AKZO Nobel - A sleeping giant - preparing for next wave of Growth

Hi everyone

Being an Architect myself I also keep on looking for business related to my field as well which has potential to outgrow industry and peers and become multibaggers in future. I closely followed HSIL and finally gotinvested in it. Similarly I researched about Saint Gobain, Asahi India, 3M India, Kajaria, Somany, Akzo Nobel, Berger paints, BASFetc.

I zeroed on Akzo Nobel and BASF India. Listed below is brief summary of what I could make out of regarding Akzo Nobel India. In Interior circles their brand Dulux is preferred and in Coatings - the Aluminum Powder coating their brand Interpon is always on project manager wish list.

I have been reading and following the DULUX, Dyna and Interpon brand owner Akzo Nobel India. Looking to become second largest decorative paint company in India after Asian Paints after acquiring ICI paints few years back. Since then its in consolidating mode with lots of other companies getting merged into it. Currently they have the 4th highest market share of 10%in India in decorative paint category.

What is interesting is that in last 3 decades they have taken biggest capex plan recently clearly reflecting its commitment. They have the aspirations of of 3x revenue growth incoming 5 yrs. Without any capacity enhancement they have been double their revenue through product innovation and mix.

Unlike other peer companies they have no debts on their balance sheet and huge cash surplus will aid in capacity enhancement going forward.

I strongly believe that rapid urbanization in India, Rural market penetration , pick up of economy in coming times will aid their growth. Being an MNC company also add to fundamentals of the company.

To me its a classic Warren buffet kind of pick, with all parameters like Brand Value, innovation led company, ROE, ROCE, a great old company with great products, not so highly valuations, No Debt.

In Hindsight criticism can come from why it has been lagging for so may yrs in India while elsewhere its consider as World leader.

Would invite comments from everyone.


Why are these 9 months (in FY14) so bad?


Naive question. Although company do not have any loans it is paying out interest?

What can be reason?


In the past I looked at this, I think there are 2 reasons, ( Varun pls correct me if I am wrong)

1). there Net profit was getting a boost of of other income till Mar 13 (dividends on investment and mutual fund redemption) which is no more happening in FY 14,

2). INR depreciation is negative for company, I think they import some RM so they are getting hit on this.

They had a new factory coming up in Gwallior, not sure if it is fully functional now.

Everyone is predicting Rupee will appreciate post election, this can be a huge positive for company in near term.

Disc: I dont own AKZO NOBEL

In 2012 the management merged three of its privately owned Indian subsidiaries (Akzo Nobel Car Refinishes India Pvt. Ltd., Akzo Nobel Chemicals (India) Ltd. andAkzo Nobel Coatings India Pvt. Ltd.) into the listed co at valuations highly unfavourable to the minority shareholders of the listed co. Leopards rarely change their spots and such managements have a habit of springing unpleasant surprises every now and then on their shareholders.I have a policy of staying clear of such promoters irrespective of the co’s performance and prospects.


The ROIC of this scrip has taken a huge leap (screener has the number at 130.78% while morning star has the number on March 2014 at 15.38%)since the last post. I’d probably buy into this scrip if it were half the current price or less. Asian paints seems to finally have a strong competitor; scrip wise at least.

Let me tell you a true story.

I wanted to get my house painted. Big house. 4500 sq feet. 250000 worth of paint.

I called Dulux first. no response.

I called their call center. They said someone will contact me. No one did.

I left an email. no revert.

I called Asian Paints once, and they did everything from that point on.

I was holding Akzo…sold all my holdings.

If you think this team will make you money, forget it.


Akzo Nobel India Q3 concall highlights -

Oct business was slow. Business picked up in Nov, Dec. Projects business doing really well due uptick in real estate business

Urban mkts grew faster than rural.Rural grew because of distribution gains.

No price hikes taken in paints

Very strong growth in coatings business vis a vis paints business

Sales at 986 cr, up 8 pc yoy

GMs at 39 pc, up 60 bps

PAT up 16 pc at 98 cr

Aim is to hit 1000cr revenues/qtr. May take 1-2 Qtrs to reach there

New Product pipeline is strong for next 2-3 yrs

Increased A&P spends. Advertised during IPL, T-20 WC, also focussing on Digital channels

On entry of Grasim and JSW group’s entry into paints - management is aware about potential disruption. It ll all depend on the size of their pockets and how deep they want to take the battle

Will also depend on whether they want to make it a price or brand war. Initially, its likely to be a price war

Not keen to put up additional capacities right now. They are working on a 2 shift basis from many factories. Can take it upto 3 shifts. ROE is paramount for them

Not planning backward integration as the Parent company’s size and scale assures them of no major supply side crunches/disruptions

Currently paints are more profitable than coatings. Coatings profitability is slowly improving

Full impact of RM price moderation is yet to come. May help margins going fwd if there are no adverse events in foreseeable future

Disc : invested, biased

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