AkzoNobel gearing up to supply Middle East paint market from Pakistan

[CLIPPER4LIFE]

AkzoNobel gearing up to supply Middle East paint market from Pakistan​

By Farooq Baloch
Published: December 6, 2011

Dutch giant will sell off the ICI chemicals business and focus on its core competency in paints.
KARACHI:
Far from winding up its business in Pakistan, AkzoNobel – the world’s largest paint company – is planning to invest heavily in expanding its production facilities in Pakistan, The Express Tribune has learnt.
According to sources familiar with the matter, the company plans to set up a state-of-the-art manufacturing unit at Port Qasim, geared not only to supply the local market but also to export to the Middle East and possibly even Europe. The company has already set up a marketing office in Dubai to oversee the new plant.
“The cost of doing business in Pakistan – despite all problems – is still very low [compared to alternatives],” said one source who wished to remain anonymous. “Even if they have to set up their own power plant, they will still be able to make paints cheaper in Pakistan.”
AkzoNobel has already announced that it plans to split ICI Pakistan into two separate companies – ICI Pakistan, which will retain the chemicals business, and AkzoNobel Pakistan, which will retain the paints business and finally launch its own brand in Pakistan. The company then plans to sell off its stake in ICI Pakistan.
Analysts, however, have reacted sceptically to the proposal, pointing to exceedingly low profit margins in the paint business. The ICI paints business made Rs132 million net income on Rs5.1 billion in revenues in the first nine months of 2011, a net margin of only 2.5%.
“What’s the guarantee AkzoNobel Pakistan – after transferring paints ownership – will turn it into a profitable entity,” asked Asad Siddiqi, a research analyst at Invest Cap. Many analysts had suspected that the company would exit Pakistan altogether.
Not all analysts have been quite as cynical about the proposal. Atif Zafar at JS Global Capital points out that the paints business had been one of the growth engines for AkzoNobel so far; it is only in the last few seasons they did not do well.
With the demerger awaiting the Sindh High Court’s approval, the management is tight-lipped on how it will increase profit in the paint business. CFO Feroz Rizvi refused to comment on any specific plans that the company had for increasing its profitability, saying only that the paint business was part of the company’s global expertise.
A source explained that decorative paints represent a tiny portion of ICI Pakistan’s overall profit while overhead costs for this line of business are disproportionately high. “Without an injection of investment, AkzoNobel cannot sustain the paint business on current profit margin,” the source said.
The company current has a manufacturing facility in Lahore, but that does not have expansion capacity. Given that the company wanted to cater to export markets, Gwadar was a possibility but poor law and order has made it unfavourable. Karachi was the only option left for the company to setup this plant, source added.
AkzoNobel already has an auto-colour training centre at Port Qasim and is a major auto paint supplier to Toyota, Suzuki, Honda and Hinopak, a source said.
It is not yet clear what products will be manufactured out of the Port Qasim plant, though sources speculated that, given the target markets in the Middle East and Europe, it would most likely be automobile, ships and aeronautical coatings.
As for the demerger, it is currently awaiting shareholder approval, one of the last conditions placed by the Sindh High Court before the change will be approved. Since AkzoNobel owns over 75% share in the company, it is unlikely that the extraordinary general meeting to be held to discuss the demerger will yield any surprises.
Published in The Express Tribune, December 6th, 201

 

[Bukhari.syed]

Their brand ICI-Deluxe is working well here also.

 

[CLIPPER4LIFE]

Hopefully their paint exporting will profit, because Pakistan is a big market but the Middle East is a huge market. By setting the manufacturing unit in Pakistan will hopefully create 100's of jobs.

 

[sailare]

Hmmmm... Its good that they are thinking of making pakistan as their base of operation but still its not beneficial for the local industry. Specially since of economic recession is still high in pakistan and Azkonobel will create some jobs but indirectly cause small to medium scale industries to lose jobs because of low sales and our mentality towards multinational{myself included}. :S

Its pretty sad, if you look at it from another angle. We {myself included} have no regard for Pakistani brand in this case.

In India on the other hand ICI isn't a very major player, Asian Paint ( an Indian company) and Shalimar Paints (Indian) are two major players, with Asian paints being the top 5 in the world. Also the fact that Asian paints was started in a 80 Sq.ft. room and progressed on to being in the top 5 is an achievement itself.