IGI Logo

‘Grow and Deliver’ strategy of Parent with rising importance of India entity

Akzo Nobel NV recently updated consensus about the progress in its ‘Grow and Deliver’ strategy (Link). It focuses on expanding ROS (Return on Sales or EBIT) by 150bps by 2023 over CY20 and wants to grow in line or ahead (in relevant markets). We believe Akzo India is successfully following footsteps of its parent with market share gains over past 3-4 quarters as well as expanding share of industry EBITDA pool from 5% in Q3FY21 to 6% in Q3FY22. It has successfully implemented price hikes ahead of peers in past six months (we reckon improved connect with trade/ consumers). Its new offerings to plug product gaps – waterproofing, economy emulsions, floor paints – may potentially lead to market share gains. Akzo Nobel NV mentioned about India business in its presentation and earnings call multiple times (Global CEO appears impressed with the progress in India) which likely indicates rising importance of India within the group. We shall track execution and ramp-up closely, which are important for earnings and the narrative (and potential stock rerating). We stay believers. Stock trades at 26x FY23E (>50% discount to APNT), providing significant margin of safety. ADD; TP Rs2,150

Grow and Deliver strategy: Akzo Nobel NV updated consensus about progress of ‘Grow & Deliver’ strategy which aims at – ROS (Return on Sales or EBIT) expansion of 150bps by CY23 while maintaining growth at or above market growth (in relevant markets). We reckon India is an important market for Akzo Nobel NV. With parent / global CEO elaborating about India business in its global presentation and conference calls.

Akzo India has gained market shares in past five quarters…: Akzo India’s fourquarter moving revenue growth used to be far lower than peers. However, it is almost equal to peers in past 2-3 quarters which indicates it is gaining market shares.

… while expanding its share of industry EBITDA pool: It has also increased the share of the EBITDA pool from 5% in Q3FY21 to 6% in Q3FY22. While competitive pressures and inflation has increased, Akzo India was able to hike prices ahead of peers due to superior product quality (at a time when some competitors may have likely dropped product quality, in our view) and improved connect with dealers/ consumers.

Plugging gaps in portfolio to lead to higher market shares: Akzo India has introduced multiple differentiated and R&D-based products like (1) waterproofing in 2019, (2) economy emulsion in 2020 and (3) floor paints. With strong consumer/ trade response to these products, we believe growth of these differentiated products may lead to higher overall market share.

Reiterate ADD: We stay believers. Retain ADD with DCF-based TP of Rs2,150. Akzo is trading at lowest valuation (26.1x FY23E) among its peers in paint sector providing significant margin of safety, in our view. Key risks are execution-linked challenges and demand deceleration.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer