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

Stable volume growth in the decorative segment as well as the industrial segment and raw material price inflation were the highlights of the results for Akzo during the quarter.

Key Highlights

Akzo experienced low double digit YoY growth across segments led by decorative segment. Management commented that inflation (including Raw material cost) was more pronounced this quarter which impacted the operational performance. Management is making efforts to increase product prices and reduce various cost to counter the situation.

Sales (excluding GST) was reported at Rs 7 bn (-1.6% QoQ and +0.7% YoY) in a seasonally weak quarter for paint companies. EBIDTA was reported at Rs 699 mn with Ebidta margin of 10% (-390bps QoQ and -110 bps YoY).Consequently PAT was reported at Rs 461 mn (-42.2% QoQ and -36.4% YoY).

Management is confident of strong volume and sales growth and bounce back of operational performance. Even we believe that the situation is healthy and would continue to remain healthy for paint companies in every segment including decorative paints, industrial as well as auto paints.

Valuation and Outlook

We estimate that branded paint demand will remain robust in a country like India where per capita consumption is very low and 30% paint market is still unorganised. Management of Akzo also indicated that the volume trends remain strong for the company and expect the trend to continue in medium term. For Akzo, we estimate 11% volume CAGR over FY18 - FY20E with stable margins and ROE of ~23% and ROCE of ~21.9% for FY20E. Maintain BUY with an unchanged TP of Rs 2250 at 35x FY20E earnings (at 25% discount to PE multiple of peers).

Shares of Akzo Nobel India Limited was last trading in BSE at Rs.1952 as compared to the previous close of Rs. 1965.25. The total number of shares traded during the day was 1077 in over 172 trades.

The stock hit an intraday high of Rs. 1970 and intraday low of 1946.3. The net turnover during the day was Rs. 2105639.

Source : Equity Bulls

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