*As the author of this blog I disclose that I do hold BERGER PAINTS (I) LTD in my investment portfolio.
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 has one of the largest
networks consisting of 16,500 plus distribution channel members served through
135 stock points & 10 production units with about 170 Sales offices
including those belonging to the company’s own division and subsidiaries and
has employee strength of 2,500. 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 which
is strategically located and well connected to Bangalore, Hyderabad, Chennai,
kochi and Mumbai will be able to fully meet the increasing demand for water
based coatings in commercially important regions of India. The Company’s
products have been accepted well in 2013-14 and expect the same kind of support
from the customers in the near future also. It is expected that the company to
post a CAGR of 11 % & 12 % in its top-line and bottom-line over 2013 to
2016E respectively. There has been significant growth of water based coating
both for interior and exterior applications during the last 2 decades in paint
industry. This upsurge in demand has been specifically strong in the southern
region which provided to set up this new water based paints plant at Hindupur
for catering to the requirements of this important region with an initial
capacity of 80,000 tonnes per annum. The company starts production in the first
half of the current fiscal. Once fully completed, the capacity of the Hindupur
plant will be 3,20,000 MT per annum of water based paints and 1,00,000 MT per annum
of emulsions, used as intermediates for water based paints. The Jejuri plant
for industrial paints too is likely to commence operation this fiscal. Berger
currently has 11 manufacturing units in Bengal, Goa, Pondicherry, Andhra
Pradesh, Gujarat, Jammu and Delhi. The Indian paint industry is largely divided
into decorative and industrial segments. Decorative paints enjoy a market share
of 71 % and industrial paints have the balance of 29 %. Decorative paints can
be further classified into higher end acrylic exterior and interior emulsions,
medium range exterior and interior emulsions and enamel paints, low end
distempers, wall putty, primers and thinners and wood coatings. They can also
be broadly categorised into water and solvent based paints. Water based paints
have an edge and are growing at a higher rate because most paintable surfaces
in architectural constructions use water based coatings. It also has the added
advantage of being more environmentally friendly. Industrial paints, on the
other hand, comprise automotive including auto refinish, general industrial
including consumer durables, protective coatings, coil coatings and powder
coatings. As in the previous year, in the year 2013-14 too, paint industry
volumes as a whole continued to perform well with a growth rate, which is
estimated to be more than 2 times of GDP for decorative products. The
acceleration underscores the resilience of the industry - brought about by the
continuous efforts of the industry to open up new markets, introduce superior
products, extending the network and convincing the customers about the benefits
of more frequent painting of houses. No doubt, this also reflects growing
urbanisation, desires of an ever increasing middle class and reduction in
repainting cycle. Despite this, per capita consumption of paints in India is
now about 2.6 kg compared to the international average of 10 - 13 kg. The total
size of the market is roughly estimated at Rs. 35,000 crores. Given the much
anticipated recovery in urban sentiments, GDP revival and the expected fillip
to the economy, this may increase to more than Rs. 50,000 crores by 2016-17.
Industrial paint demand continued to be lukewarm with sluggish growth in the
infrastructure industries, particularly in automobiles, high inflation, a
rather tight money market and increase in prices of raw materials. However,
with the expected increase in infrastructure spending and recovery of the industry,
the Company believes that this sector will bounce back.
Berger
Paints India Ltd (BPIL) is one of the largest paint company in India with its
premium brands viz., Breathe Easy, Silk and Weather coat Allguard continued to perform
well in all the markets. Berger paints India ltd is amongst top 30 paints
companies in the world with global footprints across 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. In the
recent past, Indian economy had been growing at a rate of less than 5 %. In
spite of that, as mentioned earlier in this report, the paint industry in general
and Berger Paint in particular, continued to maintain their respective growth
trajectory, specifically in the decorative coatings segment. In the coming
times, the country will have to contend with issues of inflation control and
interest rates, current account and fiscal deficits, subsidies and non-plan
expenditure – all the time keeping an eye on eradication of poverty, attraction
of investment and generation of employment. The
paint Companies believes that these are problems which are surmountable with
will and tenacity. Several important policies had been stalled in the recent
past and once these are cleared, the paint Companies believes that the paint
industry will grow at an even faster pace. In infrastructure, it is reported
that out of the projects worth Rs. 22,000 billion & only one-third have
been revived in the recent past. In this
context, it is important to note that the global paints market is worth about $
121 billion (2012); with total production being 38 million metric tonnes (MT).
In the Asia Pacific region, water based (architectural paints) constitutes 65 %
by volume. The Indian paint industry volume and value, by comparison, has far
to go. Globally, by volume, the split is approximately 50 % architectural
paints and the remaining 50 % - industrial performance coatings. The Asia Pacific
region contributes 44 % paints and coatings market. India constitutes only 15 %
and China 57 % by volume of the Asia Pacific market. Thus, there is actually a
major opportunity of growth in both decorative and industrial segments in India. Recently on 18 February 2015,
Berger paints is planning to set up an industrial coating plant at Stavropol,
an industrial area in southwest corner of the Russian Federation, which houses
several automobile and manufacturing businesses. The company has signed a
memorandum of Understanding with Stavropol regional government in this regard.
The company has received 6 hectares of land at a very favourable price on a
nominal lease till 2030 and production is expected to start in 12 to 15 months.
The company will conduct a feasibility study for setting up a modern industrial
coating in the region and aims to satisfy the demands in Russia and develop
bilateral Co-operation. Berger Paints plans to begin with small investment and increase
it gradually and will employ 50 people with a target of 3,000 tonnes per year
and then scale up it up to 50,000 tonnes. Around $5 million will be invested to
set up the plant in Russia. The management has clearly stated that company has
taken care of Indian requirement for the next 5 years post setting up the
facility in Hindupur, Andhra Pradesh and will keep on investing in India as and
when needed, also the logistical issues in exporting of paint from India to
other countries is much more as paint is bulky and so company decided to set up
one plant to Russia. Berger Paints has plants in Nepal, Bangladesh, Poland and
the overseas turnover accounts for less than 5 % to the total turnover of the
company. On financial side the International business saw muted performance
impacted by one-off correction in Nepal and flat numbers in BJN India due to
consolidation and restructuring exercise in Sherwin Williams. Instability in
Ukraine impacted growth in Bolix S.A., while loss of customer in DIY segment
continued to impact Poland sales. BNB Coatings continue to show robust sales
growth, but Becker Coatings had a flat quarter. Company expects BJN India will
be through with its restructuring and will pick up from FY16, while growth in
Nepal is also expected to revive from next quarter. The Company’s Q3FY15
revenue was muted, but lower inputs led to higher EBITDA margins. Berger’s Revenues
were at Rs. 1,120 Cr, up 8.5 % YOY. The Gross margin was up 2.40 % YoY to 41.9 %
led by low input prices, erstwhile price hikes and better mix. But, EBITDA
margin expansion was lower at 0.60 % YoY to 13.3 % due to higher Ad spends. The
EBIDTA grew 13.3 % YoY to Rs. 150 Cr, but higher depreciation led to flat APAT
at Rs. 82.1 Cr. Berger’s reported tepid Domestic operations a 10.8 % YoY growth
to Rs. 990 Cr with volume growth at 6 % YoY. Growth in decorative paints was
lower due to sluggish demand and early festive season vs previous year. General
industrial & auto paints showed healthy growth trends and is expected that
the domestic growth to pick up, but in near term, industrial paint sector could
outperform decorative growth rates. Given the pricing power ability, it
is likely to have uptick in revenue CAGR. While volume growth was tepid, market
share gains and display of strong margin expansion is reassuring. It is expected
that the domestic growth to revive in ensuing quarters and strong margin
tailwinds to flow through in ensuing quarters. It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also.
*As the author of this blog I disclose that I do hold BERGER PAINTS (I) LTD in my investment portfolio.
-------------------------------------------------------------------------------------------
CMP: Rs. 214.10; Market Cap: Rs. 14,843.21 Cr; 52 Week
High/Low: Rs. 248.00 / Rs. 102.33.
Total Shares: 69,32,84,120 shares;
Promoters : 51,97,33,336 shares – 74.97 %; Total Public holding : 17,35,50,784
shares –25.03 %;
Book Value: Rs. 16.33; Face
Value: Rs. 1.00; EPS: Rs. 3.65; Dividend: 60.00 %; P/E: 58.65 times; Ind. P/E: 62.00;
EV/EBITDA: 28.03.
Total Debt: Rs. 528.19 Cr; Enterprise Value: Rs. 14,917.27 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
declared its very first bonus in ratio of 1 new for every 2 held on June 1967; 7
new shares for every 15 held on June 1973; 1 new for every 1 held on October
1998; 1 new shares for every 2 held on January 2004 and lastly 3 new shares for
every 5 held on June 2006. The company first announced the splits in its face
value of shares from Rs. 10 to Rs. 2 on March 2004 and then it again split its
face value of shares from Rs. 2 to Rs. 1 on November 2014. 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 colour 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, Lusako
Trading Ltd in Cyprus and Berger Paints Overseas ltd. The company is locally compared
with Asian Paints Ltd, Kansai Nerolac Paints Limited, Akzo Nobel India Limited,
Jenson and Nicholson India Ltd, Jyoti Resins and Adhesive Ltd and Globally compared with Akzo Nobel NV of Netherlands, BASF SE of Germany, Dai Nippon Toryo Co of Tokyo, Dow Chemicals of USA, Schulman (A) Inc of USA, Kraton Performance Polymers Inc of USA, Sherwin Williams Co of USA, PPG Industries of USA, Kanto Denka Kogyo Co of Japan, Noroo
Holdings Company Limited, Fujikura Kasei Co Ltd of Japan.
Investment Rationale:
Outlook and Valuation:
| KEY FINANCIALS | FY14 | FY15E | FY16E | FY17E |
|---|---|---|---|---|
| SALES (₹ Crs) | 3,869.70 | 4,350.90 | 5,209.20 | 6,437.60 |
| NET PROFIT (₹ Cr) | 249.40 | 278.60 | 429.30 | 566.00 |
| EPS (₹) | 3.60 | 4.00 | 6.20 | 8.20 |
| PE (x) | 60.50 | 54.10 | 35.10 | 26.60 |
| P/BV (x) | 13.50 | 12.60 | 11.40 | 10.20 |
| EV/EBITDA (x) | 35.00 | 29.30 | 20.40 | 16.00 |
| ROE (%) | 24.10 | 24.10 | 34.10 | 40.60 |
| ROCE (%) | 24.50 | 26.90 | 37.70 | 45.50 |
*As the author of this blog I disclose that I do hold BERGER PAINTS (I) LTD in my investment portfolio.
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Disclaimer:
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.
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
*Dear Reader friend, if you enjoyed this article, please do share it with your Friends and Colleagues through Facebook and Twitter, and drop in your valuable thoughts in comment box..
READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE
VIEW THE POWER POINT PRESENTATION ON
