Religare Investment Call

Initiating Coverage Paints Berger Paints (I) Ltd.

BUY Multiple growth levers at work...

CMP (Rs) 230 Incorporated in 1969, Berger Paints India Ltd. is the second largest decorative paint player
Target Price (Rs) 273 in India with a market share of ~ 19%. The company offers a variety of innovative painting
solutions to its customers in decorative and industrial segment with its strong distribution
Potential Upside 18.7%
network comprising of 75 stock points and 15,000+ paint retailers. The company is focused
Sensex 29,443 on increasing revenue contribution from premium products by introducing premium
Nifty 9,087 brands at competitive pricing. As for the industry, it is poised to grow from increasing
urbanisation, shorter repainting cycle and higher spends on premium products.
Implementation of GST augurs will for organised paint industry players as shift of demand
Key Stock data from non-branded products to branded products occurs. We believe, Berger Paints is well
BSE Code 509480 placed to benefit from growth of paint industry. We initiate coverage on Berger Paints with
a BUY.
NSE Code BERGEPAINT
Bloomberg BRGR:IN 
Investment rationale:

Shares o/s, Cr (FV 1) 97.0  As per the Indian Paint Association, paint industry is expected to reach Rs 70,875 crs
Market Cap (Rs Cr) 22,310 from Rs 44,330 crs in FY16. Decorative paint segment will grow at a higher pace than
the industry growth rate at a CAGR of 14.4% to reach Rs 53,156crs. As per industry
3M Avg Volume 41,989
data, paint industry is expected to grow at 1.5-2x of GDP in next 5 years. We believe,
52 week H/L 276.8/156.8 organised players will outgrow the industry growth rate as demand will get a push
from strong branding, marketing and distribution activities of organised players.

Shareholding Pattern  Increase in urbanisation, the Government's thrust on affordable housing, increasing
(%) Jun-16 Sep-16 Dec-16 per capita income will translate into higher sales for paints companies. Also, repainting
Promoter 74.9 75.0 75.0
cycle has reduced from 8/10 years to 5/6 years. This will aid demand for decorative
paints.
FII 12.1 12.2 6.5 
DII 2.2 2.2 7.4  Implementation of GST will be another growth lever for organised paint industry.
Currently, 65% of paints market is dominated by 2,000 unorganised players. These
Others 10.5 10.5 10.7 companies benefit from lesser taxes as compared to organised players. Post
implementation of GST, with uniform tax structure across the board, organised players
will gain market share as competitive pricing pressure between unorganised and
organised companies ease out.
1 Year relative price performance 

180
Outlook & Valuation:
160
We expect, Indian paint industry to grow at a healthy rate, in tandem with GDP growth.
140 Increasing urbanisation, growth in real estate, thrust on affordable housing will be key
120 growth drivers for the paint industry. Berger's strong brand recall, green field capacity
100 addition, strong distribution network augurs well for future growth prospects. We expect
Berger Paints' Net sales, EBITDA and PAT to grow at a CAGR of 8.1%, 20.1% and 21.5% over
80
FY16-19E. We recommend BUY on the stock with a price target of Rs 273.
Mar-16

Mar-17
Dec-16
Sep-16
Jun-16
Apr-16

Jan-17
Oct-16
Jul-16

Financial Summary
Berger Paints Ni y Particulars, Rs cr FY15 FY16 FY17E FY18E FY19E
Net sales 4,322 4,634 4,838 5,225 5,852
EBITDA 510.7 655.4 754.1 916.8 1,135

Research Analyst EBITDAM (%) 11.8 14.1 15.6 17.5 19.4

PAT 264.7 369.8 424.8 524.7 659.1
Archana Gude
archana.gude@religare.com PATM (%) 6.1 8.0 8.8 10.0 11.3
EPS Rs 3.8 5.3 4.4 5.4 6.8
P/E (x) 60.1 43.1 52.5 42.4 33.6
RoE (%) 22.2 27.0 26.4 26.5 27.1
Source : Company; RSL Research

March 15, 2017

Initiating Coverage
The industry is expected to grow at a FY16. As per the Indian Paint Association report, the paint industry is expected to grow at a
healthy CAGR of 12.4% over FY16-20E healthy CAGR of 12.4% over FY16-20E to reach Rs 70,875crs. Decorative paint, which had a
to reach Rs 70,875crs
Strong growth in real estate market,
growing urbanisation, the
Government's thrust on affordable
housing will push growth for decorative
paints
Paints Berger Paints (I) Ltd.
Investment rationale:
Strong demand for decorative paints to benefit Berger Paints
India is the second largest paint consumer in Asia, with an industry size of Rs 44,330crs in
share of 70% in total paint industry in FY16, is expected to grow at a CAGR of 14.4% over
F16-20E to reach Rs. 53,156crs.Industrial paint segment has a share of 30% in total paint
industry at Rs 13,299crs. Strong demand in automobile and industrial sector will be key
drivers of demand growth for industrial paint. Industrial paint is expected to grow at a
CAGR of 7.4% over FY16-20E to reach Rs 17,719crs.
Financial Analysis
Paint Industry - FY16 Paint Industry - FY20E
25%
30%
70% 75%
Industrial Paint Decora ve Paint Industrial Paint Decora ve Paint
Source : Company; RSL Research
Strong growth in real estate market, growing urbanisation, the Government's thrust on
affordable housing will push growth for decorative paints. Also, increase in disposable
income and willingness to spend for better lifestyle has led to shorter repainting cycles.
This will be another major push for growth in decorative paint demand.
Repainting & New Houses (%) Rural & Urban (%)
40%
35%
60%
65%
Repain ng New Houses Rural Urban
Source : Company; RSL Research
Berger Paints' 70% revenue comes from decorative paints segment while 30% is
contributed by industrial paints. The company has focused approach to increase the
revenue from decorative as well as industrial paint segment by introducing new products
at different price points, considering customer approach.
Religare Investment Call
Initiating Coverage Paints Berger Paints (I) Ltd.

Strong brand recall and entry into premium products to aid sales growth

Berger Paints' product portfolio had lower priced products in the past. In order to improve
contribution from premium products, which has a strong demand in urban markets, the
Contribution from premium products company has focused on new products development along with improving brand visibility
will aid sales growth in future by higher ad spends. We believe, this has helped to garner market share in higher margin
premium products and aided margins of the company. Also, the company is increasing its
dealership network in rural area to increase distribution reach. Berger's thrust on product
innovation and higher numbers of dealers to widen its presence will aid sales growth in
future.

Greenfield capacity expansion to cater to growing demand

In order to cater to increasing demand, the company has embarked upon greenfield
Capacity expansion will cater to future capacity expansion. It is setting up an integrated paint plant at Naltoli, with an annual
demand capacity of 24,000 KL of water based paints and 13,200 KL of solvent based paints. In
addition, the British Paints Division of the Company is setting up a distemper and putty
manufacturing facility in Nalbari near Guwahati with a capacity of 1,200 MT and 6,000 MT
per annum respectively. Both the plants will have the latest environment protection and
safety related measures and will commence production in FY17E. The company is also
developing warehouses in Howrah, Rishra, Jammu, Goa and Vallabh Vidya Nagar plants.
We believe, Berger's capacity expansion augurs well for the company as it will benefit from
incremental demand in future.

Religare Investment Call

Initiating Coverage Paints Berger Paints (I) Ltd.

Financial Analysis
Net sales & YoY growth EBITDA & EBITDAM

6,000 13 1,200 20
11.7 19.4
12.0
5,000 11 1,000 18
17.5

4,000 9 800 16
15.6
8.0
7.2
3,000 7 600 14
14.1

2,000 5 400 12
4,322

4,634

4,838

5,225

5,852
11.8

510.7

655.4

754.1

916.8

1,135
4.4

1,000 3 200 10
FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E

Net sales Rs Cr (LHS) yoy Growth % (RHS) EBITDA Rs Cr (LHS) EBITDAM % (RHS)

Source : Company; RSL Research

PAT & PATM RoE & RoCE

700 14
30 33.9 35
32.8
32.3
600 12 27 31.1 32
11.3
27.0
27.0
25.9 26.2
500 10.0 10 24 29
22.2
8.8
400 8 21 26
8.0
25.0
300 6.1 6 18 23
264.7

369.8

424.8

524.7

659.1

200 4 15 20
FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E

PAT Rs Cr (LHS) PATM % (RHS) RoE % (LHS) RoCE % (RHS)

Source : Company; RSL Research

Cash Flow Working Capital Cycle

900 80

76 78
600 70 73
70
69
60 56 56
300 55 56
47
0 50
FY15 FY16 FY17E FY18E FY19E 50
47
40 45 46 45
-300

-600 30
FY15 FY16 FY17E FY18E FY19E

Cash flow from Opera ng ac vi es Rs Cr Cash flow from Inves ng ac vi es Rs Cr Debtors days Creditors days
Cash flow from Financing ac vi es Rs Cr Inventory days

Source : Company; RSL Research

Religare Investment Call

Initiating Coverage Paints Berger Paints (I) Ltd.

Company background
Incorporated in 1969, Berger Paints India Ltd. is the third largest paint manufacturer and
the second largest decorative paint player in India. The company offers a variety of
innovative painting solutions to its customers in decorative or industrial segment with its
strong distribution network comprising of 75 stock points and15,000+ paint retailers. The
company has its manufacturing facilities in West Bengal, Uttar Pradesh, Pondicherry, Goa,
and Jammu & Kashmir. It has collaborations with various other players like DuPont
Performance Coatings in the area of automotive coatings, Nippon Paint Co Ltd for new
generation of automotive coatings, Orica Australia Pty Ltd In the area of protective
coatings, TIGERWERK Lack-u.Farbenfabrik GmbH & C. KG, Austria for specialized powder
coatings and Nippon Bee Chemical Co Ltd for coating on plastic auto parts and mobile
phones.

Board of directors
Name Designation
Kuldip Singh Dhingra Chairman
Gurbachan Singh Dhingra Vice Chairman
Kamal Ranjan Das Independent Director
Pulak Chandan Prasad Independent Director
Aniruddha Sen Company Secretary
Abhihit Roy Managing Director & CEO
Naresh Gujral Independent Director
Dhirendra Swarup Independent Director
Gopal Krishna Pillai Independent Director
Rishma Kaur Director
Kanwardip Singh Dhingra Director

Key Risks:
 Paint industry is seasonal in nature. Demand for paint increases during festivals and it
dries during monsoons. Hence, the company's quarterly earnings could be volatile.

 Paints are recognised from its brands and hence companies have to spend heavily on
advertising and distribution. Higher spend on advertising and distribution could weigh
on margins of the company, if the demand turns subdued.

 Raw material cost depends on Crude oil prices. Depreciation of Indian currency and
increase in oil prices could dent operating margins of the company, if it is unable to
pass on the same to consumers or to mitigate the impact of the same through
productivity improvement measures.

Religare Investment Call

Initiating Coverage Paints Berger Paints (I) Ltd.

P&L Account
Particulars, Rs cr FY15 FY16 FY17E FY18E FY19E
Net sales 4,322 4,634 4,838 5,225 5,852
Expenses
Raw material consumed 2,197 2,178 2,221 2,332 2,566
Changes in inventories -18.7 -19.3 -20.9 -22.5 -24.3
Purchase of stock in trade 353.3 414.1 434.8 465.3 507.1
Employee cost 253.1 281.3 301.0 328.1 367.4
Other expenses 1,027 1,125 1,147 1,205 1,301
Total expenditure 3,458 3,565 3,649 3,843 4,210
EBITDA 510.7 655.4 754.1 916.8 1,135
EBITDAM (%) 11.8 14.1 15.6 17.5 19.4

Other income 36.0 34.5 37.9 41.7 45.9

Depreciation 92.5 100.0 107.0 114.5 122.5
PBIT 454.2 590 685.0 844 1,058
Interest expenses 50.1 29.0 35.9 44.9 53.9
Exceptional Income/ Expense 0.0 0.0 -15.0 -15.0 -15.0
PBT 404.1 560.9 634.1 784.1 989
Tax 139.4 191.1 209.2 258.7 326.4
PAT 264.7 369.8 424.8 524.7 659.1
PATM (%) 6.1 8.0 8.8 10.0 11.3
Source : Company; RSL Research

Religare Investment Call

Initiating Coverage Paints Berger Paints (I) Ltd.

Balance sheet
Particulars, Rs cr FY15 FY16 FY17E FY18E FY19E
Share Capital 69.3 69.4 97.1 97.1 97.1
Reserves & Surplus 1,191 1,410 1,720 2,131 2,637
Total Shareholder's Fund 1,261 1,479 1,817 2,228 2,734

Non-Current Liabilities
Long term borrowings 251.2 214.4 264.4 314.4 424.4
Other long term liabilities 8.5 7.9 8.3 0.0 0.0
Long term provision 5.4 6.5 6.8 7.2 7.5
Deferred tax liability 57.9 68.7 68.7 68.7 68.7

Current liabilities
Trade payables 559.7 693.4 742.0 808.7 897.7
Short term provisions 1,031 1,039 1,144 1,240 1,332
Other current liabilities 46.4 71.1 78.2 86.0 94.7
Short term borrowing 134.5 299.2 299.2 299.2 299.2
Total liabilities 2,716 2,919 3,415 4,022 4,759

Fixed assets 930.7 976.4 1,069 1,155 1,232

Current work in progress 100.4 62.3 75.0 85.0 100.0
Non current investments 0.0 0.0 0.0 0.0 0.0
Long term loans & advances 46.3 70.9 78.0 85.8 94.3
Other non-current assets 0.2 0.2 0.2 0.3 0.3
Deferred tax assets (Net) 0.0 0.0 0.0 0.0 0.0

Current Assets
Current investments 134.5 299.2 299.2 299.2 299.2
Inventories 719.5 758.2 818.8 900.7 1,001
Trade receivables 535.2 580.6 596.4 672.8 801.6
Cash & cash equivalents 169.8 109.5 410.0 741.5 1,128
Short term loans and advances 60.8 49.3 54.3 65.1 74.9
Other current assets 18.6 12.6 13.9 16.7 19.2

Total assets 2,716 2,919 3,415 4,022 4,759

Source : Company; RSL Research

Religare Investment Call

Initiating Coverage Paints Berger Paints (I) Ltd.

Cash Flow statement

Particulars, Rs cr FY15 FY16 FY17E FY18E FY19E
Net profit before tax 404.1 560.8 649.1 799.1 1,004
Add: Depreciation 92.5 100.0 107.0 114.5 122.5
Add: Interest cost 26.5 18.4 35.9 45.8 53.9
Others 1.4 -20.9 0.0 0.0 0.0
Operating profit before working capital changes 524.5 658.3 792.0 958.5 1,181
Changes in working capital 11.5 121.1 -6.6 -83.6 -127.4
Direct taxes -122.2 -181.2 -214.2 -263.7 -331.4
Cash flow from operating activities 413.8 598.2 571.2 611.3 721.8

Cash Flow from investing activities

Purchase of fixed assets -161.5 -124.3 -200.0 -200.0 -200.0
Sale of fixed assets 1.3 2.6 -12.7 -10.0 -15.0
Sale of investments -38.1 -147.7 0.0 0.0 0.0
Others 14.8 12.2 0.0 0.0 0.0
Cash Flow from investing activities -183.6 -257.2 -212.7 -210.0 -215.0

Cash flow from financing activities

Proceeds from issuance of shares 0.0 0.0 0.0 0.0 0.0
Net proceeds from borrowings -14.9 -238.7 102.7 100.0 150.0
Dividend (Incl dividend tax) -138.3 -108.0 -124.8 -124.8 -166.0
Interest cost -45.1 -25.7 -35.9 -44.9 -53.9
Others 0.0 0.0 0.0 0.0 0.0
Cash flow from financing activities -198.3 -372.4 -58.0 -69.7 -75.3
Net cash inflow/outflow 32.0 -31.4 300.5 331.5 583.5
Opening cash & cash equivalents 47.4 79.4 109.5 410.0 741.5
Closing cash & cash equivalents 79.4 48.0 410.0 741.5 1,128
Source : Company; RSL Research

Religare Investment Call

Initiating Coverage Paints Berger Paints (I) Ltd.

Key Financial ratios

Particulars, Rs cr FY15 FY16 FY17E FY18E FY19E
Dividend per share, Rs 1.3 1 1.5 2.25 2.75
Dividend Yield (%) 0.6 0.4 0.7 1.0 1.2
Payout (%) 52.3 22.6 28.7 23.3 24.7
EPS Rs 3.8 5.3 4.4 5.4 6.8
Book value per share Rs 18.2 21.3 18.7 22.9 28.2

Profitability Ratios
EBITDA/Total Income (%) 11.8 14.1 15.6 17.5 19.4
PBT/Total Income (%) 9.3 12.1 13.4 15.3 17.2
NPM/Total Income (%) 6.1 8.0 9.0 10.2 11.5
RoCE (%) 25.0 31.1 33.0 33.2 34.1
RoE (%) 22.2 27.0 26.4 26.5 27.1

Liquidity Ratios
Gross Debt Equity ratio 0.5 0.2 0.2 0.2 0.2
Interest Coverage ratio 8.3 19.1 18.0 17.9 18.8
Current ratio 1.4 1.6 1.8 1.9 2.1

Turnover Ratios
Total Asset Ratio 1.6 1.6 1.5 1.4 1.3
Fixed Asset Ratio 4.8 4.9 4.7 4.7 4.9
Debtors Velocity (Days) 45.0 46.0 45.0 47.0 50.0
Inventory (Days) 69.0 70.0 73.0 76.0 78.0
Creditor Velocity (Days) 47.0 55.0 56.0 56.0 56.0
Source : Company; RSL Research

Religare Investment Call

Initiating Coverage Paints Berger Paints (I) Ltd.

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Religare Investment Call