Jun 14, 2010

AkzoNobel India Ltd.-Attractive bet Amongst Paints Products Companies

Equity Capital of the company is Rs. 36.8 cr havin face value of Rs.10 per share.
The Market cap at stock price of Rs.700 is Rs.2576 cr.
Mcap to Sales ratio stands at 2.86.
Imperial Chemical Industries (ICI) was a British chemical company, now a subsidiary of AkzoNobel, a Dutch Conglomerate, one of the largest chemical producers in the world. It produces paints and speciality products (including ingredients for foods, specialty polymers , electronic materials, fragrances and flavours)
AkzoNobel Bought ICI Plc.in January 2008.

The parent company holds 56.40% shares.
While various institutional hold 27.80% shares.
The inst.includes,
Icici Prudential, LIC, New Ind Assurance, Oriental ins, GIC, Aberdeen, UTI MF, SBI MF,
Asian paints also holds 5.46%.

Recommendation rational:
Recently the interest of investors has increased into companies with consumer and brand orientation. This has attracted higher PEs into FMCG, Pharma, and Paints products companies’ shares.
Apart in the wake of global crisis money has also moved from commodities stocks due to unability of giving igher returns compared to higher risks it commands.
The low to nil debt status, high promoter stake, MNC parent company, large inst,investor participation, steady cashflow is also luring investors into these sector.
Delisting buzz is also likely expected in this counter.
It is also the cheapest stock available on the basis of PE calculated on the basis of 5 yr EPS.

Negative points:
The top line growth of the company is not impressive.
For e.g Asian Paints doubled its saled over last 5 yrs. But the revenues of AkzoNobel have remained around Rs.900 cr.for the similar duration.

To stand competition in Indian markets against Asian Paints, and other domestic players such as Shalimar and Berger Paints who are equipped with knowledge of local preferences and also challenge and danger of price competition.
The combined sales of major 5 listed paints products companies is Rs.
While the poorest performer is Berger Paints in terms of profitability although having good brand presence. It is not a stock to be recommended on basis of pure number crunching. While it is possible that two digit low price and speculative rally may fuel some more upside in this counter. Anyway it is also notable that Berger top line is close to two times at 1688 cr for the year 2009-10 AkzoNobel.
Another notable part of the sector is the Commercial, automotive, industrial, packaging Segment growth of the companies.  Other non-listed domestic players may compete for this commercial segment But it is difficult to make consumer brands for any new player. Apart this is a highly specialise business and back-end chemicals operations play a vital part. While increasing pollution control friendly paints are also giving edge to players like Asian paints which launched lead free paint

Price Target:
Buy AkzoNobel at CMP with a price tgt of 40% from cmp.

Our Mantra is Benefit from the Bull market and Investor interest trends. 
Don't Be left out of the party. 
Choose Safe bets amongst Sectors. Keep the fundamentals in mind. 
Do your Number Crunching and Homework Well.
Then understand the Trend of Investors. Technicals could help but it could only help. You need to know the prevalent mentality of cyclical investors such as carious institutions and corporate investor. These are investors who are always trying to find returns from across asset classes and within asset classes.
Remain Aware and Differentiate when you are betting for short-term Gains and When you are investing for Longer haul.
Learn the Sectors and economies of different businesses. Know the sector and Do comparative Analysis of ALMOST ALL STOCKS in the sector before choosing your bet. 
It could take a decade for a sector to outperform but A company can rise manyfold from within the sectors. This is also a very good knowledge space to become intelligent, skillful and successful investor.

Our Analyst, their family and clients of Megha Investments and Research may have positions in this share.


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