Akzo Nobel India to grow sales a fifth in tough times

Akzo Nobel India to grow sales a fifth in tough times

Mumbai: Paint maker Akzo Nobel India expects to sustain its 20% sales growth in FY12 in the face of an expected demand dip for the Indian paints industry as hardening rates dent demand for homes, offices and cars.

The Indian unit of the world’s largest paint maker Akzo Nobel posted a 55% jump in net profit in June quarter to 67.98 crore while sales grew a fifth to 340 crore in the same period a year earlier.

India’s central bank raised interest rates by a higher-than-expected 50 basis points on Tuesday, its 11th rate increase since March 2010 stepping up its fight against persistently high inflation despite slowing growth.

Indian paint makers such as Kansai Nerolac and Berger Paints are expecting a slowdown in growth in the current fiscal year, while the country’s largest paint maker Asian Paints said it expects demand growth to remain a challenge as the macro-economic environment forces consumers to cut back purchases.

However, Akzo Nobel, whose flagship products include the ‘Dulux’ range of paints, expects to sustain and drive growth by ramping up distribution and launching new products in the mid-tier market in India.

“Akzo has been a large player in urban India but now we are expanding our distribution to smaller cities and moving closer to emerging India," Amit Jain, managing director of the Indian unit, told Reuters in an interview on Tuesday.

“The bulk of our products have been premium, this is the first time we are moving into the mid-market with paint prices at 300 per litre," Jain added.

Also, the company gets 88% of its revenues from decoratives coatings, which caters to the housing industry and is still seeing good growth. It gets only 12% from the industrial segment, which caters to the auto industry that is reeling under a demand slowdown.

Akzo Nobel India, however, expects its margins to remain under pressure as rising prices of titanium dioxide, a key raw material, continue to remain a cause for worry.

“Titanium dioxide prices have been going up and we expect it to escalate a further 15% in the next six months...In the next 6-9 months we will take another round of price increases, but we will try to keep the quantum of the hike to a minimum," Jain said.

The company has taken two price hikes in the June quarter to the tune of 6-7%. Its June quarter Ebitda margin grew a mere 4% year-on-year to 45.4 crore largely on the back of a 330 basis points gross margin contraction.

New capacity

Akzo Nobel India, which has an annual capacity of 80 million litres, is planning to set up a new plant with an additional capacity of 100 million litres.

“We are looking for land for the factory in Karnataka and Madhya Pradesh and are still in the process of finalising it. The new plant will come up in two phases, over a period of three years and the investment will be around 200 crore," Jain said.

The company will also add an additional capacity of 30 million litres at its existing plant in Hyderabad, Jain said.

The paint maker will also focus on increasing its retail footprint in the country and plans to open 75 ‘Dulux’ decorative centres this fiscal year, in addition to its existing 75.

It has earmarked a total capital expenditure of 800 million rupees in FY12.

At 3.20 p.m., shares of the company were down 0.79% at 971.1 in a weak Mumbai market.