JSW Paints Limited has taken a significant step towards acquiring Akzo Nobel India Limited by entering into a debenture trust deed with Axis Trustee Services Limited. The agreement aims to raise funds through the issuance of non-convertible debentures (NCDs) for up to INR 3,300 crores.

Key Details of the Debenture Trust Deed

Acquisition Background

JSW Paints has a share purchase agreement with Imperial Chemical Industries Limited and AkzoNobel Coatings International B.V. to acquire their entire shareholding in AkzoNobel India. Upon completion, JSW Paints will become the promoter of AkzoNobel India and exercise control over the company.

Impact on AkzoNobel India

The debenture trust deed imposes certain restrictions on AkzoNobel India's business activities, which will be effective from the acquisition closing date. These restrictions include:

1. Limitations on amalgamations, demergers, mergers, and corporate restructuring
2. Restrictions on asset disposals
3. Constraints on creating security over assets
4. Limitations on incurring financial indebtedness
5. Restrictions on material changes to the nature of the business

These activities may only be carried out with the consent of the debenture trustee or in compliance with specified parameters outlined in the deed.

Financial Implications

While the exact financial impact on AkzoNobel India is not quantifiable, the restrictions are designed to protect the interests of the debenture holders and maintain the value of the acquired company. The deed also includes provisions for potential monetization events, such as the disposal of fixed assets, which could trigger partial redemption of the debentures.

Industry Outlook

This move by JSW Paints signifies a major consolidation in the Indian paint industry. The acquisition of AkzoNobel India, a well-established player, by JSW Paints could potentially reshape the competitive landscape and market dynamics.

Conclusion

The debenture trust deed marks a crucial step in JSW Paints' strategy to acquire AkzoNobel India. As the acquisition progresses, stakeholders will be watching closely to see how the integration unfolds and what changes it might bring to the Indian paint market.

Investors and market observers should keep an eye on further developments, including the completion of the acquisition and any subsequent changes in AkzoNobel India's operations under JSW Paints' control.

Akzo Nobel India Limited, a leading paints and coatings company, has reported a mixed bag of results for the second quarter, while also announcing significant agreements with its parent company in preparation for its impending acquisition by JSW Paints Limited.

Q2 Performance Highlights

The company achieved a 3% volume growth across its decorative and industrial coatings segments in Q2. However, overall revenue declined by 1.5% to INR 834.9 crores. Here's a breakdown of the key financial metrics:

AkzoNobel India experienced mid-single digit growth in premium decorative paints and premium automotive specialty coatings. The company's gross margins stood at 41.3%, impacted by product mix and raw material inflation in the coatings business. Despite these challenges, the EBIT margin remained stable at 11.1%, attributed to disciplined cost management.

Strategic Price Corrections and Market Challenges

To improve competitiveness, AkzoNobel India implemented price corrections of 1.5-2% in September and October. The company cited weather disruptions and competitive intensity as challenges, particularly in mass market segments.

Outlook and Guidance

Looking ahead, management expects:

• Double-digit volume growth in the next quarter
• High single-digit revenue growth
• Maintained EBITDA margin guidance of 14-16%

Key Agreements Signed

In preparation for the proposed acquisition by JSW Paints Limited, AkzoNobel India has entered into two significant agreements with its ultimate parent company, Akzo Nobel N.V.:

1. Intellectual Property License Amendment and Consolidation Agreement (IPLA): This agreement allows AkzoNobel India to continue using certain intellectual property rights on a royalty-bearing basis for its performance coatings business in India, Bangladesh, Bhutan, Nepal, and Sri Lanka.

2. Corporate Brand License Agreement (CBLA): This transitional agreement permits AkzoNobel India to use the 'Corporate Brand' on a royalty-free basis for 15 months after the completion of the acquisition.

These agreements are designed to ensure business continuity and a smooth transition as AkzoNobel India prepares to join the JSW Group.

Management Commentary

Rajiv Rajgopal, Chairman and Managing Director of AkzoNobel India, commented on the company's performance and future strategy: "We are absolutely delighted and looking forward to being part of the JSW family. This is exactly what we've been wanting - to get the ability to play in the market the way that you should play in the market."

Rajgopal added, "There's no point of playing in T20 in a Test Match style. And that's what sometimes when you, with some of the constraints that we've had, and I'm very glad that even our global CEO had articulated that very well when he had when the announcement happened."

As AkzoNobel India prepares for this significant transition, the company remains focused on superior execution and taking its strategies to market. The management believes that future leaders of the company will be those who can demonstrate superior performance in this new phase of growth and competition.