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India Equity Research Reports, IPO and Stock News
India Equity Research Reports, IPO and Stock News
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Investment Rationale
§ Berger Paints is the second largest player in the decorative paints segment with a market share of 17%. It has a
strong distribution network of 14,500 dealers with 8,000 tinting machines across India. With a strong second
position in the decorative paints market, we believe Berger Paints cannot be ignored.
§ The inherent growth in the paints industry coupled with the company’s aggression to expand its geographical
reach will help Berger Paints attain reasonable revenue size of Rs 33 bn by FY13E. (Revenue CAGR of 19%)
§ Increasing focus on water-based emulsion paints, backward integration of its emulsion requirements and higher
operating efficiencies as the company gains size and scale could possibly result in higher operating margins. We
have, however, not factored in margin expansion due to higher raw material cost and expect margins at 10.4% in
FY13E.
§ The company plans to increase its production capacity by 52%, through the addition of 160,000 MT (Phase I and
II at a cost of Rs 1.4 bn) capacity plant (scalable to 320,000 MT) in Andhra Pradesh over the next 2 years. We
believe it has a comfortable cash flow position to fund this capex plan.
Valuation
§ At CMP, the stock is trading at 17.3x FY13E EPS of Rs 6.2 respectively.
§ Historically the stock has traded at 40% discount to Asian Paints. We expect this gap to narrow due to
§ It gaining considerable size and scale with healthy revenue and earnings CAGR of 19% and 20%,
respectively, over FY11-13E.
§ Increasing shift towards premium products enhancing operating margins.
§ Increasing presence across India with rising penetration in the south through its franchisee stores
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