Source: Sharekhan


Key points

* Margin expansion as anticipated but volume growth lags expectations:

We had recommended with a positive view on the stock of Akzo Nobel India, primarily on hopes of better recovery in demand coupled with potential improvement in margins (supported by softening raw material prices) which would drive healthy growth in earnings. Though the soft raw material prices have boosted gross profit margins, yet the volume growth has fallen short of our expectations in the past couple of quarters.

* Erratic monsoon-led weak rural demand to put stress on volume growth:

The below-normal monsoon further adds pressure on the demand outlook, as we don’t see any material improvement in the demand of decorative paints especially since the rural demand would weaken due to poor agriculture production this year. Also, the industrial activity remains weak due to weak global demand environment. Thus, we don’t see any meaningful trigger to push volume off-take in the near term.

* Close call with no gain and no loss:

Akzo Nobel India is a quality stock in the domestic paint segment with a strong balance sheet. But the near-term headwinds of subdued environment would take some time to reflect in enhancing the operating performance. Thus, in view of the near-term concerns, we close our call on the stock.


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