11 Mar 2013
Update |Sector: Consumer‐Paints
We attended the analyst meet of Akzo Nobel. Following are key takeaways and
potential implications for Asian Paints.
Akzo Nobel’s vision is to reach EUR 1 bn revenues in medium term. For 9MFY13,
it clocked revenues of INR16.9bn and as per management, the Indian business
contributes ~3% of parent’s turnover.
It targets to become the second largest player in Decorative Paints segment
(currently at number 4). Driving shares in mid‐lower end of the Paints industry is
a key focus area (Akzo is number 2 in Premium segment with 20% plus market
Management expects a challenging near term environment for the Decorative
paints industry and believes near term growth will be driven by volumes.
Pricing environment is expected to remain stable and may even see some
softening as raw material prices (especially Tio2) has seen the top, as per
Akzo’s focus is on improving dealer network strength (currently at 8500),
building brands (higher ad‐spends) and sustained innovation efforts.
Despite significant capacity build up by incumbents company does not see
concern for medium term volume growth in the industry.
From Asian Paint’s perspective, we believe the softening of RM environment
augurs well. However challenging near term demand environment can have
implications for Decorative paints volume growth. We have a BUY rating on
Asian Paints with TP of INR 5000.
We do not have a rating on Akzo Nobel.
Possible near term slowdown: weak macros may weigh on near term decorative
Management expects potential slowdown/softening in Paints industry in the
near term. Slowdown in GDP growth, postponement of re‐painting decisions
and sluggish construction sector activity point towards near term softening.
Long term trajectory for Decorative segment continues to remain attractive –
led by urbanization, mix improvement in favor of Water based paints
(Emulsions) and evolving consumer lifestyles are key growth drivers.
Strong long term potential for Paints industry in India
AKZO NOBEL (Analyst meet takeaways):
Near term Paint
industry demand at risk; RM softening is well entrenched;
Implications for Asian Paints