ICICI Securities on Wednesday released an analytic report, Akzo, a paints & coatings company. The report highlighted the company’s successful expansion in its market share while facing challenging conditions.
The report underlines Akzo’s recent initiatives, including increased investments in advertising and brand building, as well as the launch of premium products, positioning the company as a frontrunner in the industry.
Despite the adverse impact of the Covid-19 pandemic and rising inflation, Akzo has adapted its approach to remain competitive and reinforce its market position, according to the report.
Akzo strategically cut down its advertising spending over FY21-23 to mitigate the effects of Covid-19 and inflation on its operations, ICICI Securities noted.
According to ICICI Securities’ report, Akzo’s plans to expand its ad-spend-to-sales ratio from approximately 1.7 per cent in FY22-23 to around 3.5 per cent over FY24-25.
“We believe it will allow Akzo to support its premium portfolio and accelerate market share gains. We also like Akzo’s strategy to keep on launching premium products as the competitive pressure will likely be relatively lower in premium paints and commodity+ products (putty, primer etc) may be hurt more by the increase in competitive pressures,” the report said.
Akzo has done two launches of premium paints under Dulux and Interpon brands in Q4FY23. These variants offer protection for 10+ years, it added.
Furthermore, the report added, “With the increase in competitive intensity, the trade discounts have increased. Akzo plans to maintain its EBITDA margins and also selectively react to competitive pressures wherever required. Protecting margins will allow Akzo to invest in brands and R&D in long term (DCF accretive in our view).”
The company has also developed systems to directly incentivize the influencers i.e. painters and contractors, ICICI Securities said.
“With correction in input prices and cost-saving initiatives, Akzo was able to expand EBITDA margins by 251bps YoY,” the report highlighted.
ICICI Securities’ analysis that Akzo’s strong market share of 16-17 per cent in premium paints, positions the company favorably compared to its peers.
