NBCC Ltd : COMMITTED TO INVESTOR's DELIGHT, FUTURE MULTIBAGGER !!

Scrip Code: 534309 / NBCC

CMP:  Rs. 757.15; Market Cap: Rs. 9,085.80 Cr; 52 Week High/Low: Rs. 1,087.40 / Rs. 288.70. 

Total Shares: 12,00,00,000 shares; Promoters : 10,80,00,000 shares – 90.00 %; Total Public holding : 1,20,00,000 shares – 10.00 %; Book Value: Rs. 117.05; Face Value: Rs. 10.00; EPS: Rs. 23.11; Dividend: 50.00 % ; P/E: 33.47 times; Ind. P/E: 25.77; EV/EBITDA: 32.76.

Total Debt:  ZERO Cr; Enterprise Value: Rs. 8,189.59 Cr.

National Buildings Construction Corporation Ltd:  NBCC Limited was founded in 1960 and is based in New Delhi, India. NBCC Ltd is a public sector company engaged in the business of project management consultancy services for civil construction projects (PMC), civil infrastructure for power sector and real estate development and have 10 regional offices across India. NBCC came with an IPO in March, 2012 of 1,20,00,000 equity shares of Rs. 10 each at Rs. 106 raising Rs. 127.20 Cr. The object of the issue was to carry out the disinvestment of 10 % equity shares by the Government of India and to achieve the benefits of the listing. National Buildings Construction Corporation Limited provides project management consultancy, real estate development, and EPC contracting services in India and internationally. It’s Project Management and Consultancy Services segment offers services for various civil construction projects, including residential and commercial complexes, redevelopment of buildings and colonies, hospitals, educational institutions, infrastructure works for security personnel, border fencing as well as infrastructure projects such as roads, water supply systems, storm water systems and water storage solutions. Some of their clients are ESIC, Ministry of Defence, Ministry of Home Affairs (including Security forces like CRPF, CISF, NSG, BSF), Ministry of External Affairs, MoUD, Ministry of Commerce and Industry, Ministry of Corporate Affairs, Ministry of Finance, Haryana Urban Infrastructure Development Board, IIT Roorkee, IIT Kharagpur, IIT Patna, SVNIT etc. NBCC’s EPC Contracting segment provides engineering and construction for power projects, including design and execution of civil, structural, and architectural works; cooling towers; and chimneys. Its Real Estate Development segment primarily undertakes residential projects, such as apartments and townships; and commercial projects, such as office buildings and shopping complexes. This segment has land reserves of approximately 145 acres located in Delhi, Patna, Gurgaon, Kolkata, Kochi, Alwar, Meerut, Ghaziabad, Faridabad, and Lucknow. NBCC Ltd's civil Infrastructure for power sector segment includes providing engineering and construction services for power projects, including design and execution of civil and structural works for power projects, Cooling towers and Chimneys. Some of their clients in this segment include NTPC Limited, BHEL, APGENCO Ltd, Uttar Pradesh Rajya Vidyut Utpadan Nigam Ltd, MAHAGENCO Ltd and Karnataka Power Corporation Ltd. Their real estate segment includes residential projects and commercial projects. NBCC Ltd can be locally compared with BS Ltd, Continental Construction Ltd, Raunaq International Ltd, IVRCL Infrastructures & Projects Ltd, Jaihind Projects Ltd, Jyoti Structures Ltd, SPML Infra Ltd, C & C Constructions Ltd, Mukand Engineers Ltd, Engineers India Ltd, Jai Corp and Globally compared with KBR Inc of USA, Costain Group PLC of UK, Compagnie d’Enterprises of Europe, Yit Oyj of Finland, Nippon Koei Company Ltd of Japan, Samsung Engineering from South Korea, Hyundai Engineering & Construction of South Korea, Petrofac from Middle East, Saipem from Abu Dhabhi, National Petroleum Construction Company of Middle East, Technip from French, Technicas Reunidas from Spain, Jacobs Engineering from California, Watabe Wedding Corporation of Japan, central Security Patrols Company Limited of Japan, Mortice Ltd of Singapore.

Investment Rationale: 

National Buildings Construction Corporation Ltd. (NBCC) is a Schedule A, Public sector undertaking under the aegis of Ministry of Urban Development (MoUD), incorporated in year 1960. The Company enjoys a Status as a NAVRATNA CPSE, conferred upon it by the Govt. of India from June 23, 2014. It’s a construction major under the Ministry of Urban Development, Govt. of India, and provides Civil Engineering Construction Services in wide Gamut of Projects of varied nature, complexities & at socio-political Geographical locations, both at home & overseas. Company is carrying out its business in three segments (i) Project Management Consultancy (PMC), (ii) Engineering, Procurement and Construction (EPC), and (iii) Real Estate Development. NBCC also offers post construction services i.e. maintenance of assets. NBCC is certified ISO 9001:2008 from Bureau of Indian Standard in respect of Project Management & Consultancy. NBCC is aiming at high value projects in EPC segment to benefits of economies of scale. Projects having a high order value typically have a smaller percentage of overhead cost and this provides higher profit margins to NBCC. Prequalification and financial entry barriers for pursuing high value projects would provide NBCC an edge over the competitors who bid for such projects. In real estate, NBCC operates in two areas, one is direct real estate projects wherein the Company buys land from private and government agencies, develops the land and then sells off; and the other where NBCC carries out redevelopment of government colonies via Public Private Partnership (PPP) mode. Recently, the Company has been notified as a Public Works Organization (PWO) explicitly, a construction agency covered under revised Rule 126 (2) of GFRs, which says that the Government Department(s)-PSUs and Autonomous Bodies can now award the works to NBCC on nomination basis. The Indian real estate sector is one of the fastest growing and globally recognised sectors. It comprises four sub sectors-Housing, Retail, Hospitality, and Commercial. The real estate industry's growth is linked to developments in the retail, hospitality and entertainment like hotels, resorts, cinema, and theatres etc., & industries, economic services like hospitals and schools and information technology (IT) enabled services like call centres etc. and vice versa. The total realty market in the country is expected to touch US$ 180 billion by 2020. India ranks third for the most LEED (Leadership in Energy and Environmental Design) certified space globally, with nearly 12 million sq m. The LEED system is the most widely used rating system guiding the design, construction, operations and maintenance of green buildings. Private equity (PE) funding in this sector has picked up in the last one year due to attractive valuations and low level of bank funding to the sector. Moreover, the government is trying to introduce developer and buyer friendly policies, the outlook for the real estate sector in 2015-16 looks promising. The Indian construction market is expected to be the world's third largest by 2020. The market is expected to more than double to US$ 649.5 billion by 2020 from US$ 360 billion in 2010. It is currently the fourth-largest sector in the country in terms of foreign direct investment (FDI) inflows. FDI in the sector is estimated to grow to US$ 25 billion in 10 years. Real estate contributed about 6.3 % to India's GDP in 2014. The market size of the sector in India is expected to increase at a compound annual growth rate (CAGR) of 11.2 % during FY 2008- 2020 to touch US$ 180 billion by 2020. The Government of India has allocated US$ 1.3 billion for Rural Housing Fund in the Union Budget 2014-15. It also allocated US$ 0.7 billion for National Housing Bank (NHB) to increase the flow of cheaper credit for affordable housing for urban poor. The government has allowed FDI of up to 100 % in development projects for townships and settlements. The entry of major private players in the education sector has created vast opportunities for the real estate sector. Emergence of nuclear families and growing urbanisation has given rise to several townships that are developed to take care of the elderly. A number of senior citizen housing projects have been planned, and the segment is expected to grow significantly in future. Growth in the number of tourists has resulted in demand for service apartments. This demand is likely to be on the uptrend and presents opportunities for the unorganised sector. NBCC is one of the very few public sector companies engaged in the three verticals of PMC, EPC and Real Estate development business. Finding a similar one in the public listed space is also difficult. The larger chunk of orders received by NBCC is from government agencies, state and central government. Since most of government agencies doesn’t have an extended project execution arm to undertake various civil construction projects, NBCC is at a sweet spot, were given its execution abilities and history, it is awarded projects. Further, the recent PWO (Project Works Organization) status helps to get the projects on Nomination basis. For eg, the largest segment PMC that contributes 82 % of total business get about 80 % business through nomination basis and the rest through competitive bidding. Besides, NBCC has a long history of positive relationships with several ministries, PSUs and various government agencies. Also, it has a well-qualified and experienced staff to cater the order’s completion in time and agreed quality. NBCC signs MOU’s with government every year stipulating the target revenue, new orders and profit it would generate in the period. Based on MOU ratings, NBCC has consistently won Excellent rating every year since 2003-2004, meaning it has always out-performed its target. The company had prospered with orders in the past, now given the new government at the helm; a brighter future awaits NBCC. PMC services entail implementation of projects from concept to commissioning. NBCC doesn’t carry execution risk but carries performance risk as it has to ensure the completion of projects under contracted Cost, Quality and Time. The construction is outsourced and NBCC is responsible in getting approvals and ensuring timely delivery. The margins are low, considering the low-risk nature of the business. For its service NBCC gets a gross service fee ranging 7 %-10 %, depending upon the size of the project and mobilization advance the client is prepared to invest. Going by its ability to win new orders consistently and stable execution, augurs well in terms of revenue visibility. Management has expressed confidence in improving execution from FY16E. Real Estate business at its nascent stage and NBCC has land parcels of +150 acres and continues to add more into its holdings. Management is keen to invest Rs. 400 Cr for purchasing land in FY15. This comes at a time when government is considering selling real estate assets to aid ailing PSUs and NBCC is poised to benefit on this. The segment contributes 16 % of total revenue and the share of this segment can grow to 20 % in 2 years timeframe. NBCC has asset light business model, as it operates as implementing agency and receives advances in the range of 8-10 % for executing government projects in building, rural and urban development projects. It enjoys high RoCE of 30 % plus. NBCC has strong order book of Rs. 18,000-Cr. This gives strong revenue growth visibility for the next 3-4 years. Being a project implementation agency for various government programmes like PMGSY, JNNURM, etc and notified as a Public Work Organization by the Government would make NBCC a major beneficiary of the expected revival in infrastructure and government spending. NBCC also executes Government’s redevelopment projects where it sees great opportunity going forward. It already has one such project under execution at Kidwainagar of INR 4,000 cr while another project at Ghitorni is expected to be included in the order book in FY16. Besides, NBCC has been given three more old government colonies (value INR 15,000 cr) in Delhi at Netaji Nagar, Kasturba Nagar and Thyagaraj Nagar, which is not included in the order book. This huge opportunity comes with stable margins, which are in-line with PMC segment margins.

Outlook and Valuation: 

NBCC is of the valued Navratna companies and amongst very few public sector companies engaged in the three verticals of PMC, EPC and Real Estate development business. NBCC, is under the administrative control of the Ministry of Urban Development, provides project management consultancy services for construction projects, civil infrastructure for power sector and real estate development. The Company has earned a niche for itself in construction of Green Buildings. Office of The Indian Institute of Corporate Affairs at Manesar (Haryana); CSOI at New Delhi; Aayakar Bhawan at Noida (UP); SIB at Kolkata; Coal India Building at Kolkata etc. are some important Green Buildings by NBCC. Recently in May of 2015, NBCC has obtained business worth Rs. 2,000 crore from various clients including the West Bengal government. The Rajasthan government has also awarded its projects of Rs. 378 crore for the construction of medical college campus and up-gradation of a district hospital to NBCC. The West Bengal government sanctioned project for the construction of Indoor Auditorium at Alipur, Kolkata, which will have a seating capacity 2,400 people and which is estimated to cost around of Rs. 418.72 crores. Post the new government and with the thrust from the government for the infrastructure development initiatives will help NBCC. The Re-development of government colonies after New Moti Bagh project, NBCC has won similar projects worth Rs. 19,500 Cr. This has been primarily concentrated in Delhi regions. The management has expressed confidence in getting more such projects within the next six months valuing about Rs. 500 Cr to Rs. 700 Cr each. Further, NBCC gets such projects on nomination basis which is a major plus point. NBCC recently signed a MoU with Air India for joint development of surplus land held with the latter. Under this MoU, both the parties will identify commercially exploitable properties and develop them jointly on a profit sharing model, wherein NBCC’s equity contribution will be in the form of the construction cost, while Air India’s equity contribution will be in the form of the land value. While the current MoU is at a broader level, NBCC expects to finalise 1-2 properties for development within FY15. NBCC is also in talks with several other PSUs for a similar joint development model, as a lot of ailing PSUs have land bank but don’t have the capability or expertise to monetise the same. As per NBCC, it used to undertake orders with average ticket size of Rs. 10 Cr to Rs. 50 Cr earlier and thus used to manage close to 300 projects at any point of time. However, with larger projects (of as much as Rs. 5,000 Cr) now coming up, the number of projects is going down while order value is going up. As such, not only is it easier to manage, but also beneficial from a margin perspective as the resource deployment is not proportional to the order value, while corporate overhead, too, is inelastic to the order size. Thus, this is likely to boost margins for NBCC. As per NBCC, there is hardly any competition for it especially in the redevelopment of housing colonies and surplus land bank of PSUs. It cites that the Central Public Works Department (CPWD), its largest public sector competitor in normal PMC orders, doesn’t have the mandate to undertake commercial monetisation of land bank, which is an integral part of the redevelopment projects. As such, CPWD is ruled out as a competitor in the key growth area for NBCC On the other hand, the government is not willing to entrust land monetisation to private sector companies, thus this process has to be routed through a government-owned entity, namely NBCC in this case. NBCC board has approved 10 % follow on public offer to raise over Rs. 900 crore to fund business expansion plans of the company. The stake sale would be subject to the approval of the Government of India, which holds 90 % equity in the NBCC. The proceeds would be used as seed money to fund expected redevelopment projects. The FPO could result in equity dilution of around 11 %. Though the FPO announcement could remain an overhang in the short term, then business model of NBCC remains positive given the huge opportunities in the redevelopment and real estate space and its cash rich balance sheet. At the CMP of Rs. 757.15, the stock is trading at a PE of 28.89x for FY16E & 21.63x for FY17E. NBCC can post EPS of Rs. 26.20 for FY16E & Rs. 35 for FY17E. Given the healthy order book in the PMC division and cash rich balance sheet, NBCC’s revenues have grown at a CAGR of 10.6 % during FY12- FY15 despite the challenges being encountered by the industry. Going ahead, NBCC’s can show a growth in revenues and net profit at a sturdy CAGR of 31.1 % and 29.8 %, respectively, during FY15-17E. Also being a cash rich balance sheet company it will have healthy return ratios. On SOTP basis the valuation of NBCC’s PMC business & redevelopment business on the DCF basis comes at Rs. 325 per share & redevelopment opportunities at Rs. 573 a share. The value of real estate business comes at Rs. 79 a share, while the value of EPC business comes at Rs. 16.5 a share. Giving me the value of Rs. 993.5 per share.

SOTP valuation (FY2016E)

BUSINESS SUBSIDIARY	Value per Share(₹)
PMC & Re-development Business	325.00
Re-development Opportunities	573.00
Real Estate Business	79.00
EPC Business	16.50
TOTAL VALUE PER SHARE	993.50

KEY FINANCIALS	FY14	FY15	FY16E	FY17E
SALES (₹ Crs)	4,008.80	4,621.00	5,748.20	8,011.60
NET PROFIT (₹ Cr)	247.20	277.30	350.00	467.20
EPS (₹)	18.50	20.80	26.20	35.00
PE (x)	42.80	38.10	30.20	22.60
P/BV (x)	9.40	8.00	4.10	3.60
EV/EBITDA (x)	41.90	33.20	23.20	15.80
ROE (%)	22.10	21.00	13.60	16.10
ROCE (%)	19.90	21.60	15.50	21.10

I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do not hold NBCC Ltd in any of my investment portfolio.

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Disclaimer: 

This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.

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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.

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