JSW Paints' managing director Parth Jindal said after announcing his firm's buyout of AkzoNobel India from its global promoters AkzoNobel N.V that the new, combined entity aims to reach at least the number three spot in decorative paints market, and number one in the industrial segment, using the distribution base of both the companies.
This comes at a time of intense competition, pressure on demand and margins, fight for market share, and new entrants into the decorative paints market, including those with deep pockets, such as the Aditya Birla Group and Pidilite Industries.
"The combined entity’s revenue last year was about Rs 6,000 crore, the revenue of the number three player was at Rs 7,000 crore–8,000 crore. We expect to reach the top three within three years...AkzoNobel India has around 19,000 retailers, and the two entities combined will have around 27,000 to 28,000 retailers, with an overlap of only 10 percent," Jindal said, addressing a media roundtable after the announcement.
Jindal, however, noted that the deal still requires approval from the antitrust regulator, the Competition Commission of India, and the positioning of the two major brands in the new stable- JSW Paints and Dulux, will be decided on after "leveraging both companies' wisdom". He noted that while AkzoNobel's Dulux has significant market share in metropolitan and Tier-I cities, JSW Paints has grown in the value-mass market segment. He also pointed out some differences between the distribution models of the companies.
Dulux has a significant market share in the premium segment due to its long-term brand and manufacturing presence in India. According to paint dealers, Dulux directly competes with the Royale offering from market leader Asian Paints.
Jindal said that the company is close to finalising the contours of the financing model for the deal. He said that around Rs 7,000 crore are being provided by the promoter family, which includes his father and JSW group chairman Sajjan Jindal, through debt at the JSW Paints level, and promoter infusion, and the rest is expected to come from private equity firms, with several offers being considered. However, he added that the promoters are prepared to put up additional funds if a deal with private equity players is not agreed on.
Besides the near-Rs 9,000 crore (apart from the Rs 3,929 crore open offer) deal that JSW Paints and AkzoNobel N.V agreed for AkzoNobel India, Jindal noted that production in both the decorative and industrial paints segment can be ramped up without new capital expenditure.
"Both companies have enough dormant capacity to double revenue without new capex, with five AkzoNobel locations and two (soon three) JSW Paints locations. Together, AkzoNobel India and JSW Paints have a combined capacity of 450,000 kilolitres (KL) per annum in decorative paints, and 180,000 KL in industrial paints," Jindal said.
AkzoNobel N.V's CEO Gregoire Poux-Guillaume added that the company is continuing its review of some of its other operations in Asia, and can consider local partners, strategic sales, and other measures as the company seems fit. The global firm spun out its powdered coatings business from AkzoNobel India and transferred it to the parent, to retain an interest in India through its new strategic focus on powdered coatings.
"Powdered coatings is a fast-growing business, and is important in the electric vehicles space, where BYD is among our customers. AkzoNobel is twice the size of the second-largest player in the market. We are also looking at the aerospace business to expand our powdered coatings business," Poux-Guillaume said.
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