Buy Akzo Nobel India; target of Rs 2269: Bonanza

Bonanza's research report on Akzo Nobel India

Recently, the stock price of Akzo Nobel India Ltd. (Akzo Nobel) corrected by ~18% from 52-week high of Rs.2,089 as the company reported lower than expected results due to increase in cost of materials consumed and adverse movements in inventories in the last quarter.  With 11.1% market share by revenue, Akzo Nobel is 4th largest player in the paint industries in India. It manufactures and markets a wide range of coatings and specialty chemicals. Akzo Nobel has ~9,000 strong dealer/ partners network aggressively pushes sales while the strong MNC backing of Akzo Nobel NV ensures quality products and technical expertise. Over the last six years, the company’s net sales and EBITDA grew at a CAGR of around ~17% and ~18%, respectively, with the help of innovations and diversified portfolio of brands. While demand for decorative and industrial paints in the recent past has been sluggish, we expect the industry to pick up well with revival in the domestic economy in the medium to long term. We expect Akzo Nobel to achieve double digit revenue growth over next two years on account of retaining leadership in premium decorative segment and gaining market share in mid-tier segment.

Outlook

With 4th largest player in the paint industries in India, maintaining high margins due to lower raw material cost, strong dealer/partners network, plans to grow in Western and Southern markets and benefiting more due to higher salience of urban markets, we value Akzo Nobel at 32.50x FY19E EPS of Rs.69.80 to arrive at target price of Rs.2,269.00, an upside of ~25%.

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