Akzo Nobel — Q4 FY25 earnings call

Call held 15 May 2025

Management summary

Akzo Nobel India reported a mixed Q4 FY25, with overall 5% revenue growth propelled by a strong double-digit performance in its Coatings segment. The Decorative business remained flat as management strategically avoided intense price wars in the mass market to protect profitability, achieving a robust 13.6% EBIT margin for the full year. While facing competitive headwinds, the company is focused on premiumization, distribution expansion, and new initiatives like experiential stores to drive future growth, even as uncertainty looms from the ongoing strategic portfolio review.

Highlights

  • Reported overall industry-leading revenue growth of 5% for Q4 FY25 on a like-to-like basis.

  • Coatings business delivered strong double-digit growth, driven by Marine, Protective, and Industrial coatings.

  • Decorative paints segment revenue was flattish, impacted by a strategic withdrawal from high-discount mass/putty categories.

  • Achieved a full-year EBIT margin of 13.6% with a market share of 7-8%.

  • Urban and premium product segments saw good growth, while mass-market categories faced significant price erosion.

  • Distribution network expanded with over 3,200 new outlets (gross adds) in the year.

  • Management announced a pilot of 11 new 'experiential stores' and hinted at a major market announcement in the coming month.

  • The ongoing strategic review of the Deco South Asia business is expected to conclude by the end of June 2025.

Concerns

  • Intense Competition and Price Erosion

Key financials

2 periods

Headline

  • Full Year EBIT Margin
    13.6%
  • Market Share
    7.5%
  • Tinting Machine Productivity Growth
    2%

Q4

  • Overall Revenue Growth
    5%

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

  • Decorative Paints
    0% Revenue Growth (Q4)— Volume Growth (Q4)
  • Coatings
    — Revenue Growth (Q4)

Guidance & targets

Volume

  • Decorative Business Revenue Growth (Fiscal Year) Volume · FY26 · Medium confidence single-digit
    So structurally, if you were to ask me, I think decorative is going to look at least getting back to a for the fiscal getting back to a single-digit growth in terms of revenue and the volume should be a shade above.

    — Rajiv Rajgopal, Chairman and Managing Director

Dividend

  • Dividend Payout Ratio Dividend · Ongoing Policy · High confidence 85% of retained profits
    We have the dividend distribution policy, which clearly outlines and which is in the part of the website and which mandates 85% of the retained profits can be distributed as a part of the dividend.

    — Rallapalli Krishna, Chief Financial Officer

Market Share

  • Market Position in Decorative Paints Market Share · Medium Term · Low confidence Become the number 3 player
    For me, very clearly, the ambition is to become the number 3 player in the decorative.

    — Rajiv Rajgopal, Chairman and Managing Director

Risks & concerns

  • Intense Competition and Price Erosion

    high

    New entrants are causing significant price erosion (15-20% discounts) in mass-market categories, forcing the company to cede some volume to protect margins.

    Both acknowledged

  • Strategic Portfolio Review Uncertainty

    medium

    The ongoing strategic review of the Deco South Asia business creates uncertainty for investors and employees. Management is not providing any details, citing regulations.

    Management deflected

  • Muted Rural Demand

    medium

    Management noted that rural demand remains relatively muted and expects a meaningful recovery only post-monsoon (around August).

    Management acknowledged

  • Raw Material Volatility

    low

    Benefits from lower crude prices are being partially offset by anti-dumping duties on rutile, requiring a continued focus on cost management.

    Analyst acknowledged

Areas of evasion (3)

  • EBITDA margins by business segment
  • Volume growth excluding the discontinued powder coatings business
  • Specifics of the ongoing strategic review

Q&A highlights

2 direct, 1 evasive
Competitive Intensity & Market Narrative Direct
In the short run, there has been an impact. Obviously, when a lead player adds upwards of INR2,000 crores and a couple of these players have done well... So what we've seen is a short-term erosion of volumes, I would say. But if you look at it from a long-term perspective and even decorative, the fact is we are bouncing back.

Management directly acknowledged the market disruption and volume impact from new entrants, confirming the heightened competitive environment but reiterating their focus on long-term brand strength over short-term volume.

Asked by L. Ganapathi

Data Transparency (Segment Margins & Volumes) Evasive
No, we do not give EBITDA margins by businesses. I'm sorry, we don't do that... I'm afraid we will not be able to give it because at this point of time, when we report the quarter report, the audited signed off numbers include Powder Coatings.

Management's refusal to provide granular data on segment profitability and volume breakdown (ex-discontinued business) limits analysts' ability to accurately model the core business performance and assess the true impact of competitive pressures.

Asked by Mrunmayee Jogalekar / Santosh Keshri

New 'Experiential Stores' Strategy Direct
Now 11 is a small number... Our idea is that over a period of time, we want to open hundreds of these stores. And we are not doing -- the entire capex is not on us. It's a shared model with the dealers with whom we've got great relationships.

This Q&A revealed a key new strategic initiative: a capital-light, dealer-partnership model to build a large network of experiential stores, targeting architects and designers to enhance brand equity and drive premium sales.

Asked by Jeet Shah

2 min read 6 chapters

Detailed narrative

Navigating Intense Competition by Prioritizing Profitability

Akzo Nobel reported a 5% overall revenue growth in Q4, a figure they termed 'industry-leading'. This was achieved despite a strategic decision to not participate in heavy discounting in the mass economy and putty categories, which faced severe price erosion from new competitors. This led to a flattish revenue performance in the Decorative segment. Management repeatedly emphasized its focus on profitable growth, highlighting the full-year EBIT margin of 13.6% as a key achievement for a player with a 7-8% market share.

Coatings Business Serves as the Growth Engine

The company's Coatings business was the primary driver of growth in Q4, delivering a strong double-digit performance. Management cited robust results in marine, protective, and industrial coatings, which benefited from strong execution. In contrast, the automotive and specialty coatings business saw weaker demand, particularly from the retail side. The overall strength in the B2B coatings vertical helped offset the muted performance in the B2C decorative segment.

Strategic Initiatives: Experiential Stores and Construction Chemicals

To drive future growth, Akzo Nobel is piloting 11 new 'experiential stores'. These are dealer-owned outlets with shared investment, designed to enhance customer experience and target architects and interior designers, with an ambition to open 'hundreds' over time. Additionally, the company is ready to launch its construction chemicals portfolio but is deliberately taking time to ensure product superiority and margin accretion. Management also teased a 'massive announcement' in the coming month that will 'change the way the paint market operates'.

Distribution Expansion and Channel Focus

The company continued its distribution expansion, adding over 3,200 outlets on a gross basis during the year, bringing the total to over 22,000. Management noted a tactical shift towards protecting and improving productivity in existing stores before aggressively adding new ones, a response to the intensified competition. This is reflected in a 2% uptick in tinting machine productivity, indicating better performance from the existing network.

Muted Outlook for Near-Term Demand

Management remains cautious on the near-term demand environment. While urban and premium segments are growing well, a broad-based recovery hinges on rural demand, which is still 'relatively muted'. They expect a meaningful uptick in the rural economy only post-monsoon, around the August-Diwali festive season. For the upcoming fiscal year, the company guides for a return to 'single-digit' revenue growth for the decorative business, with volumes expected to be slightly higher.

Looming Uncertainty from Strategic Review

A significant overhang on the company is the ongoing strategic review of its Decorative Paints South Asia business by its parent, Akzo Nobel N.V. Management confirmed a timeline from the Global CEO for the transaction to be concluded by the end of June 2025. However, they refused to answer any specific questions on the topic during the call, leaving investors in the dark about the potential outcome and its implications for the listed Indian entity.

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