CMP: Rs. 212.00; Buy at
current levels.
Short Term Target: Rs. 222.60; Medium to Long Term Target: Rs. 233; STOP LOSS – Rs. 195.04; Market Cap: Rs. 7,341.34 Cr; 52 Week
High/Low: Rs. 256.40 / Rs. 185.00.
Total Shares: 34,64,81,317 shares;
Promoters : 25,97,17,461 shares –74.96 %; Total Public holding : 8,67,63,856 shares – 25.04 %; Book Value: Rs. 28.41; Face
Value: Rs. 2.00; EPS: Rs. 6.56; Divd: 90.00 %; P/E: 32.24 times; Ind. P/E: 34.78; EV/EBITDA: 17.17.
Total Debt: 303.02 Cr; Enterprise Value: Rs. 7,668.45 Cr.
BERGER PAINTS INDIA LTD: The Company was founded in 1760
but started its business in Kolkata, India in the year 1923. Berger Paints
India Limited was established by Lewis Berger – who laid the foundations of the
brand Berger way back in 1760 in the UK, with modest beginnings in India in
1923, the company has undergone many change of hands – In the year 1947, it was
acquired by British Paints (Holdings) UK, which renamed the company as British
Paints (India). This UK Company was then acquired by Celanese Corporation,
which later sold the Indian company to Berger, Jenson Nicholson Ltd in 1969. In
1983, the company was renamed as Berger Paints India and it started using the
trade name of Berger. Presently, the majority stake is with the Delhi based
Dhingra brothers. Berger Paints engages in the manufacture and sale of various
decorative and industrial paints in India and internationally. The company’s
products include interior emulsions, designer finishes, distempers, exterior
emulsion, primer, texture finishes, enamels, cement mix, crack fill paste. The
company also offers general industrial and automotive coatings, such as pre-treatment
chemicals, water base primers, polyester topcoats, polyester-metallic/pearl
basecoats, thermosetting acrylic basecoats, thermosetting acrylic clear coats,
alkyd-amino topcoats, poly-urethane paints, quick drying paints, polyester
surfacers, epoxy surfacers, alkyd amino HLPS, and heat resisting paints and
powder and protective coatings. It serves home owners, professionals, and industrial
users through a network of dealers. It has a wide variety of product portfolio
including interior and exterior wall coatings as well as metal and wood paints.
It has strong and well established brands like Berger Silk, Berger Rangoli,
Berger Illusions, Berger Weather Coat, Jadoo Enamel, etc. It also provides
color consultancy services. Berger Paints has six subsidiaries and two JVs
located across geographies including Cyprus, Russia, Poland and Nepal. Berger
Paints subsidiary includes Beepee Coatings Private Limited, Berger Jenson &
Nicholson (Nepal) Pvt Ltd, Berger Paints (Cyprus) Ltd, and Berger Paints
Overseas ltd. The company is compared with Asian Paints Ltd, Kansai Nerolac
Paints Limited, Akzo Nobel India Limited, Jenson and Nicholson India Ltd, Clariant Chemicals Ltd, Shalimar Paints ltd, Jyoti
Resins and Adhesive Ltd and globally comapared with PPG Industries of USA, Advanced Emissions Solutions of USA, Sersol Bhd of Malaysia, Mercury industries Berhad of Malaysia, Sersol Bhd form Malaysia, Industrial Asphalts (Ceylon) Ltd from Sri Lanka, Petroasian Energy Holdings Ltd of Hong Kong, Landing Internatioanl Development ltd of Hong Kong, Toyo Drilube Company ltd of Japan, Atomix Co., Ltd of Japan, Ubis (Asia) public Co., Ltd of Thailand, Eason Paint Public Company Ltd of Thailand, Dimet (Siam) Public Comapny Ltd of Thailand, Isamu Paint Co Ltd of Japan, Tatung Fine Chemicals Co Ltd of Taiwan, Basil Read Holding ltd of South Africa, Raubex Group Ltd of South Africa, Delta Holding SA from Morocco, Dai Nippon Toryo Company Ltd, of Japan, Noroo Holdings Company Limited, Fujikura Kasei Co
Ltd of Japan.
Investment Rationale:
Berger
Paints India Limited is the second largest paint company in the country with a
consistent track record of being one of the fastest growing paint companies,
quarter on quarter, for the past few years. This FMCG company has one of the largest
networks consisting of 16,500 plus distribution channel members served through
135 stock points & 10 production units. It has 4 distinct business verticals
namely Decorative coatings, Protective coating, Automotive coatings, Industrial
and Powder coatings with about 10,000 + products. It has business ventures or
technology transfer tie ups with various renowned paint companies in the world
like Nippon Bee of Japan and Becker Acroma spa of Italy. Berger Paints India
Ltd’s product has attained instant recognition worldwide and continues to meet
quality requirements that are demanded today in domestic markets. To meet the surging
demand of its brands, the company is undertaking huge expansion projects across
various locations in India. The company is confident that this new plant is strategically located and is well connected to Bangalore, Hyderabad, Chennai, Kochi and Mumbai and this will be able to fully meet the increasing demand for water
based coatings in commercially important regions of India. Berger paints has
inaugurated its largest water based paint manufacturing unit in Hindupur, Anantapur
district, AP. The factory has an initial capacity of 80,000 tonnes per annum.
It is in its final phase, the factory will have a capacity of 3,20,000 tonnes
per annum. Additionally there will be a plant for the manufacturing of 1,00,000
KL of emulsion, a key material, for which a provision is already made. Berger
India Group is opening a plastic packaging factory on the other side of the
road. Also another Berger factory is coming
up in the Gollapuram industrial area near to Hindupur, for manufacturing of
40,000 tonnes of paint. Total investment in the Hindupur area by the Berger
India Group will be close to Rs. 550.00 Cr. On financial side, Berger Paints India registered good Q3FY14 consolidated sales showing a growth of 11.74 % to Rs. 1,024.80 Cr. The growth in
revenue was on the back of healthy performance by the subsidiaries. Berger's PAT was at Rs.
82.30 Cr declined by 0.36 % YoY and by 0.20 %s at Rs. 194.10 Cr for the 9MFY14.
Berger domestic revenue grew by 7.4 % to Rs. 882.80 Cr YoY. The lower revenue
growth was on the back of sluggish demand in industrial paints; especially
project based protective coatings segment and relatively higher base in the
decorative paints. In decorative business, growth was from economic and premium
end products. Demand for Berger products in Tier II & III remained healthy, which has resulted
in company sustaining its market share in decorative business of about 19 %. EBIDTA margin were at Rs. 131.50 Cr and for the 9MFY14 were at Rs. 325.40 Cr. The EBIDTA margin were lower due to high
employee cost and other expenditure. Employee cost increased by 23.08 % to Rs.
57.80 Cr YoY and other expenditure increased by 13.63 % to Rs. 217.40 Cr YoY on
the back of commencement of commercial production of Hindupur plant. The increase
in the finished products prices did not contributed much to the EBIDTA margin
as the increase in the prices was offset by rise in the input prices. Berger’s
combined subsidiaries registered sales growth of 50 % in Q3FY14 to Rs. 147 Cr
on the back of strong growth in Nepal and India JV operations (Berger Becker
Coating-BNB Chemicals). Major contributor Bolix (Poland) witnessed increased in
sales due to season and currency gains. Combined subsidiaries EBIDTA margin expanded
by 0.31 % to Rs. 25.2 Cr while its PAT margin declined marginally by 0.34 % to Rs. 16.6 Cr.
Berger has taken price hike of 2.2 % in the decorative segment in February 2014
and the company feels that it has gained market share marginally in decorative
segment during 9MFY14.
Outlook and Valuation:
Berger
Paints India Ltd is amongst Top 30 in the world and India's one of the largest paint company with its
premium brands viz., Breathe Easy, Silk and Weather coat Allguard which continued to
perform well in all the markets. Berger paints India ltd has its global footprints across the continents. It is
also amongst the top 6th paint company in Asia. Berger Paints India Limited has
it’s headquarter in Kolkata, with 7 strategically located manufacturing units,
and over 85 sales offices, the company also has an international presence in 4
countries. Berger is the lone supplier to nuclear power plants with its
protective coatings in industries. And also supplies its products to
professionals and Home owners. Company is expected to post a CAGR of 12 % in its top-line and 13 % in its bottom-line. Paint industry,
as a whole, continued to do better, in spite of the adverse developments, and has shown growth at a higher rate than GDP. The growth is fuelled by higher
income levels of people across urban and rural segments, historically, low
consumption of paints offers a very high potential for the future, and with growing
popularity of branded paints with better quality and longer durability and the
desire of people to remodel and embellish existing dwelling units or thier homes makes paint indusrty more attractive for investments. The industry
has given a fillip to this demand by expanding its distribution network penetrating
newer and hitherto unexplored geographies, offering a wide degree of choice in terms
of attributes and prices and educating consumers and applicators in regards to
benefits of various brands and uses of paint. The industry estimates that there could be the Total revenues of around Rs. 26,000 Cr for Indian companies, and may touch around Rs. 50,000
crores by FY 2016. Over the last three years, paint prices have increased by
about 30 % - to partially compensate for increase in raw material prices.
However, there has been no significant increase in architectural paint prices
since the third quarter of the fiscal year is under review and, on the contrary,
there has been a marginal decrease. There has been some softening in prices of titanium
dioxide and some other chemicals and crude prices. However, the overall raw material
index for the period was higher than that of 2011-12. The ratio of decorative
and industrial paints is 70:30 which is expected to continue in the future in
view. The higher rate of growth in
decorative paints augurs well for the industry. The year witnessed some
weakening of enthusiasm in industrial paints market with marked fall in
automotive sales, lower spending in infrastructure and general slowdown in the
industry. Company believes that this weakening is not a permanent phenomenon and
is ready to accept challenges of higher demand and better quality requirements
in this segment, as and when they arise. The growth in the decorative paint is fuelled by rising paint
consumption in Tier II&III towns and company strong focus to grow its premium
portfolio in recent years. However sluggish demand in the industrial segment affects
the overall revenue of decorative business. The Q4FY14 is expected to be better
on the back of good monsoon and demand from tier II & III cities. It is expected that industry paint segment
will revive on the back of improvement in macro environment. At the current market price of Rs. 212.00,
the stock is trading at a PE of 31.26 x FY14E and 28.53 x FY15E respectively.
The company can post Earnings per share (EPS) of Rs. 6.78 in FY14E and Rs. 7.43 in FY15E. One can buy BERGER PAINTS (INDIA) LTD with a target price of Rs. 233.00 for Medium
to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 222.60
| KEY FINANCIALS | FY12 | FY13 | FY14E | FY15E |
|---|---|---|---|---|
| SALES (₹ Crs) | 2,662.10 | 3024.21 | 3,379.15 | 3,717.06 |
| NET PROFIT (₹ Cr) | 177.40 | 209.80 | 235.05 | 257.61 |
| EPS (₹) | 5.13 | 6.06 | 6.78 | 7.43 |
| PE (x) | 28.09 | 34.91 | 31.18 | 28.45 |
| P/BV (x) | 5.90 | 7.44 | 6.01 | 4.96 |
| EV/EBITDA (x) | 16.17 | 19.95 | 17.62 | 15.88 |
| ROE (%) | 21.00 | 21.31 | 19.27 | 17.44 |
| ROCE (%) | 34.09 | 32.11 | 28.44 | 26.05 |
*As the author of this blog I disclose that I do hold BERGER PAINTS in my investment portfolio.
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