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Shares of Akzo Noble India surged 5 per cent to hit a record high of Rs 2,631 on the BSE in Monday’s trade on the back of a steady growth outlook. The stock has surpassed its previous high of Rs 2,549.95, touched on May 23, 2023.
Akzo Noble India is engaged in the business of manufacturing, trading and selling of paints and related products. In the past one month, the stock has outperformed the market by gaining 12 per cent as compared to a 4.4 per cent rise in the S&P BSE Sensex.
For the financial year 2022-23 (FY23), the company reported record performance in absolute terms across revenue, gross margin (GM) and earnings before interest and tax (EBIT). Revenue grew 21 per cent year-on-year (YoY) to Rs 3,802 crore on back of healthy growth in decorative paints, led by launches, urban markets and projects business.
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The management said the paints and coatings industry's prospects are intricately connected to the overall growth of the country's economy, which is influenced by several factors including income levels, industrial production, and infrastructure development.
While the industry faces potential risks stemming from fluctuating crude prices, macro-economic environment, and inflationary pressures, the overall outlook remains promising. This optimism is fuelled by India's projected medium-term growth rate of 6-7 per cent, which sets a favorable backdrop for the industry's expansion and development, the company said in its FY23 annual report.
Industrial segment represents the remaining 31 per cent of the paints and coatings consumed in the country. This segment has been witnessing a growing share due to multiple factors. The industrial sector's robust growth, coupled with strong fundamentals of consumer durables, automobiles, and allied industries has fuelled the demand for industrial coatings. These coatings find applications in sectors viz automotive, infrastructure, machinery and equipment, functional and domestic appliances, packaging, etc.
Akzo is the second largest player in premium paints in India with a market share of 16-17 per cent as per the management.
Analysts at ICICI Securities believe the increase in competitive intensity (post Grasim’s entry) will likely hurt the commodity+ segments such as putty, primer, distempers. The brokerage expects Akzo to be relatively insulated compared to peers as it has higher revenue saliency from premium paints.
Covid and RM inflation forced Akzo to cut down its ad-spend by 200 bps over FY21-23. However, with correction in commodity prices, Akzo plans to expand its ad-spend-to-sales from 1.7 per cent in FY22-23 to 3.5 per cent over FY24-25. Analysts believe it will allow Akzo to support its premium portfolio and accelerate market share gains.
“We also like Akzo’s strategy to keep on launching premium products as the competitive pressure will likely be relatively lower in premium paints and commodity+ products (putty, primer etc) may be hurt more by increase in competitive pressures. Akzo has done two launches of premium paints under Dulux and Interpon brands in Q4FY23. These variants offer protection for 10 plus years,” the brokerage said in a result update. The stock is trading above the target price of Rs 2,508 per share.
