Akzo Nobel India rallies 5%; hits record high on healthy growth outlook

Akzo Noble India shares climbed following the start of commercial production of powder coating products from its Gwalior plant with an installed capacity of 5,166 tonne per annum.

Shares of Akzo Nobel India, a paints and coatings company that makes Dulux Paints, rallied 5 per cent on the BSE in Tuesday’s intra-day trade to hit a fresh record high of Rs 3,960 on healthy growth outlook. In comparison, the BSE Sensex was up 0.16 per cent at 81,697 at 11:05 AM.

The stock is quoting higher for the sixth straight trading day, having surged 16 per cent during the period.

Last week, on September 5, Akzo had said that the company has started commercial production of powder coating products from its plant in Gwalior, Madhya Pradesh that has an installed production capacity of 5,166 tonne per annum (original installed production capacity), which can be expanded based on future demand.

The new commercial production capacity is aimed at supporting the company's capacity expansion plan, due to the service level need of the powder coating market demand for the company, mainly in North and Eastern India.

The company has invested an amount of approximately Rs 105 crore towards the facility, and the same has been funded through internal accruals, Akzo said.

Since August 1, the market price of Akzo has zoomed 33 per cent after the company delivered yet another strong (compared to peers) print with likely market share gains and double-digit volume growth across segments in the June quarter (Q1FY25), driven primarily by B2B.

Gross margins expanded 162bps due to superior revenue mix and likely efficiencies in sourcing. However, earnings before interest, taxes, depreciation and amortisation (Ebitda) margin was flat (up 8 bps) due to higher other expenditure (likely higher ad-spend as a share of net sales).

Further, the management sees an increase in raw material costs in the second half of the fiscal. As a result, they said, the company is taking necessary pricing actions without losing competitiveness.

Akzo Nobel India has recently launched an uber-luxury interior emulsion under the brand Dulux Velvet Touch Eterna. It also launched Interpon A3000 Powder coatings in India. The company plans to be aggressive in powder coatings business for two-wheelers in India.

Analysts at ICICI Securities, in a result update on the company, said there is likely a superior revenue mix in decorative paints considering the expansion in gross margins. The brokerage firm believes super-premium paints have performed well.

Akzo has also entered the uber-luxury interior emulsion segment, with its Dulux Velvet Touch Eterna brand. 

The company is now offering 10 per cent additional volumes on Dulux Promise range (applicable on 20-liter stock keeping units, or SKUs).

Akzo has also increased investments in B2B segments and the brokerage believes the benefits of these efforts are already visible, with these segments contributing handsomely to the overall growth of the company.

Analysts further said they also like the company's strategy to drive sourcing efficiencies and cost-saving initiatives to invest more in brand-building activities as they consider it to result in sustainable market share gains. However, the company's stock is currently trading above the brokerage firm’s target price of Rs 3,300 per share.

Meanwhile, Akzo, in its financial year 2023-24 (FY24) annual report, said that the increased government focus on affordable housing and infrastructure development, robust real estate demand, higher per capita incomes driving new demand and shortened re-painting cycle and rise of new consumers in tier III and beyond geographies, are some of the key reasons behind the robust outlook for the sector's growth.

The attractiveness of the sector has also led to new entrants in the market.

The paints industry's prospects are intricately connected to the overall growth of the country's economy. India’s huge population, positive demographics, increasing urbanisation, increasing disposable income, recovering automotive industry, and the government’s push on infrastructure development, are some of the key factors which are, directly and indirectly, driving the demand for paints (both decorative and coating products) in India, Akzo noted.

On the flip side, fluctuations in raw material prices and stringent environmental regulations regarding volatile organic compounds (VOC) are likely to hamper the market's growth.

The use of nanotechnology in the paints and coatings industry and the rising demand for eco-friendly paints are further expected to offer various market growth opportunities in the near future, the company added.