Buy Akzo Nobel, target price Rs 2,500: ICICI Securities

ICICI Securities has given a buy rating to Akzo Nobel India with a target price of Rs 2,500. The share price moved down by -1.06 per cent from its previous close of Rs 1898.40. The stock’s last traded price is Rs 1878.30.

The brokerage says Akzo’s India's turnaround strategy is largely on track, even a tad better than-anticipated due to support from the parent company thanks to good performance in the international (Europe) portfolio. While there are near-term challenges for Akzo India as it has higher exposure to premium portfolios and urban markets, the brokerage expects it to overcome these through improvements in execution. Akzo Nobel India is the only buy-rated stock in the brokerage’s consumer coverage.

Investment Rationale

The brokerage expects Akzo to continue to focus on margin expansion in line with the parent company’s strategy to expand EBIT margin to 15 per cent by 2020. However, considering the black swan event of Covid, the brokerage also expects the company to focus on reviving revenue growth. The brokerage expects the second half of FY21 to get a boost from sale of vehicle refinish paints to BMW

The brokerage models PAT CAGR of 7.5 per cent, respectively, over FY20-22E. It has retained a buy rating with discounted cash flow-based target price of Rs 2,500. Akzo is trading at the lowest valuation based on 30 times FY22Em among its peers in the paint sector.

Q4FY20 Financial Performance


Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 581.27 crore, down -20.05 per cent from last quarter sales of Rs 727.03 crore and down -17.62 per cent from last year's same quarter sales of Rs 705.58 crore. The company reported net profit after tax of Rs 54.08 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 74.76 per cent stake in the company as of March 31, 2020, while FIIs held 1.26 per cent, DIIs 8.51 per cent and public & others 15.41 per cent.