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.

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Pent up demand drive sales growth
Berger registered standalone (90% of consolidated business) sales
growth of 17% to INR 8,222mn in Q3FY13 on the back of estimated
~8% volume growth. The sales growth was backed by pent-up demand
from previous quarter due to late rains. Although, the company
witnessed good growth in decorative segment (~80% of standalone),
industrial business registered sluggish growth performance on the
back of slowdown in automotive sector.
Falling RM cost to bring margin gains
Company's standalone EBIDTA margin jumped by 144bps YoY to
12.19% aided by softening in RM cost, increasing share of premium
products and lesser share of lower margin industrial paints
segment. Key RM like TiO2 (~20% of total RM cost) has declined by
20% YTD. Company took partial price hikes in industrial segment in
Sep 2012 and is planning to take further hikes in next few months.
Going ahead, we expect Berger to witness further improvement in
margins on the back of softening in RM cost aided by expected
appreciation in INR against USD, increasing share of premium
products and price hikes in industrial segment.
Subsidiaries maintained good performance
Combined subsidiaries registered sales growth of 22% in Q3FY13
to INR 981mn. Major contributor Bolix (Poland) maintained its
revenues besides witnessing improvement in margins on the back
of price increases and favorable Euro exchange rate. Company's
other subsidiaries, Berger Nepal and Berger Becker registered strong
sales growth of over 20%. Combined subsidiaries registered
expansion in EBIDTA margin by 461bps YoY to 16.92% on the back of
increasing economies of scale.
Other key highlights
- Company's new business lines which include construction
chemicals, wood finishes and textured paints contributed ~INR
100mn to the quarter sales
- Company's Hindupur plant is on schedule and production is
expected to commence from May-June of current year
- Company has increased its (active) dealer network by 14-15%
in current fiscal to 11,000-11,500
Valuation and Outlook
Berger reported improvement in sales in Q3FY13 backed by pent up
demand in decorative segment and better performance by
subsidiaries. With expected improvement in economic environment,
demand in both decorative and industrial paints segments is
expected to pick up. Further, new line of products such as
construction chemicals, wood finishes and textured paints would
also aid the revenue growth. Softening in RM cost aided by
favourable exchange rate and increasing share of premium products
would continue to drive margin expansion going ahead. We have
built-in higher margins for FY13 and FY14 and upgraded our EPS
targets. We have, therefore, increased our 12months target price
to INR 165 (20x FY14E EPS) and continue to recommend HOLD