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

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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