Amit Jain, MD of Akzo Nobel India says there is consumer downtrading as buyers shift from premium to mid-tier.
Amit Jain, MD of Akzo Nobel India , the Indian arm of Amsterdam-based international paint and coatings manufacturer Akzo Nobel (they also make speciality chemicals), says the overall sentiment has been soft across paints industry. He says the volume slip for industry was on the back of high base last year.
He says there is consumer downtrading as buyers shift from premium to mid-tier. Akzo Nobel, which enjoys 20 percent market share in the premium segment, hopes the industry would be able to stimulate consumer demand on more attractive pricing down the line.
For now though Jain says the industry could see growth of 4-5 percent for the current quarter. "Going forward high single digit, low double digit is the kind of tempered growth which the industry could be looking at, at least for the next three to four quarters," he says.
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Below is the verbatim transcription of his interview to CNBC-TV18
Q: How is the market doing at both premium end and the mid-tier level which you are trying to target more aggressively? We have not seen very smart or sharp revenue growth for Akzo Nobel in the quarter gone by. Will it pick up over the next few quarters?
A: Overall market sentiment is slightly low and the quarter has been soft for the industry. In line with whatever happening in most of the other consumer sectors overall consumer sentiment is moving the market from premium to mid-tier and in some cases low-tier. So this is a very good vindication of our strategy where we have also started focusing on mid-tier in addition to our established strength in the premium tier of the industry.
We have some time to go before we catch up. Right now our business performance is a reflection of the fact that consumers continue to down trade from premium to mid-tier and mid-tier in some cases to economy. However, we are positioning our business very strongly in terms of reaping this down trading behaviour in the quarters to come.
Q: There is some disappointment around the numbers from the paints companies this time, not just because of what happened in the industrial segments, but even for some of your larger peers like Asian Paints and what happened on the decorative side. Ex of the shift down to mid-tier what can you point to in terms of volume growth or sales growth that you expect to see through FY14?
A: Two points on that. One, there is a significant base effect. Same quarter last year the industry grew in the high 20s, so there is a base effect to it. Secondly admittedly over the last two quarters there has been a slowdown in off-take in consumption driven by the fact that the industry was forced to take up prices most of last year. That cycle tends to be coming off. Some of the raw materials like titanium diaoxide, some of the solvent based inputs, with them softening up I think pricing pressures are going to ease off. Down the line hopefully the industry would be able to stimulate consumer demand on the basis of more attractive pricing.
Q: If the high 20s seem too high, what looks like more reasonable quantum in which you think growth will move?
A: It has been up and down. Over the last fiscal we have had quarters which have grown in the 20s. Results are still coming in. Current quarter the industry might just see a growth of 4-5 percent base case. Going forward high single digit, low double digit is the kind of tempered growth which the industry could be looking at, at least for the next three to four quarters.
Q: Your market share in the mid-tier segment which is growing faster is only about 5 percent odd if my numbers are correct. What is your strategy to improve or take that market share up to 10 percent through product launches or any other means?
A: That is the good news for us. We have traditionally had a mid-20s kind of market share in the premium segment across both our consumer as well as our B2B businesses.
Akzo Nobel stock price
On March 04, 2015, Akzo Nobel India closed at Rs 1493.90, down Rs 4.15, or 0.28 percent. The 52-week high of the share was Rs 1550.00 and the 52-week low was Rs 776.00.
The company's trailing 12-month (TTM) EPS was at Rs 46.29 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 32.27. The latest book value of the company is Rs 181.69 per share. At current value, the price-to-book value of the company is 8.22.
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