Jindal brushes past rivals in Dulux buy

The Hindu Business Line: “He’s a tough negotiator,” observed the Dutch paint behemoth AkzoNobel NV global chief Greg Poux-Guillaume, in reference to heir to the JSW empire and JSW Paints Managing Director, 35-year-old Parth Jindal.

In a deal that rewrote the contours of the decorative paints business in India, Jindal clinched the takeover of Akzo Nobel India, which owns the iconic Dulux brand. This landmark transaction, widely seen as one of the most aggressive consolidation plays in recent memory, vaulted JSW Paints to the No. 4 position in the country’s intensely contested paints sector.

This is also the first time an acquirer will utilise Regulation 7(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, to pro-rata reduce the transaction size and the open offer size to help maintain public shareholding, sources in the know said.

Moreover, this is the first acquisition in the paints space to be referred before the Competition Commission of India.

Jindal’s JSW outflanked a formidable consortium of Advent International – Indigo Paints and a distant third bidder, Pidilite, to emerge as the frontrunner in May — eventually sealing the deal by June-end.

The transaction saw the  2,500 crore unlisted JSW Paints acquiring a commanding 75% stake in the  4,000 crore Akzo Nobel India.

The acquisition hands the Jindal family a firmer grip over the decorative paints segment — a competitive arena now witnessing a slugfest with deep-pocketed entrants like Birla Opus and entrenched incumbents such as Asian Paints, Berger Paints and Kansai Nerolac.

The deal also provides JSW a larger play in the high-margin industrial and protective coatings business — a segment overlooked in the shadow of decorative, but known for delivering superior profitability.

Yet, there’s a catch: JSW must now rustle up the finances to consummate the Akzo deal. JSW will acquire Akzo India for  9,000 crore and subsequently float an open offer (as per Indian laws) for nearly  3,500-4,000 crore.

Jindal is reportedly in talks with private equity funds, while the Jindal family itself is preparing to inject fresh capital. A judicious mix of debt, internal accruals and strategic fundraising is in the offing for the acquisition. Reportedly, JSW is eyeing issuing non-convertible debentures (NCDs) to the PEs.

“We want to grow fast. We want to grow sustainably. And we want to grow by being competitive. We’re not going to allow someone else to grow at our expense. We are going to be as aggressive, if not more aggressive. And we will fight tooth and nail for the market,” Jindal told businessline.

And going by the Jindal scion’s assertions, the combined entity of JSW – Akzo will now eye “the third spot in the paints market,” breathing down heavily on the No. 3 player Kansai Nerolac.

“We are hopeful that by the end of this calendar year all of this will happen (merger gets regulatory clearance). The combined entity will be (going by last year’s numbers) roughly about  6,000 crore, and the No. 3 player is at about  7,500 crore. So, we have to grow significantly to get to No. 3. I would think it would take a three-year period to come into the top three,” he said.

Dulux: The premium play

In India, paint is not sold off-the-shelf like in Western countries. It is not a DIY segment. It relies on distributor-led models and tinting machines at shops. For instance, some companies like JSW follow a ‘direct to retail’ approach as a part of its cost management strategy, whereas Akzo India has a distributor-led model. The merger could lead to reworking business models.

As Jindal explained: “The two coming together allows us to scale up our distribution significantly. Today, Akzo Nobel India has about 19,000 retailers across the country. JSW has about 9,000 retailers. A very low overlap, only about 10% exists. So, the universe for both companies becomes 27,000, and when these retailers get access to selling products from both entities, it will allow them to grow and will gain share for us.”

Dulux — post the merger with Akzo, to be owned by JSW — is positioned in India as a premium player, typically targeting tier-I and select premium tier-II markets in decorative paints.

In comparison, JSW Paints is a Tier-III and Tier-IV dominant player. The Jindals do have Halo in the premium segment, and there are some whispers that ‘Dulux–Halo’ could be one of the premium positioned brands post the merger.

Today, Dulux has a 15-20% market share in the premium segment.

JSW is growing fast in the mass premium and value segment, where Dulux has normally found it difficult to grow; JSW Paints has found it difficult to grow in the premium segment. So, now, the merger will “unlock a lot of value.”

The combined entity will have 630,000 kilolitres per annum capacity (450,000 klpa decoratives and 180,000 klpa industrial) across seven units. So, there is enough dormant capacity across the two entities to have doubled revenues before fresh capex is put in, said Jindal.

JSW will also be entering into a 4.5% royalty and licensing arrangement (on sale) with AkzoNobel NV for the powder coatings business. This will allow Akzo a presence in India and enter new segments like aerospace.

Jindal wants JSW to be known as an end-to-end solutions provider. So, when one builds a house, JSW would be their go-to brand. Adjacencies like chemicals, putty and other categories will be explored at some stage.

“We understand that steel, cement and paint and, obviously, waterproofing, construction chemicals, they all go into building materials. And our aim is to be seen as a building materials player. So, if someone thinks of building a home, they should think of JSW,” he emphasised.