Turnaround pick: ICICI Sec has a buy call on Akzo Nobel, target price Rs 2,500

ICICI Securities has given a buy rating to Akzo Nobel with a target price of Rs 2,500. The share price moved down by -0.02 per cent from its previous close of Rs 1852.20. The stock last traded price is Rs 1851.90. Akzo Nobel is ICICI Securities preferred turnaround pick for 2020 and beyond. Incorporated in 1954, Akzo Nobel is a midcap company with a market cap of Rs 8415.85 crore, operating in the building materials sector.

Investment Rationale

While there are near-term challenges for Akzo India as it has higher exposure to premium portfolios and urban markets, the brokerage expects it to overcome these through improvements in execution. Akzo Nobel India is the only buy-rated stock in the brokerage’s consumer coverage. The brokerage expects Akzo to continue to focus on margin expansion in line with the parent company’s strategy to expand EBIT margin to 15 per cent by 2020. However, considering the black swan event of Covid, the brokerage also expects the company to focus on reviving revenue growth. The brokerage expects the second half of FY21 to get a boost from sale of vehicle refinish paints to BMW.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 581.27 crore, down -20.05 per cent from last quarter sales of Rs 727.03 crore and down -17.62 per cent from last year's same quarter sales of Rs 705.58 crore. The company reported net profit after tax of Rs 54.08 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 74.76 per cent stake in the company as of March 31, 2020, while FIIs held 1.26 per cent, DIIs 8.51 per cent and public & others 15.41 per cent.