Abneesh Roy on Haldiram stake sale, bids for AkzoNobel & more

Synopsis

Haldiram's stake sale has been under discussion for years, attracting many bidders due to the company's leading position in India's snack industry. Meanwhile, AkzoNobel's paint division sale may see interest from Pidilite and Berger. Rising palm oil prices challenge players like Bikaji, who rely heavily on this raw material. Stakes are high in the competitive paint and snack markets.

Abneesh Roy, ED, Nuvama, says the sale of Haldiram's stake has been talked about for nearly two to three years. There are many strong bidders since it is the largest company in India in its field, known for high returns and good profit margins. As for potential buyers for AkzoNobel, Pidilite and Berger are in a strong position to make a purchase. Akzo would be a valuable addition for Pidilite, especially with the Dulux brand, which holds a solid 5-6% market share. On the other hand, Berger operates in the lower and mid-range markets and lacks a significant presence in the high-end segment.

Talks on the Haldiram stake sale have been going on for some time but now we are seeing some bigger names coming into play. It is still in the works, but any take on that because I believe that you cover Bikaji Food as a play? So, if this happens at a decent valuation, can this be a re-rating trigger for some of these other companies in the same segment?
Abneesh Roy: Snacks and especially the Indian snacks segment is quite attractive to investors and Bikaji, in CY24 was one of the best performing FMCG stocks. Near term, it is challenging for all namkeen and bhujia players like Bikaji because 25% of the raw material is palm oil and the price of that has gone up 30%. Significant margin pressure on Bikaji likely in the December quarter which will disappoint the Street versus earlier expectations on the margins front.

My sense is Q4 should be better. Already, Bikaji and other snacks companies in Q3 have taken around 2.5% price hike and I expect another similar hike in the coming weeks. I would say that it is more important to watch out where palm oil settles, where the pricing happens because clearly the near-term numbers will be weak.

The stake sale of Haldiram has been in discussion now for almost two-three years and we do see a lot of good bidders given it is India's largest company in that space with superior return ratio and superior margins. But please note that even without Haldiram's transaction happening, the Bikaji stock gave one of the best returns in CY24 and the cool-off happened because of palm oil. I would say the business fundamentals of growth and margins are more important than just a transaction because Bikaji is a well-known and well-understood story for the investors.

The other transaction which is underway is in the paint sector with AkzoNobel being on the block. Chatter suggests that Berger is bidding quite aggressively for that. Who do you think is best placed to take that up and what is your assessment of that deal transaction?
Abneesh Roy: I would say that we will have to wait and watch. My sense is it could take some time, maybe one-two quarters at least because these are transactions in which there is a process because they are also getting the chemicals part of the business away back to the parent, so that itself would take some time.

Coming to potential suitors, clearly, in our view, and this could be wrong also, Pidilite and Berger seem to be the best place to acquire because Pidilite does have ambition in the decorative paints. They have been in exterior paint for 15 years. And they have launched their own paints in terms of deco interior paints. Akzo will be a great business for Pidilite. Pidilite is very active on M&A, plus AkzoNobel, Dulux brand at the top end is a very good asset to have 5-6% market share.

Similarly for Berger, very similar kinds of factors will be at play because Berger is more at the low end and the mid end. They do not have too much presence at the top end. So, these two players seem to be the more likely candidates. But it could be any other player also. Why not the other new entrants, for example, say, JSW or say even other players? Anything is possible because the transaction is still at the initial level.

Media speculation is running ahead of the actual process. But yes, this would suggest that for Asian Paints, the competitive intensity could go up because Pidilite and Berger are bigger companies than Akzo. So, once the Dulux brand comes under their fold, they will take the brand higher than what it is currently, which is incrementally a bit negative for Asian Paints whenever it happens. We do see Asian Paints not being able to acquire it given the CCI issue in terms of market share. So, most likely, other companies should be the potential bidders.

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