Why it makes Sense (JSW) to buy AkzoNobel India

JSW Paints (part of the ₹23 billion JSW Group) has agreed to acquire 74.7% of Akzo Nobel India—owner of the premium Dulux brand—for around ₹8,986 crore (approximately €1.4 billion) Including debt, the enterprise value reaches €1.4 billion ($1.64 billion). This will propel JSW Paints to the 4th largest position in India’s booming ₹90,000 crore (~$10 bn) paints market. Following the acquisition, it will launch an open offer for the remaining ~25% stake.

It’s a News and Reality till (03/07/2025), but questions remain, can it make sense to buy AkzoNobel business In India. The answer lies in its Numbers, then let’s start and dig the numbers, because Numbers can’t lie. And why it will be a game changer for the entire Industry, lets look and make sure, you will send me your point of View.

So, the whole story lies on below Numbers.

On sales front Akzo is on 4^th number, Operating margin wise it’s on second position at par with Berger Paints & Net Profit margin wise its on third spot. Till this point it’s a general company. Right.

But when it comes to other parameters its outstanding, lets look…

Net Fixed Asset Turnover Ratio (NFAT)

The Net Fixed Asset Turnover Ratio is a financial metric that measures how efficiently a company utilizes its fixed assets to generate revenue. It is calculated by dividing net sales by the average net fixed assets. A higher ratio generally indicates better efficiency in using fixed assets to create sales, while a lower ratio may suggest underutilization or inefficient management of those assets.

Akzo’s Net Fixed Asset Turnover Ratio is 8.13 outstanding in the entire industry. Berger is at 3.22, even Asian Paints at 4.14. about Akzo, High NFAT is due to low assets you might think. Why Akzo Not create Assets? And all other questions. Don’t be in a dream, if they can’t create huge assets, their might be a reason, here comes the Management and Its Efficiency, to do the business. that’s why it has high NFAT outstanding in entire Industry.

Inventory Turnover

The inventory turnover ratio is a financial metric that indicates how efficiently a company manages its inventory by measuring how many times it sells and replaces its stock of goods within a specific period (usually a year). A higher ratio generally suggests efficient inventory management, strong sales, and lower holding costs, while a lower ratio might indicate overstocking or weak sales.

Akzo has Inventory Turnover ratio of 7, and all other players including Asian Paints Its 5, again outstanding in the entire Sector. Again management and its Efficiency is outstanding.

ROCE

ROCE, or Return on Capital Employed, is a financial ratio that measures how efficiently a company uses its capital to generate profits. It indicates how well a company is using its invested capital (both debt and equity) to generate earnings before interest and taxes (EBIT). A higher ROCE generally suggests better capital management and profitability.

Akzo’s ROCE is 20% highest in the industry, Asian Paints at 18% and Berger & Nerolac at 19%.

So, Capital allocation skills are outstanding, they are good at allocating capital.

Why ROCE is important and its critical to companies success, lets look into below table, where I consider two companies. Company A & Company B. Read It carefully, and understand It

Focus on Two scenarios,

• Cost of capital is 7%, which is same for Both the companies
• Cost of Capital Double, We consider 14% for company B and Make It double for Company A that is 28%

Then also How Company A is great compare to company B, magic lies in ROCE

FCF/CFO (%)

FCF/CFO (%) represents the percentage of a company’s cash flow from operations (CFO) that is converted into free cash flow (FCF). It indicates how efficiently a company is turning its core business activities into readily available cash for distribution or reinvestment. A higher percentage generally suggests better cash flow management and potential for growth or shareholder returns. Akzo once again stand out, 76% CFO converted into FCF, its Outstanding, Asian paints on second level, and other two players are in 40% range

 

So, till this point everything is great, then comes Dividend Payout

Dividend Payout (Div/PAT)

The Dividend Payout Ratio (DPR) is the amount of dividends paid to shareholders in relation to the total amount of net income the company generates. In other words, the dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends.

Akzo’s Dividend Payout is at 80.20%, Asian at 52.20%. Akzo has Highest Diviend payout, which has a problem for Akzos growth, if they reduce Dividend and Invest in their growth it will create more shareholder value, we will look into this further.

Total Retained Earnings (RE) in 10 Yrs (A)

Retained Earnings (RE) represent the cumulative net income a company has earned over its life, minus any dividends paid out to shareholders. Essentially, it’s the portion of profits that a company chooses to reinvest back into the business rather than distributing to owners. In simple terms Retained Earnings means (RE=Profit After Tax – Dividend)

Due to highest Dividend Payout Akzo only retain Rs 632 crore in last 10 years, where as Asian Paints RE Rs 13706 Cr and Berger and Nerolac aroud at Rs 4600 Crores.

Value created per INR of RE (B/A)

Akzo created 14.7 INR compare to RE, which is again very high in the whole Paint Sector, In simple words, Akzo created more shareholder value compare to other companies, despite low RE, Think and calculate if they reduce Dividend Payout and Reinvest that money in business, How much value they will create for Shareholders.

Despite giving more dividend, and LOW Retained Earnings, It has created value 14.7 INR, Highest in the Industry, Think, if they Increase RE and Invest in Same Business, with highest ROCE in the Industry , and Created highest FCF compare to CFO, it will be a mega wealth creator.

 

Lets Look into Return on Retained Earnings that is RORE (One of my favourite Matrix)

 

 

I don’t want to write more on this, the above explanation is enough to understand.

 

Till, this point everything is in Hindsight. Let’s consider the challenges from competitors,

A new Entrant with Huge capacity called Birla Opus, It’s a different topic, we will cover it next time.

Today as on 03.07.2025, NEWs came from Economic Times

Akzo Nobel reveals why it chose JSW Paints, which now aims to take on India’s paint industry giants

Read Which is marked Yellow, where he described “Local Firepower” to capitalised on Market Potential, and Dose not capitalise on Value of the Brands and quality of Products. And missed the ability to take that promise and transform it into the business and market share. Says Akzo Nobel CEO Gregoire Poux-Guillaume

 

In short, they have Great, Robust business model, which has highest ROCE, Highest Free Cash Flow making machine, they lack in RORE, the pain point is Retained Earning, If JSW Invest aggressively and not compromise on ROCE, it will be a great and multi decade opportunity. Which is the same thing Akzo CEO Gregoire Poux-Guillaume talk in above report.

 

Hope, you will learn, something new.

 

If you have any query, you can mail me on harish.kawalkar@gmail.com I will try my level best to answer all your queries.

 

To Your Success with a Lot of Love!

Harish S Kawalkar

 

 

Disclaimer

I am not a SEBI-registered Research Analyst (RA) or Investment Advisor (IA). The information shared in this content is for educational and informational purposes only and should not be considered as investment advice, stock recommendations, or financial guidance. Please consult with a certified financial advisor before making any investment decisions. Investing in the stock market is subject to market risks. Always do your own research (DYOR).

All are my opinions and Thoughts, Numbers are taken from Crediable online source, (I cant guarantee, all numbers are true, do your Duw Dilingence)

(I don’t own, Akzo Stock or JSW stock, till I am writing this article, I have Position in Asian Paints)

 

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