Berger Paints (India) Ltd. share price target

Berger Paints delivered a healthy quarterly performance, supported by strong volume growth across the decorative, automotive and selected industrial segments. Premium products, wider retail reach and continued momentum in waterproofing and construction chemicals strengthened the business mix. Margin performance also improved meaningfully due to a better product mix, operating leverage and lower input costs during the quarter. However, the near-term outlook is becoming more balanced since raw material costs have started rising again, prompting price increases that may affect demand momentum after some advance channel stocking....

During the quarter, Berger's revenue growth was impacted by the prolonged monsoon season, resulting in a modest increase in revenue. The company's margin and profitability were also affected by higher costs and expenses. However, the company continued to expand its retail presence, adding new stores and increasing its overall footprint. The sector's competitive landscape has stabilised, and demand is expected to pick up in the coming months, driven by improved weather conditions and the release of pent-up demand. This is expected to contribute to the company's overall revenue growth,...

Berger's profitability surged in the quarter, driven by increased volume and effective cost-saving measures. Despite ongoing geopolitical tensions, trade concerns and currency fluctuations, the outlook for the company remains positive. The decorative segment is expected to drive growth in the coming quarters, fuelled by rising urban demand, increased disposable incomes (due to recent tax incentives), and decreasing inflation. With a surplus of cash, Berger is well-positioned to expand its manufacturing capacity and capitalise on future opportunities. The company's gain...

Paint industry has likely declined by ~2% in Q2FY25. Considering industry slowdown and steep increase in competitive pressures, we believe Berger reported moderate results with volume growth of 3.6% YoY. While EBITDA margin contracted 147bps YoY to 15.6% in Q2FY25.

Similar to peers, Berger Paints (Berger) has reported double-digit volume growth (13.9%) in Q4FY24 but value growth was dismal at 3.1% YoY.

Berger reported market share gains in Q1FY24 in East, West India (overall shares moved up to 20.2% from 19.3% in base (FY18: 18%)) (Source: Company data) driven by (1) distribution expansion and (2) launch of differentiated products. Projects segment (~10% of net sales) outperformed retail sales.

While Berger’s near-term outlook remains strong due to (1) healthy offtake in decorative, (2) strong growth in construction chemicals, (3) revival in profitability of Industrial paints and (4) correction in input prices, we note three structural trends as (i) the company plans to increase the ad-spend to sales by 0.5%-0.7%, (ii) aggressively increase the outlet reach even if it results in lower throughput/store.

Berger’s Q3FY23 earnings declined 13.4% YoY due to (1) lower sales of exterior paints due to prolonged monsoon and (2) high priced inventory impacted EBITDA margin by 239bps.

Berger’s Q2FY23 results were in-line with peers. It's revenue growth of 20% compares with Asian Paints (19%), Kansai (19%), Akzo (25%) and Indigo (24%).

Berger Paints has been in a correction since August 2022, but it is currently displaying the
probability of a short-term bounce back.