Long term story intact Berger Paints ::HDFC Sec, report

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Buy Berger Paints between Rs 232 and Rs 236. Stoploss at Rs 223 :: HDFC Securities

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Buy Berger Paints between 415 and 424.2; Target 485.0 -HDFC Securities

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Buy Berger Paints :: ICICI Securities, link

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Berger Paints - Rating Revision - Volume led beat in earnings, upgrade to Buy :: Centrum

Rating: Buy; Target Price: Rs295; CMP: Rs248; Upside: 19.2%



Volume led beat in earnings, upgrade to Buy



We upgrade our rating on Berger Paints to Buy from Hold earlier as we
believe earnings will improve going forward led by better volume
growth, recent price hikes and rupee stability. The decorative paints
segment has defied the industry slowdown and continues to report
strong growth (8-9% volume growth in FY14). We believe the company’s
volume growth in decorative paints in Q4 was ~14-15%. The company
should also benefit from improving product-mix (focus on premium
products), focus on branding and better distribution/ logistics. In
Q4, the result was better than our estimates driven by higher volume
growth.

$ Result better than estimates led by higher volume growth: The
Company posted 19.5% YoY growth in consolidated Revenue to Rs9,660mn
(vs. est. Rs8,959mn). We believe that the revenue beat was primarily
due to higher volume growth of ~14-15% (vs. est. 6%) in the decorative
segment. Earlier, Asian Paints delivered ~16% volume growth in the
decorative segment.  EBITDA increased 20.7% YoY to Rs1,060mn (vs. est.
Rs928mn). Adjusted profit increased 26.3% YoY to Rs553mn (vs. est.
Rs480mn).

$ OPM improves led by higher volume and lower opex: Consolidated Gross
margin declined 133bps YoY due to higher crude prices (up 4.5% YoY)
and rupee depreciation (~12% YoY). However, on a sequential basis,
gross margin improved 17bps. In the standalone segment, gross margin
was up 57bps QoQ to 39.6% (down 109bps YoY). Consolidated EBITDA
margin improved 11bps YoY to 11% primarily due to improvement in sales
volume, higher realization, lower employee costs (down 26bps YoY as %
of sales) and other expenses (down 1.9pp YoY as % of sales).

$ Price hikes, stable rupee to help going forward: Pricing power in
the decorative segment continues to be strong which is reflected by
the fact that organized players were able to raise prices four times
in FY14. Cumulative price hikes were ~6.3% in FY14. The company raised
prices by 1% from May 1 ’14 and we expect another hike of ~1% on June
1, ’14 (Asian Paints had announced this earlier).  At the same time,
stability in rupee over past 2 months will restrict volatility in raw
material costs. We believe the current price hike will help margin
improvement in Q1FY15.

$ Valuation and key risks: The stock is trading at 30x/23.3x
FY15E/FY16E EPS. We believe the company will benefit from recent price
hikes and stability in rupee going ahead. The volume growth surprised
us in Q4 (~14-15% in the decorative segment) and the paint industry
has recorded robust growth in FY14 defying economic challenges. The
stock deserves to trade at premium and we value it at 28x FY16E EPS
against 25x earlier. Our target price offers an upside of 19.2% from
CMP. Key downside risk could be slowdown in economy leading to lower
volume and rupee depreciation.



Thanks & Regards

--

Berger Paints Ltd Strong volume growth aided with favorable product mix :: Sunidhi

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”.

Technicals: Berger Paints, M and M Financial, Aditya Birla Nuvo, Cairn, Adani Enterprises, Asahi:: Business Line

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• 
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Berger Paints India ::SPA Securities,

Berger Paints India (Berger) registered Q3FY13 consolidated sales growth of 18% to INR 9,203mn. Higher than expected
gains in margins resulted in a YoY PAT growth of 40%. EBIDTA margin expanded by 260bps YoY to 12.69%, majorly
benefitting from fall in RM costs. Softening in RM cost aided by appreciation in INR would bring in further margin gains
ahead. Also, expected improvement in economic growth would drive volume growth in both decorative and industrial
paint segments going ahead.

Berger Paints India Ltd:: Target Price Rs.190.00 ::Hem Sec

Berger Paints India Ltd. (BPIL) is one of the India’s foremost
paint companies, currently ranked as second largest on the basis
of consolidated sales turnover in Indian paint industry. It enjoys
about 19 percent share of the over Rs.21,000 crore of the Indian
paint industry.

Berger Paints - Buy - Target 130 :: Anand Rathi

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BERGERPAINTS is nearing our target, and stock has made all time high and chances of higher levels of 135-140 is still possible. But we would like to book out, CASTROL and IPCALAB are few stock we like in short term.

 Paint Your Imagination

 Berger Paints                    Buy                                  Price    108                                                                      Target   130  

Berger Paints India (Berger) is the second largest decorative paint company in India. Company has an overall paint industry market share of ~17%.

Company Description

Berger Paints India Limited is a paint manufacturing company. The Company’s products consist of interior wall coatings, exterior wall coatings, and metal and wood paints. Berger Paints India Limited was founded in 1760 and is headquartered in Kolkata, India 

Result Update: Thermax, Madras Cement, Berger Paints, Dr. Reddy's Lab ::Emkay

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Result Update

Thermax Reco: HOLD CMP: Rs 522 Target Price: Rs 495 Earnings Overhang; Downgrade to Hold ·      Below estimates – (1) Revenue up 2% yoy to Rs12.7 bn (2) EBITDA% down 110 bps yoy to 10.7% (3) EBITDA down 7% yoy to Rs1.4 bn (4) APAT down 5% yoy to Rs955 mn ·      Order inflows decline 42% qoq to Rs7.5 bn – lower than quarterly run-rate of Rs12 bn. Order book declines 11% qoq to Rs58 bn and order book cover deteriorates to 1.0X revenues ·      Running weak order cover at 1.0X Revenues and ambiguity on near-term order inflows; Also investments in super-critical venture remains an overhang ·      Cut earnings by 7% and 11% for FY12E and FY13E on reduced order book visibility. No near term re-rating catalysts + risks to earnings exist. Downgrade to Hold with target of Rs495

Madras Cement Reco: HOLD CMP: Rs 129 Target Price: Rs 138 Lower costs drive profit beat ·      MCL 3QF12 EBITDA at Rs2.07bn (+40% yoy) significantly ahead of our & street est led by lower RM cost (-3% qoq) & P&F costs (-0.6% qoq). Lower interest & depreciation charge further drove net profit beat (Rs768 mn vs est of Rs392 mn) ·      Volumes up 14.6% yoy while realizations up 13% yoy (Rs4314/t) fuelled 29% yoy growth in cement sales at Rs7.3  bn. EBIDTA/t at Rs1175/t grew by a handsome 28.7% yoy ·      Upgrade FY12/13 EPS by 33%/14% led by better realizations & lower depreciation & interest outgo. Revise target to Rs138 (Rs125 earlier) to factor in earnings upgrade ·      MCL continued is earnings surprise led by firm cement prices. We believe next surprise has to be volume led (south price at Rs290/bag seems to have peaked out) for which sustainable uptick in southern cement demand remains key. Retain HOLD

Berger Paints Reco: ACCUMULATE CMP: Rs 100 Target Price: Rs 109 Core argument intact, Retain Accumulate ·      Berger Paints report 22% yoy growth in standalone APAT to Rs449 mn on expected lines; Lower Ebidta margins (down 50 bps to 9.6%) get offset by strong volume (12-13%) ·      Poland and Nepal operations report Ebidta margin pressure; Consolidated APAT at Rs491 mn was Rs20 mn lower then expectations of Rs514 mn ·      Eyeing price increase in industrial and decorative portfolio in Q4FY12; Would regain Ebidta margins in FY13E ·      Retain our FY12E and FY13E EPS of Rs 5.1/share and Rs 6.2/share, respectively. Maintain ACCUMULATE rating with target price of Rs 109/share

Dr. Reddy’s Lab Reco: HOLD CMP: Rs 1,671 Target Price: Rs 1,650 Para-IV Upsides Priced-in - Maintain Hold ·      Q3FY12 Results – Revenues at Rs2.77bn (up 46%YoY), b) EBITDA at Rs8.7bn (up 129% YoY) and c) APAT at Rs4.9bn (up 82% YoY) ·      Zyprexa contributed USD99mn, excluding this base business grew 22% YoY led by US biz which grew by 29% & INR dep ·      Base biz margins were flat YoY and declined 110bps QoQ led by flat growth in Russia and lower benefit from DEPB. APAT declined 10% YoY and  18% QoQ to Rs2.5bn ·      Going forward, even though lot of Para-IVs are lined up for launch in US, upsides are largely priced in. Unless there is an improvement in base biz, we continue to maintain Hold rating with a price target of Rs1650

QUERY CORNER: Sterlite Industries, UCO Bank, Mahindra Satyam, TVS Motor, Opto Circuits, GTL Infrastructure, Berger Paints, IOB ::Business Line

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Please advise me on the outlook for Sterlite Industries and UCO bank bought at Rs 130 and Rs 65 respectively.

K. Kunhiraman

Sterlite Industries (Rs 113.9): After peaking out in January 2010, Sterlite Industries has been on a long-term downtrend. In August 2011, the stock broke through a key support at Rs 150 and accelerated downwards. But, its long-term support at Rs 86 provided base in December 2011 and the stock changed its direction. Investors with long-term perspective can consider buying the stock on declines with stop-loss at Rs 86. A strong move above the immediate resistance at Rs 130 will take the stock northwards to Rs 150 and to Rs 165 in the long-term. Nevertheless, a tumble below Rs 86 will drag the stock down to the Rs 70 - 74 range.

Short-term trend has been up for the stock ever since bottoming out last month. But it is likely to face key resistance at Rs 120 in the days ahead. Failure to move above this resistance will pull the stock down to Rs 100. Significant supports below this level are at Rs 95 and Rs 86.

Berger Paints Progress… Maintain ACCUMULATE ::Emkay

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Berger Paints

Progress… Maintain ACCUMULATE

ACCUMULATE

CMP: Rs108                                        Target Price: Rs109

---

n     Standalone volume disappoints, but gross margins expand and Ebidta margins intact at 10.4%... swinging positive surprise… APAT at Rs430 mn + 17% yoy, above expectation

n     Domestic volume growth in the decorative paints segment moderates to 8-10% for the quarter, but market shares retained

n     Seasonally strong quarter for Bollix, SA… Subsidiaries churns APAT growth of 68% yoy, Even Consol APAT at Rs493 mn up 21.7% yoy, stays ahead of expectations

n     Retain our FY12E and FY13E EPS of Rs 5.1/share and Rs 6.2/share, respectively. Maintain ACCUMULATE rating with target price of Rs 109/share

Berger Paints: Buy: Business Line,

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Investors with a long-term perspective can consider buying shares of Berger Paints India, the country's second largest decorative paint maker. Expectations of healthy volume growth, the company's increased focus on premium paints, its big-ticket expansion plans, and the push to enhance presence in high-potential markets support our recommendation.

At its current price of Rs 98, the Berger stock trades at around 22 times its trailing 12-month earnings. While slightly higher than the 21 times of its nearest competitor Kansai Nerolac, Berger's earnings multiple is much lower than the 33 times earnings commanded by market leader, Asian Paints. Berger's initiatives to improve product mix, and increase its scale and reach should help it narrow the gap.

ROBUST VOLUME GROWTH

Similar to other paint makers, Berger has been witnessing robust product off-take due to favourable demand dynamics in the country. Increasing incomes, growing construction activities, and industrial growth at a healthy clip have been important drivers. Berger has also been taking price hikes periodically to pass on rising input costs. Driven by robust volume growth (around 20 per cent), price hikes (totalling to around 12 per cent) and changes in the sales mix, the company's FY 11 consolidated sales and profits grew by a strong 23 per cent and 25 per cent year-on-year to Rs 2,328 crore and Rs 151 crore respectively.

The recent June quarter too saw consolidated top-line grow by an impressive 30 per cent, driven by volume growth in excess of 15 per cent and price hike of around 9 per cent in decorative paints. Yet, bottom-line grew at a slower 16.4 per cent, primarily due to the rapidly rising cost of inputs such as titanium dioxide and crude oil based derivatives.

While prices of decorative paints was raised, there was a lag in increasing prices of industrial paints, which led to a drag in margins. Operating margin declined to 10 per cent in the June 2011 quarter from around 12 per cent in the year-ago period.

Berger's volume growth is expected to be healthy, even if it has a muted September quarter due to monsoons. Margins in the near term may continue to be pressured with rising cost of inputs and greater marketing spends. However, the improved contribution from premium paints on which the company is increasing focus should mitigate the impact to some extent.

With decorative paints contributing almost 80 per cent to the company's sales, projections of increased demand for housing units in the country bode well. Cushman and Wakefield estimates that residential demand in India is expected to be over 4 million units during 2010-2014. This, combined with increased frequency of repainting in Indian homes should aid the company's volumes.

In the industrial paints segment, the company is a market leader in protective coatings which should benefit from expected increased spends on infrastructure. Compared to the Government's XI plan, outlay for infrastructure projects in the XII plan has been doubled to $1 trillion. Though growth in this segment may be muted in the near-term due to ongoing economic uneasiness, long-term prospects appear good. On the international front, Bolix, the subsidiary in Poland, is expected to benefit from some countries in Europe making external insulation mandatory.

PREMIUM FOCUS

In the decorative paints segment, Berger's product portfolio has traditionally been tilted heavily (almost 80 per cent currently) in favour of economy paints such as enamels and distempers. With a view to capturing the fast-growing demand for premium paints such as emulsions, Berger has been launching new products in the category and has stepped up marketing efforts. Consequently, premium paints have been improving share in the company's sales and aiding margins. The focus on water-based premium paints is expected to continue, with much of the ongoing expansion plans of the company being in this category.

To boost volumes and to garner a bigger share (currently 19 per cent) of the fast-growing Indian paints market, Berger Paints plans to more than double its capacity over the next three years. Expansion plans include both brown-field expansions (at its plants in Goa and Rishra, West Bengal) and a green-field project in Hindupur (Andhra Pradesh).

The expansions at Goa and Rishra (at an outlay of Rs 130 crore) which are expected to be completed this calendar will see Berger's capacity increase from 250,000 tonnes to 370,000 tonnes. In addition, Phase-I of the new plant in Hindupur being set up for Rs 160-170 crore is expected to go on steam by FY 2014 and will add 160,000 tonnes. This could further be scaled up to 320,000 tonnes.

Berger Paints is also stepping up its presence in South and West India. These two regions, where demand for paints is among the highest in the country (about 60 per cent share), account for only 35 per cent of Berger Paints' sales. The company has opened around 30 exclusive stores on franchise basis in Tamil Nadu and Andhra Pradesh to improve visibility and volumes. More stores are on the anvil.

The company's good cash position (Rs 127 crore) and low debt-to-equity (0.44 times as on March 2011) give it sufficient headroom to fund expansion plans. ROE is healthy at around 22 per cent.

Berger Paints:: Emkay: Top Buys

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TP : Rs109
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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Emkay: Top Buys and Sells

Paint Your Imagination :: Berger Paints - Buy :: Anand Rathi,

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Paint Your Imagination

 Berger Paints                    Buy                                  Price    108                                                                      Target   130  

Berger Paints India (Berger) is the second largest decorative paint company in India. Company has an overall paint industry market share of ~17%.

Company Description

Berger Paints India Limited is a paint manufacturing company. The Company’s products consist of interior wall coatings, exterior wall coatings, and metal and wood paints. Berger Paints India Limited was founded in 1760 and is headquartered in Kolkata, India 

Investment Arguments~Lucrative Industry Outlook
~Capacity addition plans help to enhance sales
~Less vulnerable to increase in raw materials prices
~Increasing their Presence

~ Valuations

Going forward, we expect Berger to maintain the good growth momentum on the back of additional capacity along with new product offerings in premium segment and its expansion plans in south region. At CMP of 108 stock is quoting around 18x and 16x for FY 12e & FY 13e. We recommend to buy the stock at CMP for 12-15 months horizon for a target price of 130 (19.19x FY13E EPS of 6.78), giving an upside of 20% from current price

Berger Paints - Domestic act in order… Maintain ACCUMULATE:: Emkay

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Berger Paints

Domestic act in order… Maintain ACCUMULATE

ACCUMULATE

CMP: Rs101                                        Target Price: Rs109

---

n     Domestic volume growth in the decorative paints segment remains strong at 15%+ for the quarter

n     Standalone sales growth of 30% yoy to Rs 6.4 bn and PAT growth of 10% yoy to Rs 407 mn is in line with our expectation

n     However, seasonally weak performance of its Polish subsidiary, has affected consolidated PAT of Rs372mn - below estimates

n     Retain our FY12E and FY13E EPS of Rs 5.0/share and Rs 6.2/share, respectively. Maintain ACCUMULATE rating with target price of Rs 109/share

Berger Paints - Gearing up for higher scale… ACCUMULATE ::Emkay

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Berger Paints

Gearing up for higher scale…

ACCUMULATE

CMP: Rs100                                        Target Price: Rs109

---

n     Berger Paints, the second largest player in the decorative paints market with a 17% market share, is expected to benefit from the long-term steady demand in paints industry

n     Expect revenue and earnings CAGR of 19% and 20% over FY11-13E, leading to a comfortable cash flow position; Rule out additional fund raising despite planned capex of Rs1.4bn

n     Increasing shift towards water-based paints to augur well for operating margins, not factored in margin expansion due to higher raw material cost; Expect margins at 10.4% in FY13E

n     Initiate coverage with an ACCUMULATE rating and a target price of Rs 109/share, valuing it at 17.5x FY13E (30% discount to Asian Paints) EPS of Rs 6.2/share