Akzo Nobel — Q3 FY25 earnings call

Call held 7 Mar 2025

Management summary

This was not a standard earnings call but a special investor meeting to detail a significant corporate restructuring. Management outlined its plan to divest the Powder Coatings business and a global R&D center to its parent, while simultaneously acquiring the perpetual IP rights for its core Decorative Paints business. The transaction, driven by a strategic review at the parent level, is expected to result in a net cash inflow of ₹990 crores (pre-tax) and eliminate royalty payments, with management strongly hinting at a significant payout to shareholders.

Highlights

  • Announced a major corporate restructuring: selling the Powder Coatings business and an R&D center, while acquiring the Decorative Paints IP.

  • Powder Coatings business valued at ₹20.7 billion, representing a trailing EBITDA multiple of approximately 24.5x.

  • Acquiring perpetual IP rights for Decorative Paints (including Dulux) for ₹11.5 billion, eliminating a 3% royalty payment on revenue.

  • The transaction is expected to result in a net pre-tax inflow of approximately ₹990 crores to Akzo Nobel India.

  • Company grew 2.7% in the first nine months of FY25, outperforming the paint industry which declined by 2.7%.

  • In FY24, the company grew 4.2% versus the industry's 3.8% growth.

  • Management indicated that the net proceeds from the transaction will be a "bounty" for shareholders, implying a special dividend.

  • The parent company, AkzoNobel NV, will have a 36-month non-compete in the powder coatings business in India post-transaction.

Key financials

2 periods

Headline

  • Revenue CAGR (Last 5 Years)
    6%
  • EPS (Recent)
    ₹94
  • EPS (2017-18)
    ₹44
  • Net Transaction Inflow (Pre-Tax)
    ₹990 Cr

9M FY25

  • Company Growth
    2.7%
  • Industry Growth
    -2.7%

What they filed

Q1 FY27: revenue down 3.0%, net profit down 12.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue982 1,050 1,014 995 835 −15%894 −15%883 −13%965 −3%
EBITDA146 167 159 134 111 −24%136 −19%127 −20%115 −14%
Net profit98 109 108 91 1,683 +1617%74 −32%126 +17%80 −12%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Powder Coatings (Proposed Divestment)
    20.7 Bn Valuation24.5× EBITDA Multiple10% Revenue Share (approx.)
  • Decorative IP (Proposed Acquisition)
    11.5 Bn Valuation3% Current Royalty Rate
  • International R&D Centre (Proposed Divestment)
    700 Mn Valuation

Guidance & targets

Other

  • Non-compete period for AkzoNobel NV in powder coatings Other · post execution · High confidence 36 months
    Business transfer agreement would be AkzoNobel India Limited as it's divesting the powder coatings though AkzoNobel NV would not be participating in the powder coatings business for the next 36 months post execution.

    — R. Krishna

Taxation

  • Tax impact on sale consideration Taxation · on transaction · Medium confidence around 14%
    Taxation impact could be around 14% of the purchase consideration or the sale consideration. Yeah.

    — R. Krishna

Risks & concerns

  • Strategic mismatch between parent and Indian entity

    medium

    Management explicitly stated a 'strategic mismatch' as the reason for the deal, which could imply future strategic divergence or further actions by the parent.

    Management acknowledged

  • Loss of future global R&D support

    low

    An analyst's question on knowledge transfer implied this risk. Management countered by highlighting the strength and self-sufficiency of the local Indian R&D team.

    Analyst downplayed

Q&A highlights

3 direct
Scope and perpetuity of Decorative Paints IP transfer Direct
R. Krishna: It's a full transfer for perpetuity. Rajiv Rajgopal: And India, it covers Nepal, Bangladesh, Bhutan also.

This confirms the one-time nature of the IP purchase and its broad geographic scope, securing the company's core brands permanently.

Asked by Unidentified Speaker

Tax impact and confirmation of net cash inflow Direct
Unidentified Speaker: Okay. Thank you. So the ₹990 crores inflow into AkzoNobel listed companies, pre -tax? R. Krishna: yes, pre-tax.

This clarifies the exact pre-tax cash benefit to the listed entity, which is crucial for investors to model the financial impact and potential shareholder payout.

Asked by Unidentified Speaker

Ongoing knowledge transfer from the parent company post-IP acquisition Direct
Rajiv Rajgopal: Currently there is no knowledge transfer, over the last three years, our R&D, we've built a very strong capability in R&D India... So it's been a reverse brain.

This is a strong statement on the Indian entity's R&D self-sufficiency, mitigating concerns that buying the IP would cut it off from crucial global innovation.

Asked by Unidentified Speaker

2 min read 5 chapters

Detailed narrative

Core Corporate Restructuring Proposal

Akzo Nobel India announced a three-part transaction driven by a strategic review at its parent company. The proposal involves selling its Powder Coatings business for ₹20.7 billion and its International Research Centre in Bangalore for up to ₹700 million. Concurrently, the company will acquire the perpetual intellectual property (IP) rights for its Decorative Paints business, including the 'Dulux' brand, for ₹11.5 billion. This move is intended to align the Indian entity with the parent's focus on core paints and coatings while securing its key brands.

Valuation and Financial Impact

The divestment of the Powder Coatings business was valued at approximately 24.5x trailing EBITDA. The acquisition of the Decorative IP was valued using a royalty relief method, which will eliminate the current 3% royalty fee paid on decorative paint sales. The combined transactions are expected to result in a net pre-tax cash inflow of ₹990 crores to the listed entity. Management stated the tax impact on the sale would be around 14%.

Rationale for Divestments

The Powder Coatings business, contributing about 10% to revenue, is being sold because the parent company wishes to keep its global technology internal and will house it in a new unlisted Indian entity. As part of the deal, the parent, AkzoNobel NV, has agreed to a 36-month non-compete in this segment. The R&D center is being sold as it primarily serves the parent's global automotive and specialty coatings business units, with minimal work done for the Indian listed entity.

Strengthened R&D Self-Sufficiency

In response to questions about future innovation support, management strongly asserted the Indian R&D team's independence and capability. Chairman Rajiv Rajgopal noted that over the last three years, the Indian R&D has become a leader in its own right, describing it as a 'reverse brain' where local innovation leads. He cited the entire 'Dulux Aquatech' waterproofing portfolio as a product line created and crafted entirely in India, indicating no dependency on the parent for new product development in key areas.

Market Outperformance and Shareholder Returns

To provide context, management highlighted its recent outperformance, growing 2.7% in the first nine months of FY25 while the industry contracted by 2.7%. This follows 4.2% growth in FY24 against the industry's 3.8%. Management explicitly stated that shareholders are 'going to get quite a bounty' from the net proceeds of the transaction, strongly signaling a significant special dividend or other form of payout is planned.

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