Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us    
Google
Web www.equitybulls.com
Research

| More

Akzo Nobel India Ltd - Initiating Coverage - Kotak Securities

Posted On: 2018-03-06 09:33:29

Price: Rs.1770
Recommendation: BUY
Target Price: Rs.2250
FY20E PE: 27.3x

Akzo Nobel NV, the world's largest paint company, operates in India through its subsidiary Akzo Nobel India (Akzo) operating primarily in the decorative paint segment through its well-known brand "Dulux" and in the area of performance coating and specialty chemicals. Akzo in India enjoys ~9% market share in decorative paints in India serviced through its network of 9,000 plus dealers and 90 depots and six manufacturing facilities. We expect the company to report ~14.5% earnings CAGR over FY18-20E driven by ~9% revenue CAGR and improving margins. Strong growth in volumes should translate into improvement in operating margin and return ratios for the company. Broadly, we are of the opinion that the demand environment to remain healthy for paint companies including Akzo which would enable them to continue to command premium valuation in the consumption Industry. Despite comparable performance, Akzo trades a steep discount to market leader Asian Paints and peers Kansai Nerolac and Berger in the paint industry. We initiate coverage on Akzo with a BUY rating based on 35x FY20E earnings, which is the average one year forward multiple for the company and also at 22% discount to PE multiple of peers and arrive at a target price of Rs 2250. We believe the valuation gap to narrow between Akzo and other players and which is one of the key triggers for the stock.

Key Investment arguments

- One of the key players in the decorative paint industry. Akzo is the fourth largest player in the decorative paint industry with a market share of 9%.The Company's Decorative Paints business manufactures the Dulux brand of paints for interior and exterior decoration and protection as well as products for surface preparation and wood care. In the decorative paints business, Akzo has presence in premium as well as mass market and economy segments, with strong positioning in the premium segment. The company continuously launches innovative new products to stay ahead of the competition and improve market share. Going forward, macro developments like nuclear families, availability of easy finance for housing, governments thrust on affordable housing etc. are expected to push up the per-capita consumption of paints in the country and sustain the growth momentum in decorative segment for the company.

- Emerging player in industrial segment. Industrial segment primarily involves marine coating, powder coating, metal coating and automotive paints. Key drivers for the industrial segment include infrastructure support provided by the government and the private sector, construction of various freight corridors and industrial parks, various policies of the Indian government revolving around housing projects, smart city mission and 'Make in India' policy and most importantly growth of the automotive segment. Akzo has presence in each area of industrial paints which contributes 10% of its overall revenues.

- Building on strong chemical platforms. In Specialty Chemicals segment, Akzo operates in Polymer Chemistry and Surface Chemistry businesses, which cater to oil & gas, personal care and agrochemical industries. It is one of the most specialised areas under painting and Akzo is an established player in the segment. In FY17, this segment recorded a turnover of Rs 2.65 bn (+34% YoY) with PAT of Rs 214 mn (+42% YoY). Akzo is in final stages to sell the specialty chemical business, post which we will update our financials accordingly.

- Continued focus on marketing and improved products. Despite slowdown, Akzo is focused on improving its brand image and improve geographical reach through increasing its dealer base, effective regular advertisement, investment in R&D and introduction of niche products which should yield results for the company in the long run.

Valuation

The listed players in the paint industry have been trading at premium valuations as the sector continues to perform well exhibiting double digit volume growth for the last 20 years. The prospects also remain healthy with strong GDP growth, rising disposable income, shortening re-painting cycle and increasing per-capita consumption of paints. Amongst the established players in an Oligopoly market, Akzo trades at a discount to peers and market leader. We prefer to use a P/E approach to value the stock (like any other consumer company) and give a value of 35x FY20E earnings which is the average one year forward multiple for the company and also at 22% discount to PE multiple of peers and arrive at a target price of Rs 2250. We believe the valuation gap to narrow between Akzo and other players and which is one of the key triggers for the stock. We initiate coverage on Akzo with a BUY rating and at TP of Rs 2250.

Risk and concerns

- Weak macro environment leading to poor demand for decorative paints
- Prolong slowdown in the economy leading to weak capex cycle impacting industrial demand
- Sharp increase in raw material prices coupled with inability to take price hikes
- Increasing competition

Company Background

Akzo Nobel NV, the world's largest paints company, operates in India through its subsidiary Akzo Nobel India (AKZO) which it acquired as a part of the global acquisition of Imperial Chemicals Industries (ICI) Plc. in FY08 for USD16bn. Its brand portfolio includes well-known brands such as Dulux, Sikkens, Glidden and International. The company has it's headquarter in Amsterdam and operates in more than 80 countries. Akzo in India enjoys ~9% market share in decorative paints in India serviced through its network of 9000 plus dealers, 90 depots and six manufacturing facilities.

Shares of Akzo Nobel India Limited was last trading in BSE at Rs.1797 as compared to the previous close of Rs. 1777.25. The total number of shares traded during the day was 872 in over 150 trades.

The stock hit an intraday high of Rs. 1830 and intraday low of 1785.15. The net turnover during the day was Rs. 1581895.


Source: Equity Bulls

Click here to send ur comments or to feedback@equitybulls.com


Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.





Other Headlines:

Jindal Steel & Power - Initiating Coverage - Angel Broking

Hurrah, Reliance is now a Consumer Company: Angel Broking

Shriram Transport Finance Company Ltd - Initiating Coverage - Angel Broking

Amber Enterprises India Ltd - Initiating Coverage - Angel Broking

Initiating Coverage on Bata India - Better brands for better growth - Angel Broking

IMP Powers' successful foray in renewable energy

Parag Milk Foods 4QFY2018 Result Update - Angel Broking

GMM Pfaudler Limited 4QFY2018 Result Update - Angel Broking

Result Update: Gabriel India Ltd - BUY - TP Rs.193 - Kotak

Result Update: Apollo Tyres - ACCUMULATE - TP Rs.300 - Kotak

Result Update: Havells India Ltd - SELL - TP Rs.500 - Kotak

Result Update: Chennai Petroleum Corporation Ltd - BUY - TP Rs.373 - Kotak

Result Update: Shankara Building Products Ltd - ACCUMULATE - TP Rs.2017 - Kotak

Result Update: Sun TV Network Ltd - ACCUMULATE - TP Rs.964 - Kotak

Result Update: Akzo Nobel India Ltd - BUY - TP Rs.2150 - Kotak

Syndicate Bank Q4 loss widens to Rs. 2195.12 crores

Result Update: Mahindra Holidays & Resorts India Ltd - BUY - TP Rs.390 - Kotak

Result Update: The Phoenix Mills Ltd - ACCUMULATE - TP Rs.676 - Kotak

Result Update: Blue Dart Express Ltd - BUY - TP Rs.4050 - Kotak

Result Update: Zee Entertainment Enterprises Ltd - ACCUMULATE - TP Rs.623 - Kotak

Result Update: Asian Paints Ltd - ACCUMULATE - TP Rs.1320 - Kotak

Result Update: Voltamp Ltd - BUY - TP Rs.1349 - Kotak

Result Update: Kajaria Ceramics Ltd - BUY - TP Rs.648 - Kotak

India's original E-Commerce Poster Boy sells out to Wal-Mart: Angel Broking

Result Update: Carborundum Universal Ltd - BUY - TP Rs.420 - Kotak

Result Update: Indocount Industries Ltd - BUY - TP Rs.103 - Kotak

Result Update: GE Shipping Company - SELL - TP Rs.350 - Kotak

Technology: CTSH results: on balance negative

Result Update: Greaves Cotton Ltd - BUY - TP Rs.153 - Kotak

Result Update: NIIT Technologies Ltd - ACCUMULATE - TP Rs.1083 - Kotak

Result Update: IRB Infrastructure Developers Ltd - ACCUMULATE - TP Rs.292 - Kotak

Result Update: Venky's India Ltd - REDUCE - TP Rs.3750 - Kotak

Result Update: Castrol India Ltd - BUY - TP Rs.213 - Kotak

Result Update: Radico Khaitan - ACCUMULATE - TP Rs.421 - Kotak

Q4 FY18 Result Update: Marico Ltd - ACCUMULATE - TP Rs.334 - Kotak

Q4 FY18 Result Update: Adani Port and SEZ - BUY - TP Rs.485 - Kotak

Q4 FY18 Result Update: Kansai Nerolac Paints Ltd - BUY - TP Rs.600 - Kotak

Q4 FY18 Result Update: Hero MotoCorp - BUY - TP Rs.4553 - Kotak

Q4 FY18 Result Update: Hindustan Zinc - REDUCE - TP Rs.318 - Kotak

Q4 FY18 Result Update: Container Corporation of India - BUY - TP Rs.1550 - Kotak

Q4 Result Update: Jindal Stainless Hisar Ltd - BUY - TP Rs.318 - Kotak

Ultratech Cement - Q4FY18 Result Update - Arihant Capital Markets Ltd

Company Update: Va Tech Wabag Ltd - BUY - TP Rs.672 - Kotak

K P Energy Ltd ties up for development of 300 MW wind power project

Matrimony.com Ltd - Initiating Coverage - Angel Broking

ACC Ltd Q1CY18 Result Update Rating - ACCUMULATE - Arihant Capital Markets

Company Update: Cummins India Ltd - BUY - TP Rs.862 - Kotak

FY18 Result Update: Tata Sponge Iron Ltd - REDUCE - TP Rs.1172 - Kotak

National highways: utilization and monetization - Kotak

Initiating Coverage: Parag Milk Foods Limited - Angel Broking





Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2018