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Berger Paints - Results inline, Marginal gain in market share

August 14, 2015 by shekarm

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Revenue up 5.7% YoY (+7.8% QoQ) at INR 11,212 mn, in-line with our estimate of INR 11,184mn. Domestic business grew 7.8% YoY to INR 10,113.9 mn. Decorative paint volume grew at ~10% YoY and pricing been cut by 2.4% in Feb 2015. Industry demand for general Industrial, automotive and protective coating were good.

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Revenues from subsidiaries fell by 10.4% YoY to INR1,098mn. The weak performance was on account of Bolix, which was under pressure due to loss of a key client. Nepal operations too were under pressure. BJN India (erstwhile Sherwin Williams) consolidation exercise to continue till 2HFY16, after which it is expected to grow on par with parent.

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Gross margin improved by 267bps YoY to 42.3% due to benign RM cost, and favorable mix. Other operating expenses were higher by 28bps YoY and employee expenses were down by 13bps YoY.

 

Valuation: At CMP of INR 224, the stock is trading at 41.1XFY16E and 32.7XFY17E earnings. We assign an MARKETPERFORMER rating with a target price of INR 238 based on a target P/E of 34XFY17EPS (PEG of 0.96) which is at 6% discount to Asian Paints target multiple and 2SD away from 10yrs mean of one year forward P/E.  Risks: Company’s inability to pass on the cost increases on a timely basis, leading to crunch in margins. Consumer’s down trading or deferring painting due to uncertainty in the economy & job environment.

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