Akzo Nobel India Ltd – Colouring Lives

Akzo Nobel India Ltd manufactures and markets wide range of coatings and specialty chemicals. It is the 4^TH largest paints company in India with an overall market share of around 11% .The Company operates through the following segments: Performance Coatings, Decorative Paints and Specialty Chemicals. The Performance Coatings segment produces aerospace and automotive; industrial; marine and protective; and powder coatings.  The Decorative Paints segment manufactures and supplies a variety of exterior and interior decoration and protection products for professional and Do-It-Yourself (DIY) markets. The Specialty Chemicals segment manufactures industrial, functional, pulp and performance chemicals.

Akzo Nobel India Ltd is one of the Multibagger Stocks, identified by Dynamic Research based on technical and fundamental research.

Akzo Nobel India share price has touched a 52 week high of Rs. 1705 on 29 -Jul -2016 and a 52 week low of Rs.1205 on 12 -Feb -2016, and is currently trading at Rs. 1602.

Share Holding

The promoters holding in the company stood at 72.96%, while Institutions and Non-Institutions held 10.48% and 16.56% respectively. 

Financial Analysis

Quarterly Results

For the quarter ended June 2016, the total income from operations of Akzo Nobel India Ltdhas reported a growth of 6.83% on Y-o-Y basis to Rs. 703.39 cr as against Rs. 658.40 cr during the same quarter last year. A boost up in total income from operations shows strong development in business.

The operating profit of Akzo Nobel on standalone has shown a growth of 39.67% Y-o-Y to Rs. 84.64 cr as against Rs. 60.60 cr during the same quarter last year; this is mainly due to higher net sales.

The net profit of Akzo Nobel has registered a growth of 41.82% Y-o-Y to Rs.64.26 cr as against Rs 45.31cr during the same quarter previous year.

The earnings per share of the company have showed a growth of 41.81% Y-o-Y to Rs. 13.77 as against Rs. 9.71 during same period last year.

The financial performance for this quarter has been positive and the company is growing consistently despite tough market conditions.

Annual Results

For the year ended March 31, 2016 Akzo Nobel India Ltdon Standalone basis reported net sales of Rs. 2740.14 cr compared to Rs. 2526.99 cr FY2015.

For the year ended March 31, 2016 Akzo Nobel India Ltdon Standalone basis reported net profit of Rs. 202.10 cr compared to profit of Rs. 186.31 cr FY2015.

Ratio Analysis

 

The above ratio suggests that the company is operating with zero debt. Higher Interest Coverage Ratio implies that company can very easily pay interest on outstanding debt. The management is efficiently using its assets to generate earnings. The Company is generating very good returns with the money the share holders have invested;

Investment Rationale

• Indian paints industry is estimated at Rs.406 Bn, out of which organized sector accounts for ~65% (~Rs.264 Bn) of the total market.
• The Indian paints market has substantially grown and caught the attention of many international players
• Akzo Nobel manufactures and markets wide variety of coatings under brand name of “Dulux” holding second position in finest paints category with around 20% market share in premium segment.
• Presently, the growth of the Indian paints industry is being witnessed in Tier-II and Tier-III cities as compared to urban cities. The growing popularity of quality paints and rising income levels of people residing in Tier-II and Tier-III cities have pushed the growth in premium paints market of Indian decorative paints industry.
• Decorative industry size is expected to double to around Rs.460 Bn by year 2020 driven by demand from urbanization and revival in realty industry.
• Akzo Nobel is one of the largest beneficiaries of fall in global crude oil prices as crude-linked raw material forms around 35% of the total raw material cost including packaging.
• With good monsoon rains and impending festive season, the company expects a good offtake in the coming months.

The Board of Directors has approved, setting up a Powder Coating manufacturing facility in Mumbai, with an installed capacity of 7000 tons.

Investment Opinion

At CMP of Rs. 1607 the stock is trading at a P/E of 33.80, the market cap of the company is 7475.92 crore. As per Dynamic Levels we recommend a buy on Akzo Nobel at CMP 1602 levels with a price target of Rs. 1750.