Akzo Nobel India Ltd (Akzo) is one of the leading paint manufacturers in India under
the brand name ‘Dulux’. Akzo has ~11% share by revenue among the top 5 players.
It manufactures and markets a wide range of coatings (contributes ~90%) and
specialty chemicals & others (~10%). Akzo has six manufacturing facilities in
Hyderabad, Bengaluru, Gwalior, Mohali, Raigad & Navi Mumbai. We expect Akzo to report revenue at 11% CAGR to Rs3,773cr
and Adj. PAT at 25% CAGR to Rs375cr over FY2016-19E on the back of recovery in the
real estate sector, reduced repainting cycle, strong brand and expansion in specialty
chemical. Notably, at present, Akzo is at lower valuations as compared to its peers in
the industry. EV/Sales for Akzo is at 1.9x FY2019E, whereas all the peers (Asian Paints,
Berger Paints & Kansai Nerolac) are above 3x, and the company’s EV/EBITDA is in
lower teens (11.8x FY2019E), whereas peers are in 20x category. Moreover, Akzo is
currently trading at 18.6x P/E on FY2019E EPS, which is below its peers. We believe
that the stock provides opportunity at these levels with attractive and relatively cheaper
valuations to the peers. At CMP of Rs1,496, stock trading at 21.6x/18.6x of
FY2018E/FY2019E EPS respectively, which we believe is attractive. We Initiate
Coverage on the stock, with a ‘BUY’ recommendation, and a Target Price of Rs1,720
(23x on Avg FY2018 & FY2019 EPS).

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