Berger Paints Ltd (BPL) is the second largest paint company (~16% market share) in the
Indian paint industry catering to both decorative and industrial segment which contributes
in the ratio of 80:20 to its revenue stream. With Indian economy on the revival mode,
Berger Paints volumes demand is set to grow at CAGR of ~ 12.8% over FY13-15E (i.e ~ 1.8x
GDP growth) well complemented by structural shift happening towards organized players
from unorganized players in the paint industry for fast growing emulsion paints ( premium
water based paints). With addition of 3.5 LTPA paint capacity (taking total installed capacity
up from 3.25 LTPA in FY13 to 6.12 LTPA by FY15E end), & newer focused management
strategy of repositioning & upgrading “Berger Paints” Brand Image from “ Mid-Economy”
Category” to “Higher - Mid Category” by providing both premium/affordable range of
emulsion paints, improving its supply chain system, expansion of distribution network and
aggressive marketing & sales promotion. Berger Paints is geared up to maintain its
dominating position in Tier II & Tier III cities & improve its market share ( ~ 17.50% in FY15E
vs ~ 16% in FY13). With the favorable product mix & higher realisation, Berger Paints is
equally well complemented with softening of raw material prices & economies of scale,
leading to expansion of EBITDA margins (~12.30% in FY15E vs 11.10% in FY13). We have a
“Buy” rating on the stock with target price of `248 implying 25x on FY15E EPS of `9.90.
Investment Rationale
Decorative Paints – Structural Growth Story
Berger Paints has a dominating position in Tier II & Tier III cities on the back of its strong
relationship with dealers & painters. With changing consumer lifestyle & growing demand
for premium quality emulsion paints, leading to a ongoing shift towards organized players
from unorganized players imply a significant & much more accelerated growth for Berger
Paints both in terms of Revenue growth at a CAGR of 18.4% & PAT growth at a CAGR of
25.0% over the next 2 years (FY13-15E).
Favorable Sales Mix to Increase Profitability
With the launch of new series of affordable emulsion paints in Tier II & Tier III cities, Berger
paints is driving a demand shift & Upgradation towards emulsion paints from lower
category distemper/ primer paints (~35% in FY15E vs ~29% in FY12). Thus, a favorable sales
mix with better average price realisation led by emulsions paints along with softening raw
material cycle would lead to expansion of EBITDA margins by 100-120 bps by FY15E (~12.3%
in FY15E Vs ~11.1% in FY13).
Yet another Price Hike by 1-2% effective from 1st September ‘13
Company has taken 1.3%% price hike in May’13 & August’13. It plans to take another price
hike of 1-2% effective from 1st September‘13 to mitigate the impact of higher import cost
on account of rupee depreciation. At the same time management is confident of
maintaining double digit volume growth momentum in the coming quarters.
Timely capacity expansion helps supplement demand
Berger Paints timely addition of 3.5 LTPA paint capacity to enhance its total paint capacity
from 2.6 LTPA in FY12 to 6.1 LTPA by FY15E end in phase manner would enable the
company to meet the growing demand & defend its market share. Berger Paints is set to
maintain capacity utilization in the range of ~ 60-65% & delivering a topline CACR growth of
18.4% over FY13-15E.
Aggressive Marketing Initiatives to develop Brand Image – To drive Sales
In order to develop a better brand image & penetrate the premium emulsion paints market,
Berger Paints has initiated marketing & advertising spends to promote it top brands like
“Silk”, “Bison” and “Weathercoat”.
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Indian paint industry catering to both decorative and industrial segment which contributes
in the ratio of 80:20 to its revenue stream. With Indian economy on the revival mode,
Berger Paints volumes demand is set to grow at CAGR of ~ 12.8% over FY13-15E (i.e ~ 1.8x
GDP growth) well complemented by structural shift happening towards organized players
from unorganized players in the paint industry for fast growing emulsion paints ( premium
water based paints). With addition of 3.5 LTPA paint capacity (taking total installed capacity
up from 3.25 LTPA in FY13 to 6.12 LTPA by FY15E end), & newer focused management
strategy of repositioning & upgrading “Berger Paints” Brand Image from “ Mid-Economy”
Category” to “Higher - Mid Category” by providing both premium/affordable range of
emulsion paints, improving its supply chain system, expansion of distribution network and
aggressive marketing & sales promotion. Berger Paints is geared up to maintain its
dominating position in Tier II & Tier III cities & improve its market share ( ~ 17.50% in FY15E
vs ~ 16% in FY13). With the favorable product mix & higher realisation, Berger Paints is
equally well complemented with softening of raw material prices & economies of scale,
leading to expansion of EBITDA margins (~12.30% in FY15E vs 11.10% in FY13). We have a
“Buy” rating on the stock with target price of `248 implying 25x on FY15E EPS of `9.90.
Investment Rationale
Decorative Paints – Structural Growth Story
Berger Paints has a dominating position in Tier II & Tier III cities on the back of its strong
relationship with dealers & painters. With changing consumer lifestyle & growing demand
for premium quality emulsion paints, leading to a ongoing shift towards organized players
from unorganized players imply a significant & much more accelerated growth for Berger
Paints both in terms of Revenue growth at a CAGR of 18.4% & PAT growth at a CAGR of
25.0% over the next 2 years (FY13-15E).
Favorable Sales Mix to Increase Profitability
With the launch of new series of affordable emulsion paints in Tier II & Tier III cities, Berger
paints is driving a demand shift & Upgradation towards emulsion paints from lower
category distemper/ primer paints (~35% in FY15E vs ~29% in FY12). Thus, a favorable sales
mix with better average price realisation led by emulsions paints along with softening raw
material cycle would lead to expansion of EBITDA margins by 100-120 bps by FY15E (~12.3%
in FY15E Vs ~11.1% in FY13).
Yet another Price Hike by 1-2% effective from 1st September ‘13
Company has taken 1.3%% price hike in May’13 & August’13. It plans to take another price
hike of 1-2% effective from 1st September‘13 to mitigate the impact of higher import cost
on account of rupee depreciation. At the same time management is confident of
maintaining double digit volume growth momentum in the coming quarters.
Timely capacity expansion helps supplement demand
Berger Paints timely addition of 3.5 LTPA paint capacity to enhance its total paint capacity
from 2.6 LTPA in FY12 to 6.1 LTPA by FY15E end in phase manner would enable the
company to meet the growing demand & defend its market share. Berger Paints is set to
maintain capacity utilization in the range of ~ 60-65% & delivering a topline CACR growth of
18.4% over FY13-15E.
Aggressive Marketing Initiatives to develop Brand Image – To drive Sales
In order to develop a better brand image & penetrate the premium emulsion paints market,
Berger Paints has initiated marketing & advertising spends to promote it top brands like
“Silk”, “Bison” and “Weathercoat”.
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