Akzo Nobel India rises 5%; hits record high on healthy growth outlook
Shares of Akzo Nobel India, a paints and coatings company that makes Dulux Paints, rose 5 per cent on the BSE in intra-day trade on Tuesday to hit a fresh record high of Rs 3,960 on healthy growth prospects. In comparison, the BSE Sensex was up 0.16 per cent at 81,697 at 11:05 am.
The stock is trading higher for the sixth consecutive trading day, after rising 16 percent during the period.
Akzo announced last week, on September 5, that it had started commercial production of powder coatings products at its plant in Gwalior, Madhya Pradesh. The plant has an installed production capacity of 5,166 tonnes per annum (original installed production capacity), which can be expanded based on future demand.
The new commercial production capacity is aimed at supporting the company’s capacity expansion plan, due to demand for higher service levels in the powder coatings market, particularly in Northern and Eastern India.
The company has invested approximately Rs 105 crore in the facility, which has been funded through internal accruals, Akzo said.
Since August 1, Akzo’s market price has risen 33 percent after the company posted another strong performance (compared to peers), with likely market share gains and double-digit volume growth across all segments in the June quarter (Q1FY25), mainly driven by B2B.
Gross margins increased by 162 bps due to a superior revenue mix and likely sourcing efficiencies. However, earnings before interest, taxes, depreciation and amortization (EBITDA) margin was flat (up 8 bps) due to higher other expenses (likely higher advertising expenses as a share of net sales).
Furthermore, management sees an increase in raw material costs in the second half of the fiscal year. As a result, they said, the company is taking necessary pricing actions without losing competitiveness.
Akzo Nobel India recently launched a super luxury interior emulsion under the brand Dulux Velvet Touch Eterna. It also launched Interpon A3000 Powder Coatings in India. The company plans to be aggressive in the powder coating business for two-wheelers in India.
Analysts at ICICI Securities said in an update on the company’s results that there is likely to be a superior sales mix in decorative paints given the expansion in gross margins. The brokerage believes super-premium paints have performed well.
Akzo has also entered the super-luxury interior emulsions segment with the Dulux Velvet Touch Eterna brand.
The company is now offering 10 percent extra volume on the Dulux Promise range (applicable to 20-litre stock keeping units, or SKUs).
Akzo has also increased investments in B2B segments and the brokerage believes the benefits of these efforts are already visible, with these segments contributing significantly to the company’s overall growth.
Analysts further said that they also like the company’s strategy of driving sourcing efficiencies and cost-saving initiatives to invest more in brand building activities as they believe it will result in sustainable market share gains. However, the company’s shares are currently trading above the brokerage house’s target price of Rs 3,300 per share.
Akzo said in its annual report for the financial year 2023-24 (FY24) that increased government emphasis on affordable housing and infrastructure development, strong demand for real estate, higher per capita incomes driving new demand, shorter paint cycle and rise in new consumers in tier III and beyond are some of the key reasons behind the robust outlook for the sector’s growth.
The attractiveness of the sector has also led to new entrants into the market.
The outlook for the paint industry is closely linked to the overall growth of the country’s economy. India’s huge population, positive demography, increasing urbanization, rising disposable income, recovering auto industry and the government’s push for infrastructure development are some of the key factors that are, directly and indirectly, driving the demand for paints (both decorative and coatings) in India, Akzo noted.
On the other hand, fluctuations in raw material prices and strict environmental regulations regarding volatile organic compounds (VOCs) are likely to hamper the market growth.
The use of nanotechnology in the paint and coatings industry and the rising demand for eco-friendly paint are expected to offer several opportunities for market growth in the near future, the company said.
First publication: Sep 10, 2024 | 11:54 AM IST