Berger Paints - Results inline, Marginal gain in market share
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.
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.
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.