BERGER PAINTS INDIA LTD : SLOWLY BUT PERFORMING STEADILY !!!

Scrip Code: 509480 / BERGEPAINT

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

I would buy BERGER PAINTS (INDIA) LTD for Medium to Long term for target of Rs. 233.00 and for the shorter term the target would br Rs. 222.60. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 195.05 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold BERGER PAINTS in my investment portfolio.

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

RETURN ON CAPITAL

IL&FS TRANSPORTATION NETWORKS LTD : BEST FROM INFRASTRUCTURE SECTOR !!!

Scrip Code: 533177 / IL&FSTRANS

CMP:  Rs. 205.40; Accumulate at every Dips.
Short term Target: Rs. 215, 6 month Target – Rs. 250; STOP LOSS – Rs. 189.00; Market Cap: Rs. 3,990.25 Cr; 52 Week High/Low: Rs. 223.90 / Rs. 142.55

Total Shares: 19,42,67,732 shares; Promoters : 14,07,63,003 shares –72.46 %; Total Public holding : 5,35,04,729 shares – 27.54 %; Book Value: Rs. 100.06; Face Value: Rs. 10.00; EPS: Rs. 16.45; Div: 40.00 % ; P/E: 12.48 times; Ind. P/E: 20.67; EV/EBITDA: 9.28.

Total Debt: 2,726.06 Cr; Enterprise Value: Rs. 6,716.32 Cr.

IL&FS TRANSPORTATION NETWORKS LIMITED: ITNL was incorporated in 2000 and is based in Mumbai, India. It was formerly known as Consolidated Transportation Networks Limited and changed its name to IL&FS Transportation Networks Limited in September 2005. IL&FS Transportation Networks Limited operates in the Highway and street construction sector. IL&FS Transportation Networks (ITNL) is a surface transportation infrastructure company. ITNL is the builder, operator and transfer (BOT) road operators engaged in developing, designing, operating, maintaining and facilitating surface transportation infrastructure projects. ITNL’s services include advisory and management services, supervisory services, operation and maintenance services, toll collection services for toll road projects. ITNL provides maintenance services primarily for highways and roads in Spain, Portugal and Latin America, and advisory and project management for BOT road projects, trades in materials used in the maintenance of roads & undertakes construction contracts. On May 31,2010, it acquired Area De Servicio Coiros S.L.U. On September 1, 2010, it acquired Conservacion De Infraestructuras De Mexico S.A. De C.V. On December 17, 2010, it acquired Alcantarilla Fotovoltaica, S.L.U. and Area De Servicio Punta Umbria, S.L.U. IL&FS Transportation Networks Limited is a subsidiary of Infrastructure Leasing & Financial Services Limited. The company is compared to NRW Holdings Limited globally & locally with Cummins India Limited and Walchandnagar Industries Limited.

Investment Rationale:

IL&FS Transportation Network limited is India’s largest road developer (7,621 lane kms). ITNL is the largest private sector Built Operate Transfer road operator from IL&FS Group , with a portfolio of 22 domestic road projects and 1 international projects aggregating to  7,621 stake adjusted lane in km (SALK) in its portfolio. ITNL has 11 operational projects with 3,281 SALK and remaining 12 projects or 4341 SALK under development.  After a long dry patch ITNL has won couple of projects over the last couple of quarters. Company's order book stands at Rs. 10,900 Cr and it has also received LOA for Kharagpur-Baleshwar project during Oct, 2012 and has also achieved financial closure for the same. ITNL was also awarded a project worth Rs. 2,143 Cr from HUDA for developing the 6.5 km rail Metro Link Extension from Sikanderpur Station to Sector 56, Gurgaon on a DBFOT basis. ITNL has a stake of 65 % in this project and is expected to commission by 2015-16. With an order book of Rs.10,9oo Cr, it is expected that the construction division revenues can grow at a CAGR of 11 % between FY12-FY14. This is likely to be led by construction of Jharkhand roads, Hazaribagh Ranchi project, Chenani-Nashri project and Shillong Jorbat project on the annuity side and Chandrapur-Warora project, Moradabad Bareilly project, Narkatpally Addanki project and Pune Sholapur project coupled with recently awarded Kiratput NerChowk, Kharagpur Baleshwar project and Sikar Bikaner project on the toll side. Built Operate and Transfer revenues are expected to grow at a CAGR of 37 % between the FY12 FY14 led by improvement in toll collection on operational projects. Overall consolidated revenues are expected to grow at a CAGR of 13.5 % between FY12-FY14. Margins of ITNL stood strong at 33 % led by higher proportion of toll - annuity revenues as well as strong fee income seen during the quarter. Toll/Annuity revenues as proportion of total revenues moved up to 15.4 % in Q2FY13 as against 10.7% in Q2FY12 further the margins are expected to be in range of 28 % and 29.6 % for FY13 and FY14 respectively. ITNL’s Consolidated EBITDA stood at Rs. 450 Cr a raise of 27 %. Revenue stood at Rs. 1370 Cr a raise of 9.2 % yoy. ITNL’s Net profit was flat YoY for Q2FY13 and was impacted by increase in overall interest outgo. Standalone PAT stood at Rs. 94.1 Cr a raise of 54.6 % yoy, EBITDA stood at Rs. 193 Cr a rasie of 45 % yoy & E&C revenues declined by 24 % yoy to Rs. 390 Cr. Consolidated APAT Stood at Rs 116 Cr flat yoy led by higher than expected fee income at Rs. 210 Cr. Interest cost moved up to Rs. 280 Cr from Rs. 169 Cr in Q2FY12 due to higher debt availed for the under construction projects. Company's current consolidated debt stands at Rs. 12,070 Cr with a consolidated Debt Equity of 3.8x v/s 3.7 x in FY12. Overall standalone debt is at Rs. 3140 Cr. Standalone Debt to Equity is pegged at 1.5x, although ILFT has the already sought the borrowing limit till Rs. 5000 Cr at the Parent level, it is believed that the standalone balance appears too levered vis a vis other peers in the industry. Along with this, with increase in execution of annuity projects, interest cost also jumps significantly since these are expensed for under construction annuity projects as against being capitalized for toll projects. Further the consolidated E&C margin also came in ahead of exp. at 33 %, however execution came in lower than expected. ILFT won the metro extension project during the quarter from Haryana Urban Development Authority (HUDA) for developing 6.5km rail metro link stretching from Sikandarpur station to Sector 56 (Gurgaon) worth Rs 21bn under DBFOT for 98 year concession period. The project is an extension to the existing metro rail under development by IL&FS transportation led consortium. IL&FS has also received the LOA for Kharagpur Baleshwar project in the state of Orissa and has tied up 60% of the project cost under the financial tie up from State Bank of Patiala. Since the competition is significantly down, ILFS transportation will be a key beneficiary in the next round of bidding. Higher margins were owing to higher fee income during the quarter. ILFT is executing projects at a rampant pace resulting in growing leverage at both the consolidated and parent level.

Outlook and Valuation:

The construction backlog of ITNL is at Rs.10,900 Cr or 2.7x FY12 construction revenues, which provides significant visibility to the growth prospects for the construction vertical, however the overall profitability is also driven by fee income which is majorly recognized on new project wins. With the lack of new wins at a time when the competitive intensity was seemingly high at NHAI & this will be beneficial for the company. And the pipeline now indicates that the couple of projects which are lined up in the next round of bidding will provide IL&FS transportation an edge over the other bidders as the projects are in nearby territory to the projects which are already operated by IL&FS transportation. ITNL’s Average daily toll & annuity collection witnessed marginal increase of 2.6% qoq led by 6.9% qoq growth in RIDCOR project & 17.9% qoq increase in Rajkot – Jetpur stretch. Two mature operational assets i.e Ahmedabad Mehsana & Vadodara Halol were flat sequentially owing to toll collection getting outsourced to third party, however they continue to witness 5.6%yoy growth. The annuity projects continue to witness Rs. 81 lakhs/day collection in line with expectation. The overall growth in average daily collection stood at 1.7% qoq to 2.45 Cr/day. The Construction business of the company is valued at 5x earnings, lower than other construction peers since the construction work is outsourced and higher margins are also contributed by advisory fee. This translates into value of Rs. 128 per share. The value of BOT projects comes at Rs. 173 per share arrived by using FCFE approach using cost of equity of 13.4 %. E&C business valuation comes at Rs177 per share (4.5X FY14E EBITDA) and value of other subsidiaries comes at Rs 37 per share. Net debt works out to Rs.167 per share at parent level. ITNL is highly sensitive to interest rate, 100 basis points correction in the risk free interest rate leads to 26 % increase in fair value of ITNL, & this remains a key beneficiary of reduction in risk free rate of project financing. ITNL has the highest leverage in the road sectors making it highly interest rate sensitive. At the current market price of Rs. 205.40, the stock is trading at a PE of 8.15 x FY13E and 8.93 x FY14E respectively. The company can post Earnings per share (EPS) of Rs. 25.20 in FY13E and Rs. 23.00 in FY14E. One can buy ITNL with a target price of Rs. 220.00 for Medium to Long term investment.

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	4,048.20	5,605.60	7,009.30	6,932.40
NET PROFIT (Rs. Crs)	432.90	497.00	490.30	447.10
EPS (Rs.)	22.30	25.60	25.20	23.00
PE (x)	8.50	7.40	7.50	8.20
P/BV (x)	1.60	1.40	1.20	1.10
EV/EBITDA (x)	7.50	9.30	8.70	8.10
ROE (%)	22.20	20.20	17.00	13.70
ROCE (%)	17.60	14.00	12.40	11.90

I would buy IL&FS TRANSPORT with a price target of Rs. 250.00 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 189.00 on your every purchase.

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

RETURN ON CAPITAL