AkzoNobel India will acquire intellectual property rights, including trademark and goodwill for the flagship ‘Dulux’ brand of decorative paints in India, Nepal, Bhutan and Bangladesh, from the parent company Akzo Nobel at a consideration of ₹1,152 crore, indicating that the decorative paints business (under Dulux) will be on the block.
The parent company, sources said, has, in the second round of talks, narrowed down on three decorative paints bidders from India, with one PE firm, which had expressed interest initially, exploring the potential to back bids placed by one of the bidders.
Akzo’s Dulux is the fourth largest paints company in the country after Asian Paints, Berger and Kansai Nerolac. Asian Paints and Berger together account for nearly 75 per cent of the paint market in India; while Dulux has a less than 10 per cent market share.
“Right now there are three decorative paint makers from India that are leading the discussions. And the PE firm could possibly back one of the three,” a market source told businessline.
While JSW Paints (in partnership with TPG) and Pidilite are among the two major names which placed non-binding bids; other decorative paint-maker names that have been come up in the fray include Indigo Paints. Asian, Berger and Birlas have opted out in the initial rounds. A host of PE firms initially expressed interest too.
Brand Dulux
In a notification to the bourses, AkzoNobel India said, it will execute an Intellectual Property Sale and Transfer Agreement with Akzo Nobel Coatings International BV, which owns 24.30 per cent in the India entity, for acquisition of “intellectual property pertaining to the decorative paints business”, including trademarks with goodwill, copyright, patents, domain names, business know-how and associated proceedings. This will include the Dulux brand.
Such intellectual property, including use of Dulux brand, is already being used by the company under a licencing arrangement with the parent.
The acquisition of the intellectual property will establish technological independence in its core business of liquid paints and coatings, and reduce dependence on the Akzo BV. It will also eliminate ongoing royalty payments to the global entity for the intellectual property being purchased, “and enhance margins and cash flow”.
“It is expected to improve valuation of the Dulux brand during on-going sale discussions,” one of the bidders said.
KPMG and GT were the two valuers appointed by Akzo India and “lower of the two valuations” have been considered for the purposes of acquisition.
“.....the players we are talking to in India are liquid coatings players; and actually many of them are deco players. And the powder (coatings) business is one of the crown jewels of of AkzoNobel.... So in order to facilitate discussion we are taking out the powder business from AkzoNobel India,” Gregory Poux-Guillaume, CEO, Akzo Nobel NV, said in a recent investor call.
Powder coatings business
The European paintmaker has placed binding bids to acquire the powder coatings business and international research centre from its Indian subsidiary AkzoNobel India for ₹2,143 crore.
The deal includes two key components – a ₹2,073 crore slump sale of the powder coatings business and another ₹70 crore for transfer of the international research centre. Both will be executed through separate business transfer agreements with an indirect wholly owned subsidiary of AkzoNobel NV, proposed to be incorporated in India.
Till March 31, 2024, the powder coatings business had a revenue of about ₹422 crore, accounting for 10.70 per cent of Akzo India’s turnover and a networth of ₹145.95 core (around 11 per cent of the company’s net worth). The R&D business had a revenue of ₹53.50 crore; with 1.36 per cent contribution to revnue; and a net worth of ₹6.33 crore (less than one per cent of company’s networth).
Each Business Transfer Agreement will be executed after receipt of approval of the audit committee, board of directors and shareholders of the company; and approval of supervisory board of Akzo Nobel NV, the Indian entity said in a notification on the bourses.
According to a ICICI Securities report, at ₹2073 crore, the EV/sales (enterprise value to sales) and price/BV (price to book value) works out to 4.9x and 14.2x for powder coating business. At a consideration of ₹70 crore, EV/sales and price/BV works out to 1.3x and 11.1x for international R&D centre. “At current market price and FY24 earnings, Akzo Nobel India trades at EV/sales and price/BV of 3.7x and 10.9x, respectively,” it said.