Berger Paints (India) Ltd. share price target

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.