CMP 1132.00

Target Price 1229.00

ISIN: INE133A01011

MAY 27th

, 2013

AKZO NOBEL INDIA LIMITED Result Update: Q4 FY13

HOLDHOLDHOLDHOLD

Stock Data

Sector Paint

BSE Code 500710

Face Value 10.00

52wk. High / Low (Rs.) 1195.70/820.00

Volume (2wk. Avg ) 6725

Market Cap ( Rs in mn ) 52819.12

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY13A FY14E FY15E

Net Sales 22319.80 24105.38 25672.23

EBITDA 3267.00 3577.07 3890.85

Net Profit 2188.30 2388.32 2586.54

EPS 46.90 51.19 55.43

P/E 24.14 22.12 20.42

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX AKZO NOBEL INDIA LTD

SYNOPSIS

We initiated coverage of Akzo Nobel India Ltd

and set a target price of Rs. 1229.00 for

Medium term Investment.

Akzo Nobel India manufactures and markets

paints, coatings and specialty chemicals.

Akzo Nobel India Ltd has recommended a

dividend of Rs. 20.00 per equity share plus a

special dividend of Rs. 60 per equity share for

the financial year 2012-13.

AkzoNobel's Paints business in India owes its

success to innovative technology and strong

brands such as Dulux and Duco.

Akzo Nobel India has been ranked among the

top 500 corporates in India by The Economic

Times and Fortune India.

Akzo Nobel India has its five production

facilities, two state-of-the-art research

laboratories and 75 warehouses as well as

8500 plus retailers retail the products across

India.

Net Sales and PAT of the company are

expected to grow at a CAGR of 9% and 9%

over 2012 to 2015E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Akzo Nobel India Ltd 1132.00 52819.12 46.90 24.14 4.79 200.00

Asian Paints Ltd 4800.75 460486.90 1094.70 43.85 13.02 400.00

Kansai Nerolac Ltd 1177.75 63471.30 52.38 22.48 4.68 110.00

Kajaria Cerm Ltd 225.05 16560.00 13.66 16.48 4.64 150.00

Investment Highlights

Results updates- Q4 FY13,

Akzo Nobel India Ltd achieved a turnover of Rs. 5404.00 million for the 4th quarter of the current year 2012-13 as

against Rs. 9717.50 millions in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 1003.10 millions and a net profit of Rs. 625.00 million against Rs. 782.40 million reported

respectively in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 13.39 for

the 4th quarter as against an EPS of Rs. 21.24 in the corresponding quarter of the previous year.

Months MARCH-13 MARCH-12 % Change

Net Sales 5404.00 9717.50 -44.39%

PAT 625.00 782.40 -20.12%

EPS 13.39 21.24 -36.95%

EBITDA 1003.10 1140.20 -12.02%

Expenditure :

Break up of Expenditure Rs. Millions

Q4 FY13 Q4 FY12

Cost of Materials Consumed 3065.40 5270.10

Depreciation 95.50 178.60

Employees Benefit Expenses 417.40 809.40

Other Expenditure 1434.80 2295.00

Purchase of Stock-in-Trade 467.80 1240.10

Segment Revenue

Latest Updates

� Akzo Nobel India Ltd. continue to invest in growth, focusing on developing people capabilities, leveraging

AkzoNobel's global R&D for launching innovative products and on expanding the distribution reach for

multiple businesses.

� Akzo Nobel India Ltd has recommended a dividend of Rs. 20.00 per equity share plus a special dividend of Rs.

60 per equity share for the financial year 2012-13.

Company Profile

Akzo Nobel India manufactures and markets paints, coatings and specialty chemicals. The company is present in

India for over 100 years and a significant player in the Paints industry.

Over the years, it witnessed sustained expansion, growth and transformation. In 2008, Akzo Nobel N.V. became

owner of the entire equity share capital of Imperial Chemical Industries Ltd., by virtue of which the Company

became a member of the AkzoNobel Group. In 2012, three AkzoNobel Group companies in India, namely, Akzo

Nobel Car Refinishes India Private Limited, Akzo Nobel Chemicals (India) Limited, Akzo Nobel Coatings India

Private Limited got merged with Akzo Nobel India Limited, thereby expanding the Company’s presence in a wide

range of coatings covering Decorative, Powder, Marine & Protective, Automotive & Aerospace, Coil & Specialty

Plastics.

Dulux is its most popular brand of its Decorative coatings business while the Performance Coatings business

provides solutions to many industries and sectors including automotive, consumer electronics, power, aviation,

shipping & leisure craft, construction, oil & gas, water & waste water, food & beverages, etc.

Its chemicals business in India sells more than 30 products grouped under organic peroxides, metal alkyls and

Polymer additives to pharmaceutical companies, polymer producers, composite & rubber industry. Every year

we try and introduce new products tin India to further strengthen our position as an innovative specialty

chemicals company.

Business Area

� Industrial

� Automotive Coatings

� Powder Coatings

� Protective Coatings

Partners

Products

Coatings

Decorative Paints: The Company’s Decorative Paints business manufactures the Dulux brand of paints for

interior and exterior decoration and protection as well as products for surface preparation and wood care.

� Dulux Velvet Touch ‘Pearl Glo’

� Dulux Velvet Touch ‘Trends’

� Dulux Guardian

� Dulux 3-in-1 StayClean

� Dulux Super Smooth

� Dulux Super Smooth ‘Colour Bright’

� Magik

� Dulux WeatherShield

� Dulux WeatherShield Max

� Dulux WeatherShield Ultra Clean

� Dulux WeatherShield Clear

� Dulux WeatherShield Tex

� Dulux TileShield

� Dulux Promise

� Dulux Lustre Finish

� Dulux Satin Finish

� Dulux Supergloss 5-in-1

� Dulux Gloss

Performance Coatings: The Company’s Industrial Coatings business includes coil and extrusion coatings for

commercial and residential metal building products, home appliances and automotive components. The specialty

plastics coatings and films are used by leading brands in consumer electronics, cosmetic packaging and lifestyle

products.

� Ceilcote

� Chartek

� Devoe

� Dynacoat Crest

� Dynacoat Miluz

� Dynacoat Vektor

� Duco/ DUCO Regent

� Duco Gallop

� Enviroline

� International

� Interpon

� Polydure

� Resicoat

� Sikkens

� Sikkens Solvent-Borne

� Sikkens Water-Borne

� Sikkens Autocoat BT

� Trinar

Chemicals

Specialty Chemicals: The Company’s Specialty Chemicals portfolio appears in a remarkable variety of items

over 2,000 products.

Functional Chemicals: Functional Chemicals that serve a broad range of industries including paints, detergents,

automotive parts, agricultural products, building materials, pharmaceuticals, foods, adhesives, plastics and

cosmetics.

� Akucell

� Armoslip/Armid

� Armostat

� Bermocoll

� Bermodol PUR

� Butanox

� Dissolvine

� Elotex

� Elotex Specialty Additives

� Ferrazone

� Ketjenblack

� KNZ

� Peridur

� Sanal

� Thioplast EPS – Epoxydised Polysulfide

� Thioplast G – Polysulfide

Surface Chemistry: Surface Chemistry, which finds a heavy demand in the personal care segment

� Alco Chemical

� Arquad

� Berol

� Bredol

� Dry-Flo

� Lilaflot and Armoflote

� Morwet

� Morwet D425

� Morwet EFW

� Redicote

� Rediset

� Wetfix Be

Financial Highlight

Balance sheet as at March31, 2012

(A*- Actual, E* -Estimations & Rs. In Millions)

FY12 FY13 FY14E FY15E

EQUITY AND LIABILITIES:

Shareholders’ Funds:

Share Capital 479.60 466.60 466.60 466.60

Reserves and Surplus 13930.90 10585.70 12959.72 15546.25

Net worth (a) 14410.50 11052.30 13426.32 16012.85

Non-Current Liabilities:

Deferred Tax Liabilities [Net] 25.80 46.70 62.58 78.22

Other Long Term Liabilities 191.00 190.30 190.49 190.68

Long Term Provisions 628.50 618.50 630.87 643.49

Long term liabilities (b) 845.30 855.50 883.94 912.39

Current Liabilities:

Trade Payables 4161.40 4784.80 5358.98 5894.87

Other Current Liabilities 906.50 1171.20 1440.58 1714.29

Short Term Provisions 1756.60 5188.10 5706.91 6277.60

Current Liabilities © 6824.50 11144.10 12506.46 13886.76

Total (a+b+c) 22080.30 23051.90 26816.71 30812.00

ASSETS:

Non-Current Assets:

Fixed Assets 3710.50 4604.80 5433.66 6303.05

(d) 3710.50 4604.80 5433.66 6303.05

Other non-current assets 4.00 16.00 19.84 23.81

Non Current Investments 849.60 2699.90 4049.85 5467.30

Long Term Loans and Advances 1188.00 901.20 1081.44 1265.28

(e) 2041.60 3617.10 5151.13 6756.39

Current Assets:

Current Investments 9185.50 6771.70 7448.87 8193.76

Inventories 3334.10 3149.40 3243.88 3341.20

Trade Receivables 2260.50 2515.60 2767.16 3043.88

Cash and Bank Balances 739.40 856.80 985.32 1113.41

Short Term Loans and Advances 542.40 1291.30 1534.13 1802.71

Other Current Assets 266.30 245.20 252.56 257.61

(f) 16328.20 14830.00 16231.92 17752.56

Total (d+e+f) 22080.30 23051.90 26816.71 30812.00

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12 FY13 FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 19878.50 22319.80 24105.38 25672.23

Other Income 1123.50 1381.20 1588.38 1747.22

Total Income 21002.00 23701.00 25693.76 27419.45

Expenditure -18132.90 -20434.00 -22116.69 -23528.60

Operating Profit 2869.10 3267.00 3577.07 3890.85

Interest -39.20 -89.30 -111.63 -131.72

Gross profit 2829.90 3177.70 3465.45 3759.13

Depreciation -366.40 -386.50 -403.51 -421.66

Profit Before Tax 2463.50 2791.20 3061.94 3337.47

Tax -445.70 -602.90 -673.63 -750.93

Net Profit 2017.80 2188.30 2388.32 2586.54

Equity capital 368.30 466.60 466.60 466.60

Reserves 13915.50 10571.40 12959.72 15546.25

Face value 10.00 10.00 10.00 10.00

EPS 54.79 46.90 51.19 55.43

Quarterly Profit & Loss Statement for the period of 30 SEP, 2012 to 30 JUNE, 2013E

Value(Rs.in.mn) 30-Sep-12 31-Dec-12 31-Mar-13 30-June-13E

Description 3m 3m 3m 3m

Net sales 5234.10 6051.60 5404.00 4161.08

Other income 272.60 241.20 511.90 460.71

Total Income 5506.70 6292.80 5915.90 4621.79

Expenditure -4870.80 -5553.20 -4912.80 -3807.39

Operating profit 635.90 739.60 1003.10 814.40

Interest -3.90 -4.90 -74.20 -77.17

Gross profit 632.00 734.70 928.90 737.23

Depreciation -100.10 -97.50 -95.50 -97.41

Profit Before Tax 531.90 637.20 833.40 639.82

Tax -83.80 -130.90 -208.40 -134.36

Net Profit 448.10 506.30 625.00 505.46

Equity capital 466.60 466.60 466.60 466.60

Face value 10.00 10.00 10.00 10.00

EPS 9.60 10.85 13.39 10.83

Ratio Analysis

Particulars FY12 FY13 FY14E FY15E

EPS (Rs.) 54.79 46.90 51.19 55.43

EBITDA Margin (%) 14.43% 14.64% 14.84% 15.16%

PBT Margin (%) 12.39% 12.51% 12.70% 13.00%

PAT Margin (%) 10.15% 9.80% 9.91% 10.08%

P/E Ratio (x) 20.66 24.14 22.12 20.42

ROE (%) 14.13% 19.83% 17.79% 16.15%

ROCE (%) 22.65% 33.10% 29.65% 26.93%

EV/EBITDA (x) 14.53 16.17 14.77 13.58

Book Value (Rs.) 387.83 236.56 287.75 343.18

P/BV 2.92 4.79 3.93 3.30

Charts

Outlook and Conclusion

� At the current market price of Rs.1132.00, the stock P/E ratio is at 22.12 x FY14E and 20.42 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.51.19 and

Rs.55.43 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 9% and 9% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 14.77 x for FY14E and 13.58 x for FY15E.

� Price to Book Value of the stock is expected to be at 3.93 x and 3.30 x respectively for FY14E and FY15E.

� We recommend ‘HOLD’ in this particular scrip with a target price of Rs.1229.00 for Medium to Long term

investment.

Industry Overview

The Indian paint industry witnessed positive growth in 2011-12, bolstered by the high GDP growth rate of 6.8%.

The paint market is dominated by decorative paints, which accounts for nearly 70% of the total demand. The

balance 30% belongs to industrial paints - comprising automotive and industrial, protective, powder, coil and

marine coatings.

The decorative paints market is throwing up opportunities for premium products which are technically superior.

Higher purchasing power, backed by higher income levels, increased urbanization, rising construction activity in

the housing segment and easy availability of housing loans are boosting growth in this segment. This is helped by

the spread of audio-visual media, internet and communication facilities. Better living conditions and aesthetics

now fetch a definite value. Considering the low levels of per capita consumption of paints per annum (0.5 kg in

India compared to 6.4 kgs in China and 15 kgs in the USA compared to a global average of 10-13 kgs), Company

feels that there is still much potential in this sector.

Growing awareness among retail consumers with respect to brand and attendant quality is attracting them

towards the organized sector.

There is marked tilt towards eco-friendly products which are not harmful to human beings as well as the

environment.

Market Structure

The paint industry volume in India has been consistently growing at more than 15% per annum for some years

now. The strong growth was supported by a favorable monsoon and good industrial growth especially in the

automotive sector. Growth in turnover was significantly higher than the volume growth as large price increases

had to be affected during the year.

In International Business, political turmoil in Egypt and Bahrain impacted business conditions in these countries

during the last quarter of the year. While South Asian markets fared relatively better, the impact of economic

slowdown persisted in some of the other international markets where your Company operates.

Indian Paints Industry can be classified into two sub-segments:

• Decorative Paints

• Industrial Paints

The paint industry is divided into organized and unorganized sector. The unorganized segment plays a huge role

in decorative paint segment due to low technical know-how and highly scattered market. The organized segment

constitutes around 54% of the total volume and 65% of value of paints industry. Again the whole paints industry

can be classified into decorative (75% of total industry size) and industrial paints (25% of total industry size).

Further, in organized segment, the top 6 players account for around 84% by volume and 63% by value. The

remaining players in organized business are largely present in non-auto industrial segment, and the unorganized

players are mainly operational in decorative paints segment as industrial paints require high technological

knowhow and client tie-ups.

Decorative paint (including interior and exterior wall finishes, enamels, wood finishes and ancillary products)

constitutes around 72% of the paint market in India. 2010-11 was a good year for the paint industry.

Sharp increase in raw material prices was one of the key concerns identified by Company for FY 2010-11 and as

expected, it posed significant challenges throughout the year. The recovery of the global economy leading to a

revival of demand especially in countries like India, China and the U.S., coupled with the rise in crude prices and

shortage of key raw materials has led to a steady increase in prices across all categories of raw materials. In

India, factors like power shortages, increase in labor and transportation cost also contributed to the inflation.

The overall impact of inflation during the year was in excess of 13%. This was countered through price increases

at regular intervals (five in all totaling over 12% for the year). Fortunately, this substantial increase in prices did

not affect demand which continued to be robust. Margins, however, were under severe pressure during the year

and continue to be a concern going forward

Conclusion

With the revival of the construction boom post recession also the resurgence of the automotive and consumer

durable industries, the Indian paint industry is heading for an exciting phase of growth and profitability. Demand

in case of industrial segment is also expected to increase going forward. Domestic and global auto majors have

long term plans for the Indian market, which augur well for automotive paint manufacturers like Kansai Nerolac

and Asian-PPG. Increased industrial paint demand, especially powder coatings and high performance coatings

will also propel top line growth of paint majors in the medium term. A better focus on supply chain or

distribution mechanism backed by aggressive promotion will drive the fortunes of the Indian paint industry like

never before over the years to come.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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