Q3FY19 result highlights
Key positives: Healthy control over other overhead costs
Key negatives: Weak revenue growth in coatings business
Impact on financials: Factoring weak performance, we have cut FY19/20E earnings by 11%/5% respectively
Valuations & view
Akzo’s coatings business revenues grew in double digits but continued to lag peers which is indicative of weaker growth in decorative segment as well as industrial segment. Further margin trajectory was weaker than expectations despite price hike & control over overheads. While price hikes in decorative, recent moderation in input costs and tight control over other overheads, will aid the margin trajectory in coming quarters, continued underperformance on the volume growth front remains a concern. While valuations at 31.5x FY20E are at sharp discount to its peers, we believe the discount is unlikely to narrow considering weaker execution, earnings delivery and return profile. Hence, we maintain Neutral rating on the stock and would await further improvement in volume growth to change our rating on the stock.
ICI India is engaged in the manufacture and sale of paints. Co.'s primary business segments are paints and chemicals. The Paints business segment includes decorative and refinishing and the Chemical business segment includes uniqema, food starch, polymers, adhesives, and rubber chemicals.
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