Berger Paints India Ltd.

Sector: Paint
12th June 2019

CMP (INR) (As on 12th June 2019) 329 Company Overview

Target (INR) 349
Berger paints India Ltd is the third largest paint manufacturer and second
Upside(%) 6 largest manufacturer in decorative paints. The company’s manufacturing
Recommendation Accumulate facilities are located in West Bengal, Uttar Pradesh, Pondicherry, Goa, and
Jammu and Kashmir. They have technical license agreement with DuPont
Performance in the area of automotive coating; Nippon paints for new
BSE Code 509480
generation automotive coating, Orica Australia Pty for protective coating and
NSE Code BERGEPAINT TIGERWERK Lacku. Farbenfabrik GmbH, Australia for specialized powder
coating. The company also has a joint venture with Nippon Bee Chemical for
Reuters Ticker BRGR.NS
manufacturing of coatings for plastic substrates used in automobiles and
Bloomberg Ticker BRGR IN mobile phones.

Stock Scan Key Takeaways From Management Meet

Market cap (INR Cr.) 32130
1108  Berger is the second largest player in the Indian paint industry after
Outstanding Shares (Cr.) 97.11
21.7 Asian paints, currently they are enjoying 18-20% market share out of
total market size of ~INR50000 Cr
Face Value (INR) 1.00
2
 For Berger, decorative paint contributes ~80% and industrial paints
Dividend Yield(%) 0.57
0.0 contribute ~20% which further divided into protective coating (9%),
P/E (x) 64.49
15.3 GI/OEMs (9%), & powder coating (2%).
 The Co has posted a topline CAGR growth of ~10% growth in last 20
Industry P/E (x) 61.53
13.2 years led by urbanization & demand from re-painting. As per the
Debt/Equity 0.09
1.2 mgmt. 80% demand is coming from repaint and rest from new paint.
 Co has a total 25K-26K dealer network and 167 sales depots which
Beta vs. Sensex 1.13
0.9
are less than Asian paints (dealer 52K-55K & depots 131).
52 Week High/ Low (INR) 350/260
59/30  Protective coating segment market size is ~INR3000 Cr. which is
Avg. Daily Vol. (NSE)/1 yr. 891000
916113 mainly driven by infra & power sector. Co is currently holding the
leading position in this segment.
Shareholding Pattern (%)
Exhibit 1: Financial Performance at a glance
Mar-2019 Dec-2018 Sep-2018
Promoters 74.98 74.99 74.99
Particulars (INR Cr.) FY17 FY18 FY19 FY20E FY21E
Institutions 13.81 14.28 14.40
Net Sales 4552 5166 6062 6850 7775
Non-institutions 11.21 10.73 10.61 Growth(%) 7.8% 13.5% 17.3% 13.0% 13.5%
EBITDA 772.8 807.6 880.7 1027 1190
Stock vs. Nifty (Relative Returns) EBITDA Margin (%) 17.0% 15.6% 14.5% 15.0% 15.3%
130
PAT 473.7 461 497 582 676
120
Net Profit Margin (%) 10.4% 8.9% 8.2% 8.5% 8.7%
110

100
EPS 4.88 4.75 5.13 6.00 6.97
90
BVPS 19.58 22.60 25.50 27.03 29.04
80 P / E (x) 67.3 69.2 64.1 54.8 47.2
70 P / BV (x) 16.8 14.5 12.9 12.2 11.3
11-Jun 11-Sep 11-Dec 11-Mar 11-Jun

Berger Paint NIFTY 50 ROE (%) 27.4% 22.5% 21.3% 22.8% 24.8%
Source: NSE ROCE (%) 23.6% 21.3% 20.5% 22.0% 24.1%
Research Analyst EV / EBITDA (x) 42.1 40.3 37.1 31.8 27.4
Pratim Roy
Email: pratim.roy@smifs.co.in Source: Company Data, SMIFS Research

1

Co is trying to set up their
plant in different location in
India to reduce their freight
cost which will further improve
their operating margin.
Paint industry will grow at 1.4-
1.6 (x) of Indian GDP in the
coming years led by
urbanization, increase in per
capital expenses on paint, & re
-paint demand.
In last couple of years Co has
introduced few innovative
higher margin products which
are contributing 10% of their
total sales; they will build on
this strategy further.
Key Takeaways From Management Meet Cont’d
 Till FY19 Co had a total capacity of ~700000 KL/annum and current capacity
utilization is around 70%. In next two year the Co. will invest around INR300
Cr. to expand their capacity further.
 Berger has the strong presence in North & East, however their market in
south & west is slightly weaker.
 In last couple of years Co has introduced few innovative higher margin
products which are contributing 10% of their total sales and they build on
this strategy further.
 Co is focusing on product innovation, better formulation, cost control, and
change in product mix to improve the gross margin going forward.
 In the industrial paint segment, mainly for the construction chemical
business, Co. is planning for inorganic acquisition to increase the topline
contribution.
 Co is trying to set up their plant in different location in India to reduce their
freight cost which will further improve their operating margin.
 In their total product portfolio, 45% is water based paint and rest is oil based
paint. As per the mgmt. water based paint demand is growing faster than oil
based paint.
 Decorative paint segment is less depend on the crude oil price volatility
where as industrial paint is highly dependent.
 Berger paint priced their product ~2.5% lower than Asian Paints.
 Berger has three category of dealer like gold (large), silver (mid to semi) &
station card (small or base).
 Paint industry will grow at 1.4-1.6 (x) of Indian GDP in the coming years led
by urbanization, increase in per capital expenses on paint, & re-paint
demand.
Key Takeaways From Q4 & FY19 Con-Call
 Company has reported a stable margin backed by lower crude price and
dollar depreciation. After a price hike in the month of Dec’18 recently Co. has
announced a price cut which will impact their decorative business.
 In Nepal Co, has faced some profitability issue due to inability to take price
hike.
 Most of the raw materials has shown a declining trend in Q4FY19 and
expected to be benign in FY20.
Source: Company Data & SMIFS Research
2

Co has not witnessed any
slowdown in terms of demand
in Tier-1, Tier-2 & Tier-3 cities.
As per the management good
monsoon can improve the
demand scenario further.
Co is not facing any threat
from the new entrants, they
believe “hub and spoke”
model may not work for paint
industry because it will led to
higher waiting time for the
customer.
In FY20 Co will incur ~INR200
Cr as capex to set up two
plants one is in UP to produce
mainly decorative paint and
another is in Jejuri for
industrial paint.
Key Takeaways From Q4 & FY19 Con-Call Cont’d
 Co has recently done a JV with a global player (In Germany) to improve the
expertise in specialty wood coating segment. In FY17 they had acquired
specialty coatings maker Saboo Coatings Pvt. Ltd to enhance their portfolio in
industrial segment.
 Co has not witnessed any slowdown in terms of demand in Tier-1, Tier-2 &
Tier-3 cities. As per the management good monsoon can improve the
demand scenario further.
 The auto sector is currently facing tough time, however it has very low
contribution to the overall business, so it will not impact the topline.
 Co is not facing any threat from the new entrants, they believe “hub and
spoke” model may not work for paint industry because it will led to higher
waiting time for the customer.
 In FY19 Co has reported a dealer expansion of ~10% and printing machine
expansion of ~10%.
 In FY20 Co will incur ~INR200 Cr as capex to set up two plants one green field
expansion in UP to produce mainly decorative paint and another brown field
expansion in Jejuri for industrial paint.
 Company will continue their initiatives to introduce new high margin products
to maintain their topline and expand the margin.
New products:
 Under ‘Home shield’ (Construction Chemical Brand) they have launched
‘Wall shield 2K’- An acrylic polymer modified white cement based
waterproofing coating. This has superior water resistance & weathering
properties.
 Easy Clean Fresh: This is an emulsion, with has over absorbing, high strain
resistance, and cleanability properties. This is one step up from existing easy
clean product.
 Home Shield PU roof Coat: This is high performance water proofing
membrane; it has highly elastic and high UV resistance properties.
Source: Company Data, SMIFS Research
3
 Outlook and Valuation

PE Band Chart Despite of challenges in the past, like GST,

450.00
demonetization, & real estate slowdown the company
has managed to post decent set of result which justify
400.00
their ability to grow by double digit going forward.
350.00
300.00
Company is currently focusing on innovative product
250.00
development and cost optimization to maintain their
200.00
growth trajectory along with margin expansion.
150.00
100.00 We are expecting that in FY20, delayed monsoon and
50.00 shorter period to Diwali may hamper the demand for
repainting business which is 80% of decorative paint
segment.
CMP 30x 35x 40x 45x 50x 55x 60x 65x 70x

Considering the above facts we assign a P/E multiple of

Price/Volume Chart 50 (x) on FY21 EPS to arrive at a TP of INR349.
800.0
700.0
Risk & Concern:
600.0
500.0  Continued volatility in the economy may affect
400.0 paints demand;
300.0
 Inability to respond to rising competition could
200.0
result in market share losses to the organized and
100.0 unorganized segments.
0.0
101

171
111
121
131
141
151
161

181
191
201
211
221
231
241
1

31
11
21

41
51
61
71
81
91

 Weaker-than-expected in EBITDA margins on

Volume (''0000'') Price account of higher overheads, brand building /
distribution related spends or investments in
various facilities.
Asian Paints PE Band Chart
2500.00

2000.00

1500.00

1000.00

500.00

0.00

CMP 35x 40x 45x 50x 55x 60x 65x 70x 75x

4
Peer’s Financial Snapshot:
Asian Paints
Particular's (In INR Cr.) FY15 FY16 FY17 FY18 FY19
Net Sales 14,183 14,271 15,062 17,262 19,350
Growth (%) 12% 1% 6% 15% 12%
Gross Profit 6,211 6,222 6,733 7,571 8,008
Gross Profit Margin (%) 43.8% 43.6% 44.7% 43.9% 41.4%
EBITDA 2,208 2,717 3,036 3,243 3,565
EBITDA Margin (%) 15.6% 19.0% 20.2% 18.8% 18.4%
PAT 1,395 1,803 2,016 2,098 2,212
PAT Margin (%) 9.8% 12.6% 13.4% 12.2% 11.4%
EPS 14.54 18.19 20.22 21.26 22.51
BVPS 61.44 72.02 83.19 91.10 103.03
ROE (%) 23.7% 28.2% 27.1% 25.1% 23.8%
ROCE (%) 22.8% 26.4% 25.2% 24.0% 23.5%
P/E 98.35 78.61 70.72 67.26 63.53
P/B 23.27 19.85 17.19 15.70 13.88

Berger Paint
Particular's (In INR Cr.) FY15 FY16 FY17 FY18 FY19
Net Sales 4,322 4,223 4,552 5,166 6,062
Growth (%) 12% -2% 8% 13% 17%
Gross Profit 1,790 1,753 1,960 2,156 2,362
Gross Profit Margin (%) 41.4% 41.5% 43.1% 41.7% 39.0%
EBITDA 511 650 773 808 881
EBITDA Margin (%) 11.8% 15.4% 17.0% 15.6% 14.5%
PAT 265 371 474 461 497
PAT Margin (%) 6.1% 8.8% 10.4% 8.9% 8.2%
EPS 2.73 3.82 4.88 4.75 5.13
BVPS 13.53 16.09 19.58 22.60 25.50
ROE (%) 20.1% 25.8% 27.4% 22.5% 21.3%
ROCE (%) 18.8% 23.2% 23.6% 20.8% 20.2%
P/E 121.05 86.39 67.62 69.47 64.33
P/B 24.38 20.51 16.85 14.60 12.94

5
Peer’s Financial Snapshot:

Kansai Nerolac
Particular's (In INR Cr.) FY15 FY16 FY17 FY18 FY19
Net Sales 3,587 3,767 4,053 4,658 5,424
Growth (%) 12% 5% 8% 15% 16%
Gross Profit 1,202 1,399 1,683 1,845 1,963
Gross Profit Margin (%) 33.5% 37.1% 41.5% 39.6% 36.2%
EBITDA 451 585 737 794 753
EBITDA Margin (%) 12.6% 15.5% 18.2% 17.0% 13.9%
PAT 274 367 510 514 448
PAT Margin (%) 7.6% 9.7% 12.6% 11.0% 8.3%
EPS 5.08 6.80 9.44 9.55 8.40
BVPS 31.73 46.68 52.51 58.43 63.77
ROE (%) 16.0% 17.4% 19.1% 17.2% 13.6%
ROCE (%) 15.3% 16.8% 17.3% 16.7% 13.7%
P/E 91.64 68.46 49.32 48.75 55.42
P/B 14.67 9.97 8.87 7.97 7.30

Akzo Nobel
Particular's (In INR Cr.) FY15 FY16 FY17 FY18 FY19
Net Sales 2,470 2,640 2,573 2,719 2,918
Growth (%) 2% 7% -3% 6% 7%
Gross Profit 1,064 1,154 1,184 1,193 1,227
Gross Profit Margin (%) 43.1% 43.7% 46.0% 43.9% 42.1%
EBITDA 264 313 329 299 343
EBITDA Margin (%) 10.7% 11.9% 12.8% 11.0% 11.8%
PAT 186 214 234 205 211
PAT Margin (%) 7.5% 8.1% 9.1% 7.5% 7.2%
EPS 39.89 45.87 50.13 43.94 45.18
BVPS 227.69 249.08 216.19 276.42 243.31
ROE (%) 17.5% 19.2% 21.5% 17.8% 17.4%
ROCE (%) 13.9% 16.3% 17.6% 14.6% 16.0%
P/E 45.12 39.24 35.91 40.96 39.84
P/B 7.91 7.23 8.33 6.51 7.40

6
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