumers.
➢ The trend towards nuclear family provides a tail wind for the industry to grow
further.
➢ Raw material prices are dependent on crude oil prices.
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The below slide from company’s presentation explains how different segments could
benefit from government policies in place:
4) Investment Case:
A) BRAND POWER:
Company has Well Known brands like: Dulux, International, Sikkens and Interpon
under its umbrella which are trusted by customers around the globe.
“When something is not a brand, it will probably be viewed as a commodity.”

- Philip Kotler
Strength of the brands and products have always helped company in overall
performance
B) New Product Launches:

There was a constant stream of new launches last year, reaffirming company’s customer
focus and passion for paint.
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Examples:
1) Dulux Weather shield Max – next generation protection for home exteriors
against recurring cracks, dampness and fungus formation caused by rain. The
product – with its advanced, crack-proof active guard and smart release
technologies – protects exterior walls. Meanwhile, its Sun Reflect technology
keeps surfaces up to 5°C cooler due to its higher solar reflectance index value
2) Dulux Colour Play Tester, a handy, first-of-its kind paint sampler integrated with
an easy-to-use mini roller. The specialized tool improves consumers’ lives by
making the color selection process fun and easy, allowing them to test out colours
on their walls before finalising the shade.
C) Improvements in offerings:
Company improved the offering by beefing up the Wanda portfolio in vehicle

refinishes; completing our premium wood coatings portfolio; and introducing more
efficient product offerings in protective coatings.
D) New powder coatings facility:
Company inaugurated a new Powder Coatings facility in Thane, Mumbai, in the first
half of 2018. The state-of-the-art facility introduced new product lines in bonded
metallic and functional powder coatings. AKZO Nobel was the first coatings
company to set up a manufacturing facility for bonded metallic powder coatings in
India.
E) Favourable macro changes (tailwinds):
Going forward, macro developments like nuclear families, availability of easy finance
for housing and government’s thrust on affordable housing are expected to push up
the per-capita consumption of paints in the country and sustain the growth
momentum of this business.
F) Speciality Chemicals business has been successfully separated from the

Company. This gives the bandwidth to channel energy into the core competency of
making and marketing paints and coatings.
G) KEY DRIVERS FOR THE FUTURE GROWTH TO BE MONITORED:

1) Shortening of the repainting cycle
2) Increased demand from smaller towns.
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5) STRATEGY – INDIA ARM:
a) Developing world class brands and colour expertise

b) Growing profitably, while increasing returns to all our stakeholders.
c) Continue to invest in technologies and digital solutions to service the growing
needs of customers.
d) Company’s focus would be on the buildings and infrastructure end-user
segment, serving both consumers and professional painters.
e) To enhance its market reach, the Company expanded its contractor/ Painter
outreach programme to drive trials with the premium interior portfolio, with
special products to address the Professional Painter customers.
f) Many innovative programs are launched. For Example: Dulux Testers, in an
exclusive tie up with Amazon - first of its kind tool in India.
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6) FINANCIALS:
➢ Margins: EBITDA ~ 13% & Net Profit Margins ~ 8%
➢ ROE ~ 20%, & ROCE ~ 30%
➢ Receivable days ~ 50,
➢ Payable days ~ 90,
➢ Inventory days ~ 45
➢ Virtually debt-free company
➢ Cash Flow per share ~ 30,
➢ Earnings per share ~ 45
➢ Valuation: Market cap to sales ~ 2.8, PE ~ 40
(Just to give you a comparison, Asian Paints trades at a Market Cap to Sales ~
7 & PE ~ 65)
➢ Company has consistent healthy dividend pay-out ratio.
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7) View:
✓ We think that branded paint demand will remain robust in a country like India where per
capita consumption is very low.
✓ We can safely say that the paints business is relatively recession-proof.
✓ Asian Paints (Supposedly a competitor) holds 4.5% stake of the company.
✓ We believe Akzo has a long way to go & a great addition on dips in portfolio 2020.
This is NOT an investment advice. Please make your own decision, as blindly acting on anyone else’s
research and opinions can be injurious to your wealth. I am not a registered Research Analyst.
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AkzoNobel India Paints Company Analysis

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➢ AkzoNobel has a passion for paint.

• Equity capital: 45.5 Cr.

• Enterprise Value: 10,500 Cr.

• Promoter holding: 74.74 %

“When something is not a brand, it will probably be viewed as a commodity.”

B) New Product Launches:

Company improved the offering by beefing up the Wanda portfolio in vehicle

D) New powder coatings facility:

E) Favourable macro changes (tailwinds):

F) Speciality Chemicals business has been successfully separated from the

G) KEY DRIVERS FOR THE FUTURE GROWTH TO BE MONITORED:

5) STRATEGY – INDIA ARM:

a) Developing world class brands and colour expertise

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