Akzo Nobel :: CENTRUM WEALTH: Top 10 Diwali Picks

Akzo Nobel India (previously known as ICI India) is a strong player in paints and chemicals business with over 100 years of presence in India. In 2008, Akzo Nobel NV, Netherlands took equity ownership of Imperial Chemical Industries, UK. At present, the company has two division namely paints and surface chemical;
During FY2012, Akzo commissioned two new plants – one in Hyderabad for decorative paints and another in Bangalore for coil coatings increasing its total facilities to 5 plants. The company is further looking to add one more Greenfield plant at Gwalior for decoratives and has planed a capex of Rs.150 crore over the next one year;
Akzo merged three parent owned unlisted entities in India with itself which led to increase in promoter holding to 68.9% from 59.6%. The company believes that the merger has created an integrated coatings and chemicals company, with significant synergies in several segments, namely, premium decorative, industrial and automotive coatings;
In July 2012, the company completed buyback of 13 lakh equity shares at Rs.920 per share which further increased the promoter stake to 70.8%. We believe that consolidation in the business and increasing promoter stake signals a strong case for de-listing;
The company registered 81.2% YoY growth in net revenue to Rs.1,988 crore and net profit grew by 14.3% YoY to Rs.202 crore during FY2012. During Q2FY2013, the growth momentum continued and the company reported 65% YoY increase in revenue to Rs.563 crore. However, the net profit declined by 10.4% to Rs.60.9 crore due to merger of companies (Akzo Nobel Coatings Pvt Ltd, Akzo Nobel Car Refinishes India Pvt Ltd and Akzo Nobel Chemicals India Ltd) which registered lower margins;
It has cash of Rs.1,077 crore or Rs.230 per share at the end of FY2012 which is around 24% of current market capital. We believe that the company may go for another round of buyback before eventually going for de-listing. Even if the company considers recent buy back price of Rs.920 per share, the stock can see 5.9% upward movement from current levels;
The company has increased the dividend payout to Rs.20 per share for FY2012 on the expanded equity base from Rs.18 in FY2011. At the current price of Rs.952, the stock is available at 22.7x FY2012 EPS of Rs.42 and 20.3x its FY2013E EPS of Rs.47 with a fair value of Rs.1,100 which is an upside of 15.5% from the current levels. We believe there will continue to be a significant upside in the stock considering higher dividend and possibility of de-listing;

Akzo Nobel India - MANAGEMENT MEETING NOTE ::IDFC SECURITIES

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We recently interacted with the management of Akzo Nobel India (Akzo Nobel) for an update on the company’s
business and its future growth strategy. Based on our interaction, we find Akzo Nobel poised to tread a strong
growth trajectory over the next 4-5 years on the back of its new-found aggression and with focus no longer
confined to just the top segment. Akzo Nobel has shed the lethargy characteristic of the erstwhile ICI and is
aggressively looking to capture the #1 and #2 slots in its business segments. The step-up in advertising spends
and planned capex of Rs2.5bn (~2x the current net block) are initial steps in this direction. With an ambitious
target of Euro1bn in revenues for India (including three unlisted entities) by 2015, we expect the listed Akzo Nobel
India entity to at least double in size over the next four years from Rs11bn currently. At 11-12%, EBITDA margins
are mediocre but high gross margins of 47% (500bp higher than for Asian paints) provide Akzo Nobel adequate
scope to improve EBITDA margins as it acquires scale. Further, the company has high cash and cash
equivalents of Rs10bn (1/3rd of market cap) on its book, amply sufficient to fund organic as well as inorganic
growth initiatives. At 17.7x FY12E earnings (Bloomberg consensus), the stock trades at a 45% discount to Asian
Paints and a 30% discount to all peers on PB.
Akzo Nobel – the changing contours of India business
For much of the last decade, even as companies like Asian Paints fortified their presence in the market, the erstwhile
ICI, with its focus largely on the premium end of the portfolio, lack of aggression and minimal risk taking appetite,
remained a laggard. With Akzo coming on board, we see visible signs of change. After two years of consolidation, the
company looks poised for growth. Consider the following:
a) Product portfolio revised; focus extended to mid tier segment as well: Akzo Nobel has divested non-core businesses
like starch and adhesives. According to the management, the focus is now clearly on the paints business – both
decorative and industrial. Further, the company is establishing presence in the mid tier segment (>33% of category) as
well, in addition to the top end (<20% of category). The initiative, we believe, will provide Akzo Nobel access to the fast
growing Tier II and rural markets. The wider customer base would enable Akzo Nobel to capitalize on uptrading from
low tier to mid tier as well as mid tier to top tier.
b) Increased aggression underlines the growth strategy: Akzo Nobel, to back up innovation (new products such as
Weathershield Sunreflect) and drive higher brand preference, has increased its A&P spend from ~6% to ~8% of sales
in the past couple of years. In addition, it plans to launch at least 1-2 new products every year to further expand its
portfolio. The company has chalked out an ambitious Euro 1bn revenue plan for India by 2015 (including three unlisted
entities, viz. Akzo Noble Car Refinishes, Akzo Nobel Chemicals and Akzo Noble Coatings) with a goal of being #1 or
#2 in every segment that it operates in. This would entail the listed entity to at least double its revenues over the next
four years.


c) Capex- Signals commitment: Akzo Nobel has a planned capex of Rs2.5bn (almost twice the current net block of
Rs1.4bn) to double its paints capacity from ~80,000 tonnes to ~160,000 tonnes over the next three years. The
expansion is in line the intent to double the revenues at full capacity. The capex commitment further marks Akzo
Nobel’s commitment to grow the India operations.
While execution remains the key, early signs of success are visible with organic revenues registering 14% CAGR in the
last four years and an increase of 16% in FY11


A liquid balance sheet offers significant scale-up opportunities
Akzo Nobel is currently sitting on a pile of liquid assets (~Rs10bn of cash and cash equivalents as of FY11), which
translates to almost 30% of its market cap and 1x revenues. This, we believe, is amply sufficient to fund its future capex
plans as also inorganic initiatives without straining the balance sheet.
Valuations appear inexpensive
At 17.5x FY12E earnings, the stock trades at a 45% discount to Asian Paints and at a marginal discount to other peers
on PE basis. However, it trades at a 30% discount to its nearest peer on Price to Book. We believe there is scope for rerating
as Akzo embarks on the high growth trajectory, leverages scale to improve EBITDA margins and deploys cash
for growth opportunities.

KIFS Result update of Reliance Ind-Akzo Nobel-Godrej-Jet Air-Sterlite-Kirloskar

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KIFS Result update of:

RELIANCE INDUSTRIES

OVERVIEW

The flagship company of Mukesh Ambani Group, Reliance Industries Limited (RIL), a Fortune Global 500 company is the largest private sector company in India. Reliance enjoys global leadership in its businesses, being the largest polyester yarn and fiber producer in the world and among the top five to ten producers in the world in major petrochemical products. The company buys heavy grades of crude oil, which are cheaper than lighter varieties and turns them into high quality products including gasoline and diesel at its refineries on India’s West coast.

Key highlights:

· Total income grew by 39% Y-o-Y to Rs. 81018 cr  v/s Rs. 58228 cr in June-10

· Operating Profit grew by 9% Y-o-Y to Rs. 11004 cr. v/s Rs. 10064 cr. in    Jun-10

· OPM fell by 335 bps   Y-o-Y to 13.15 % v/s 16.5 % in June-10

· Net profit grew by 17% Y-o-Y to Rs. 5661 cr.  v/s Rs. 4851 cr. in June-10

· NPM fell by 119 bps       Y-o-Y to 6.76 % v/s 7.95 % in June-10

AKZO NOBEL INDIA

OVERVIEW

Akzo Nobal India is engaged in manufacturing and marketing of paints, speciality chemicals and adhesives. The Company sells its products under the ‘Dulux’ brand name. With an employee strength of about 900, the Company has manufacturing sites at Mohali, Punjab, Hyderabad, Andhra Pradesh & Thane and distribution network spread across the country. It has global brands like Alco Chemical, International, Elotex, Butanox etc.

Key highlights:

· Total income grew by 20% Y-o-Y to Rs. 341 cr  v/s Rs. 285 cr in June-10

· Operating Profit grew by 41% Y-o-Y to Rs. 91 cr v/s Rs. 65 cr In Jun-10

· OPM grew by 343 bps   Y-o-Y to 24.3 % v/s 20.88 % in June-10

· Net profit grew by 55% Y-o-Y to Rs. 68 cr.  v/s Rs. 44 cr. in June-10

· NPM grew by 400 bps   Y-o-Y to 18.2 %  v/s 14.2 % in June-10

GODREJ CONSUMER

OVERVIEW

Godrej Consumer Products (GCPL) is a flagship company of Godrej Group. The Company is major player in FMCG market.. It has three manufacturing units located at Malanpur (M.P) Guwahati (Assam) and Baddi (H.P).It has an employee strength of 950 people. It received CGR2+ rating for Corporate Governance and SVG2+ for Stakeholder Value Creation given by ICRA. GCPL has Joint Venture with SCA Hygiene by which It has created brands Snuggy, Libero etc.

Key highlights:

· Total income grew by 20% Y-o-Y to Rs. 636 cr  v/s Rs. 529 cr in June-10

· Operating Profit grew by 22% Y-o-Y to Rs. 129 cr. v/s Rs. 106 cr. in    Jun-10

· OPM grew by 13 bps   Y-o-Y to 19.62 % v/s 19.49 % in June-10

· Net profit grew by 97% Y-o-Y to Rs. 220 cr.  v/s Rs. 112 cr. in June-10

· NPM grew by 1286 bps       Y-o-Y to 33.38 % v/s 20.52 % in June-10

JET AIRWAYS

OVERVIEW

Jet Airways, an airline based in India, serves domestic as well as international routes for passenger and cargo transportation. It operates in two segments namely Air transportation and Aircraft leasing. The company has a subsidiary, Jet Lite (India) Ltd, which operates a fleet of 25 aircrafts. Jet Airways operates flights to 20 international destinations, offering a better choice in the skies. The company’s primary hub and maintenance base is at Mumbai, whereas Delhi, Kolkata, Chennai, Pune, Bengaluru and Brussels are its secondary hubs.

Key highlights:

· Total income grew by 15% Y-o-Y to Rs. 3405 cr  v/s Rs. 2965 cr in Jun-10

· Operating Profit fell by 65% Y-o-Y to Rs. 162 cr. v/s Rs. 460 cr. in Jun-10

· OPM fell by 1225 bps   Y-o-Y to 4.76 % v/s 17.01 % in June-10

· Net profit turn in to loss of Rs. 123 cr.  v/s profit of  Rs. 4 cr. in June-10

· NPM fell by 374 bps   Y-o-Y to –3.62 %  v/s 0.12 % in June-10

STERLITE INDUSTRIES

OVERVIEW

Sterlite Industries (India) Limited is India’s largest diversified metals and mining company. The company produces aluminium, copper, zinc, lead, silver, and commercial energy and has operations in India, Australia, Namibia, South Africa and Ireland. The construction of the captive power plant of 160 MW at Tuticorin is in progress and the first unit is now scheduled for commissioning in Q4 of the financial year 2011-12. The 100 kt per annum lead smelter at Rajpura Dariba is expected to be completed by Q2 of the financial year 2011-12.

Key highlights:

· Total income  grew by 65% Y-o-Y to Rs. 9861 cr. v/s Rs. 5970 cr in June-10

· Operating Profit grew by 63% Y-o-Y to Rs. 3572 cr.  v/s Rs. 2189 cr in June-10

· OPM fell by 43 bps Y-o-Y to 36.2%  v/s 36.7% in June-10

· Net profit grew by 63% Y-o-Y to Rs. 2388 cr.  v/s Rs. 1462 cr in June-10

· NPM fell by 28 bps Y-o-Y to 24.2%  v/s 24.5% in June-10

KIRLOSKAR PNEUMATIC

OVERVIEW

Kirloskar Pneumatic Company established in 1958 is India’s leading name in Compressed Air, Air-conditioning & Refrigeration and Hydraulic Power Transmission. The company is now a part of Kirloskar group. The manufacturing units of the company are located in Pune, Saswad and Kondhapuri in the state of Maharashtra and Faridabad in the state of Haryana.  The Company continues to design and develop various new models of reciprocating compressors for air and gas applications. With the successful productionisation of the 1MW gearbox the Company continues to be one the leaders in the wind power segment in India.

Key highlights:

· Total income  grew by 145% Y-o-Y to Rs. 212 cr. v/s Rs. 87 cr in June-10

· Operating Profit grew by 571% Y-o-Y to Rs. 41 cr.  v/s Rs. 6 cr in June-10

· OPM grew by 1153 bps Y-o-Y to 18.2%  v/s 6.7% in June-10

· Net profit grew by 1026% Y-o-Y to Rs. 26 cr.  v/s Rs. 2 cr in June-10

· NPM grew by 898 bps Y-o-Y to 11.5%  v/s 2.5% in June-10

Thanks and Regards,

KIFS Research