Hope to track coating industry growth of 9-10%: Akzo Nobel

In FY16, Akzo Nobel had 22 percent market share in the premium decorative paints category, which company achieved through its strategy of combining organic growth with operational excellence, says MD Jayakumar Krishnaswamy.

He expects coatings industry to grow 9-10 percent and believes the company will also grow in line with the sector. The company is targeting either to sustain the margins or improve in 12-15 months.

Below is the transcript of Jayakumar Krishnaswamy’s interview to Reema Tendulkar and Mangalam Maloo on CNBC-TV18.Reema: It is not often we get the pleasure of your company. If you could just start off by giving us a revenue breakup of the key segments of the company, chemicals, decorative as well as industrial paints and what is the company’s current market share in each?A: In the fiscal 2015-2016, we had a revenue of over Rs 2,700 crore in India out of which chemicals is a relatively small component of less than Rs 100 crore. But then between the other segments, coatings has got many sub-segments, decorative paints, marine coatings, productive coating, all of it put together is in the range of about in the excess of Rs 2,600 crore. And if you really look at market shares which we have, clearly AkzoNobel is a premium category player in India. And in the decorative side of the business, we have close to 22 percent market share in the premium and in the other categories which is the various sub-segments of the industrial coatings or the performance coating side, we have an excess of 32-33 percent market share in the premium category. At an overall level, if you see as a company, if you take off speciality coatings, we would have anywhere between 10 and 11 percent market share blended between the decorative paints and the performance coatings categories. Mangalam: Your earnings before interest, taxes, depreciation and amortisation (EBITDA) margins, they have increased from 8 percent to 11 percent in the last three years. Can they though, hit FY10 levels of 12.5 percent? What is the sustainable trajectory margins?A: One of the strategies for us in India in line with our global strategy was to get organic growth and operational excellence. And if you really see in the last 3-4 years, our primary aim has been to sure up the bottomline by having aggressive operating excellence and continuous improvement programmes. And of course, that has resulted in overall EBITDA margins going up from 8 percent to 11 percent. And certainly, one has to also take into account the benefit of crude in the last 12-15 months. But overall if you see, AkzoNobel has improved EBITDA margins up to about 11 percent. And our plan in the coming year, year and a half is to continue to focus on organic growth and certainly increase the speed of operational excellence. And I believe with our efforts in operational excellence and also when the scale of the company becomes bigger, we can spread the selling, general and administrative (SG&A) cost to a larger base and I see either to sustain or improve our EBITDA margins in the coming 12-15 months.Reema: If you could just give us a sense of what the future holds. What kind of revenue growth as well as margins and profits do you foresee in FY17? What is the demand situation looking like?A: We are on close period, however, I could give some indication in terms of what our ambition is. Typically, the coatings markets has grown anywhere between 1.2-1.5 times the gross domestic product (GDP) at a historical level. And if the GDP in the new scale or the old scale one could certainly say that it can be anywhere between 6 percent and 7 percent, so give or take here and there. But I see this coatings industry certainly a quarter later or from October, after the festive season starts, is likely to grow anywhere between high single digit of 9-10 percent. So, our ambition is to grow in line with the market or ahead of the market and then certainly in the premium category, we would have a disproportionate growth growing because that is the strength of AkzoNobel in India. If we were to get the premium growth happening as well as grow ahead of market and coupled with the strong operational excellence programme, as I said before, our EBITDA margins, we are targeting EBITDA margins more than what we delivered in the last three years.