Result Update: Akzo Nobel India Ltd - BUY - TP Rs.2200 - 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 7.16 bn (2.2% QoQ and +0.1% YoY) despite complete demerger of its speciality chemical business (effective 1st April 2018) which was contributing almost 10% of the revenues/PAT. Strong volume growth has helped the company report EBIDTA of Rs 725mn with Ebidta margin of 10.1% (+10bps QoQ and +80 bps YoY) despite inflation in raw material cost .Consequently PAT was reported at Rs 435 mn (-5.6% QoQ and +5.3YoY). We interpret the performance as strong, especially when we consider complete sale of the speciality business division.

- Management is confident of strong volume and sales growth and bounce back of operational performance. Even we believe that the situation is 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 2200 at 34x FY20E earnings (at 25% discount to PE multiple of peers).

Shares of Akzo Nobel India Limited was last trading in BSE at Rs.1844.15 as compared to the previous close of Rs. 1844.05. The total number of shares traded during the day was 404 in over 56 trades.

The stock hit an intraday high of Rs. 1860 and intraday low of 1840.95. The net turnover during the day was Rs. 747036.

Source : Equity Bulls

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