Not looking at exiting India, looking for larger play in aerospace, marine coatings here: Greg Poux-Guillaume, CEO, Akzo Nobel NV

At any point, JSW’s shareholding cannot be more than 75 per cent in Akzo Nobel India. Then, there is an open offer by JSW. So does that mean, Akzo NV – the Dutch parent – will retain a minority stake? 

No, we’re not (retaining stake). We are very clear on it. We’re not going to be a minority investor. There’s different mechanisms in place to get to that point, and I’m not going to get into the details of it, but we are in this for the long term. 

And by long-term, you mean? 

This (buyout by JSW) is a long-term partnership, and we will be JSW’s technology partner for the coatings businesses, and that is for perpetuity. We are only exiting the decorative paints business. But, we will also look at opportunities to do things in other areas in which we weren’t historically present in India because we have a lot of businesses that have potential applications in here. 

Decorative paints was a India for India business. That may not be so for other verticals like coatings. Your comments. 

Decorative paints businesses are local businesses, because paint doesn’t travel very far. It’s a cost to wait ratio issue. It’s kind of like cement. Therefore, it tends towards a local oligopolistic market, which is that you’re competing with local players. There’s no advantage to being international beyond the technology, and therefore, it’s about relative market locally, it’s about the brain power, it’s about the depth of distribution. 

The coatings businesses are very different. They are global. You sell the same products around the world, they travel. I can make vehicle refinished paint in the Netherlands and actually sell it economically in India. I want to say that’s the best way to run the business, but it’s actually feasible. Whereas, you could never do that in Deco. So the way you compete is different. 

In case of this technology partnership that you are looking at (for coatings business) with JSW, is there a royalty arrangement? 

Yes, it is 4.5 per cent (four and a half per cent) sales. And this will kick in once the transaction is over. It’s already been there. It just continues. Except instead of paying to ourselves (Akzo India to Akzo NV), he (JSW Paints) is paying to us. So let me explain. Before it was the Indian entity of Akzo paying to the parent company, and now it’s JSW paying to the parent company (Akzo NV). 

Earlier there was a 3.5 per cent royalty being paid for the decorative technology (by Akzo India to parent company) and a 4.5 per cent royalty on the industrial coatings. Now, Akzo Nobel India has purchased the IP for the decorative business. After the (acquisition) transaction is complete, and the process of selling the powder business to global parent and procuring the IP of the decorative is through, this 3.5 per cent royalty on decorative goes away. But the 4.5 per cent royalty on industrial continues, as JSW continues to use our coatings technology. 

Q. You’re left with the powdered coating business and the R&D centre. What is the game plan there? 

A: Powder coatings is a fast growing business (globally). There’s a lot of new applications for powder all the time.

 One of the biggest ones these days is electrical vehicles (EVs) because powder has not only coverage applications, but also electrical insulation applications. So it’s really well suited to that. Most of the large electrical vehicle companies like the BYD in China are customers. So we see a lot of potential in that business, and it’s a business in which Akzo Nobel NV is twice the size of the number two worldwide. So we’ll continue to push in that. 

Beyond EVs, what other segments can you tap in India? 

And then beyond that, in India, we have other opportunities for businesses where we are not currently present such as aerospace. We are the market leader in aerospace coatings. Take a plane, the likelihood of that plane being coated by Akzo Nobel is roughly 50 per cent. And if you go into any maintenance facility (for planes) the likelihood that what you’re seeing sprayed (paint) from Akzo is actually north of 50 per cent. We weren’t historically present in India because the market was still nascent, but it’s changing. Now the maintenance facilities are increasingly in the country and at some point, it makes sense for us to have a physical presence. 

Q. Through a partner? 

A: We’ll decide whether we want to do it by ourselves or whether we want to do it with a friend. 

What about the R&D facilities? 

JSW gets the R&D centre for decorative paints. But, we also have a large R&D centre for our coating businesses (that is spread) around the world – and which is based in India. And which we retain. It’s an integral part of us. We also have a lot of our finance and planning people worldwide in India, which we also retain. So India remains a large and important presence for us; it remains a significant market for us to tackle, with powder coatings and with things like aerospace. 

Globally, what would be the focus segments now? 

Growth areas are the powder business, alongside marine protective; we’re doing really well and we have, I think the best products in the industry. You know, we’re focussed on all the industries where there’s a lot of technology and there’s a lot of change, and these days, the changes are often driven by sustainability. So if you take the marine industry, ships have increasingly looking at biocide free anti fowling coatings (paints). It is both a sustainability issue and a performance issue because fuel’s also expensive. So it’s an opportunity (for us) to have developed better products. These customers will buy the product that gives them the most sustainable solution with the lowest cost of operation. And that essentially is how you extract value out of the AkzoNobel innovation potential. And this is also what Parth (Jindal) is buying as part of the licensing agreement on the coating businesses. He’s getting access to all those developments, which I think is money well spent. 

Akzo also put Asian operations under review. Post this JSW deal, what is the status of that?

It is ongoing. We are looking at how best we can create leadership positions in local markets, and it’s either through partnerships or through acquisitions, or sometimes when we feel that there’s a player in the local market that’s better than us to extract the maximum value out of what we offer. Whether we are considering exits or not, that’s part of the normal hygiene factor of running large companies. You’re always looking at where you’re performing, what your competitors are doing, and what’s your relative market share in the market. 

There is a near-€400 million share buyback proposal. What is this for; does this include India? 

No, it’s for global company. We have a global shareholding base, actually 60 per cent of our investors are in the US.. As part of a normal capital allocation for a large industrial as well as large global company, you invest in buybacks, you invest in acquisitions, and you also return capital to shareholders. That’s part of the good hygiene of servicing your share-holders and rewarding them for their trust. In this case, we felt that it was a good message to buyback some of our shares because we feel that right now we’re undervalued, and deploying €400 million (for buyback) shows that we are actually putting our money where our mouth is. India is the only country in the world where we have a listing (Akzo Nobel India continues to be listed). Otherwise, Akzo NV is a globally listed company on the Dutch Exchange.