SECTOR: FMCG
Berger Paints Ltd.
STOCK INFO.
BLOOMBERG
BSE Sensex: 19901
S&P CNX: 5890
BRGR.IN
REUTERS CODE
24 September 2013
Initiating Coverage
(Rs CRORES)
Buy
Rs227
BRGR.BO
Y/E MARCH
FY13A
FY14E
FY15E
We recommend to BUY Berger Paints with one year price target
of
Rs
280 at 2.5xFY14E Sales.
Berger Paints started operation in 1923 in Kolkata with one
manufacturing facility at Howrah. Today, Berger is a national player
with 7 manufacturing plants and ~14500 dealers across India. Berger
has a presence in Nepal, Bangladesh , Poland and Russia.
Second largest player in decorative paints:
Berger is the second
largest player in decorative paint segment with a market share of ~16-
17%. Berger drives 80% of its revenue from this segment with a
product portfolio directed towards middle premium category amongst
urban consumers. During 2003-13 period, Berger's revenues grew at
18% CAGR and is likely to witness double digit growth.
Branding playing an important part in this fast growing sector:
The paints industry is expected to grow from
Rs28000
cr in FY13 to
Rs50000
cr by FY16/FY17. The organized sector, which has seen its
share rise from~50% in 1995 to 70% in 2013 is expected to see its
share rise further. Branding and service both are key factors that will
drive the organized share higher. Berger, with brands such as Rangoli
and Weather Coat, would continue to be the biggest beneficiary after
Asian Paints due to ongoing shift towards organized segment.
Capacity expansion to aid growth:
Current capacity of Berger Paints
stands at 275,000MT - ~40% of Asian Paints capacity. Berger has
aggressive capacity expansion plans, both Greenfield (Hindupur, AP)
and Brownfield plants (Rishra & Goa) funded mostly through internal
accruals. The FY14 budgeted capex stands at
Rs175cr.
Good monsoon to perk up demand:
A good monsoon this year will
lead to higher farm incomes and this is likely to boost rural demand.
Paints demand gains from a rising rural income and given the good
monsoon the festive season demand post harvest is likely to be
exceptionally good. Leading decorative paint companies have guided
for a double digit growth in the decorative segment given a strong
rural pull that they anticipate during the festive season.
Risks to our View:
The INR depreciation vs USD could inflate raw
material costs since 50-55% of material requirement is imported. Also,
a broad-based rally in the market could lead to investors moving out of
secular growth sectors; hence Berger runs a risk of P/E compression.
Valuations & View:
Berger is a 20%+ ROE company and has a debt
to equity ratio of less than 0.5x. Business model of Berger is similar to
that of Asian Paints wherein decorative paints account for ~80% of
its sales. Thus Berger Paints is more of a consumer play than industrial.
We recommend BUY on Berger Paints with a target price of
Rs280.
Net sales
EBITDA
RPAT
BV/Share (Rs.)
Adj. EPS (Rs.)
EPS growth (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div yld (%)
ROE (%)
RoCE (%)
KEY FINANCIALS
Shares Outstanding (cr)
Market Cap. (Rscr)
Market Cap. (US$ m)
3,346
403
218
27.5
6.3
21
36.1
8.2
20.3
0.8
25
25
3,874
485
260
33.5
7.5
19
30.3
6.8
16.9
0.9
25
25
4,487
562
312
41.0
9.0
20
25.2
5.5
14.4
1.1
24
26
34.6
7861
1258
21%
22%
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
STOCK DATA
52-W High/Low Range (Rs)
Major Shareholders (as of June 2013)
Promoter
Institutions
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rscr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
256/136
75.0
14.2
10.8
268580
5.96
-10/11/49
-1/16/57
Maximum Buy Price :
Rs
Rs240
Ravi Shenoy
(ravi.shenoy@motilaloswal.com);Tel:+912230896865
Rakesh Tarway
(rakesh.tarway@MotilalOswal.com); Tel: +91 22 30896679