_1641277474905_1655276945081.jpg&w=3840&q=75)
Berger Paints' stock has dropped more than 12.73 per cent in the last month. At 01:00 pm (IST), the share price was up 0.54% to Rs. 572.95. If today's price is taken into consideration, the stock has fallen 34.50% from its 52-week high of Rs. 872.
In the last six months, the stock gave a negative return of 24.52%. Year to date, it is down 23.5 per cent.
However, Chola Wealth Direct sees a 30% upside in the stock from the current market price, citing the sharp fall in stock price during the recent phase offers a revision of the rating to 'BUY' from the market performer.
Berger Paints is increasing rural penetration and launching new products as the company is focused on maintaining its market share in the decorative paint segment.
The company has been experiencing a revival in the automotive business segment and increased focus on the waterproofing and building chemicals categories will continue to drive revenue growth for the company, it said.
Berger Paints is the second largest decorative paint company in India. The company operates seven manufacturing facilities spread across India and four overseas manufacturing facilities. The company has the second-largest distribution network with 11,500 active dealers and 12,000 tinting machines.
The company derives 80% of revenue from decorative paints and the rest from industrial paints, of which automotive accounts for 8%, powder coating accounts for 2%, and other industries account for 10%. It has strong brands like Berger Silk, Berger Rangoli, Berger Illusions, Berger Weather Coat, and Jadoo Enamel.
The brokerage firm said, Berger paints have continued initiatives on formulation developments and RM substitution in 4QFY22, which aided in mitigating inflation to some extent. Management expects a probability of a price war in commodity and mass-market products due to new entrants. Berger has to increase expenditure (in terms of discounts and marketing) in order to combat intensifying new competition from Grasim, JK Cement, and Astral Ltd.
The two JVs have also shown improvement. These are the JVs with Nippon Paints, Berger Nippon (BNPAC) paints automotive coatings and Berger Becker in the field of coil coatings. Both had improved top-line growth for the quarter and consequently higher profitability numbers, it added.
Financials
Berger Paints India Ltd reported a 5.60 per cent increase in consolidated net profit to ₹220.7 crore for the fourth quarter ended March 2022, tracking sales growth & higher other income during the quarter.
The raw material cost dragged the gross margin down 478 bps YoY. However, savings in other costs arrested the EBITDA margin fall at 73 bps YoY to 15.8%.
| Financials ( ₹in Cr) | Mar-22 | Dec-21 | Sep-21 | Jun-21 |
| Revenue | 2,206.6 | 2,566.2 | 2,238 | 1,815.5 |
| Operating Expenses | 1,841.1 | 2,158.7 | 1,871 | 1,560 |
| EBITDA | 346.4 | 392.1 | 354 | 238.5 |
| Depreciation | 59.8 | 56 | 55.9 | 54.8 |
| Interest | 14.6 | 13.8 | 12.7 | 9.6 |
| PBT | 296.4 | 337.7 | 298.4 | 191.2 |
| Tax | 76.2 | 84.2 | 79.2 | 49.8 |
| Net Profit | 220.7 | 252.7 | 218.8 | 140.6 |
| Basic EPS Qtr (Rs) | 2.3 | 2.6 | 2.2 | 1.4 |
Berger Paints’ decorative segment volume has declined 5% in Q4FY22 against the 8% volume growth of the Industry leader (both the players had a higher base in Q4FY21). Similarly, Berger’s volume growth of 20% lagged the market leader in FY22 by 16%.
"We believe Berger Paints has focused more on maintaining EBITDA margin over market share." The one-off project income effect, which happened in 4QFY21, is also responsible for the margin pressures and decrease in volume. "Excluding the high RMS costs & adjusting volume from the one-off deal, the increase in volume would be a little below 20%," said Chola Wealth Direct.
Outlook
Chola Wealth Direct has given a 'BUY' rating, with a target price of Rs. 740/share, implying an upside of 30% from the current market price.
The brokerage firm highlighted that Berger has built a strong franchise for itself under the shadow of a strong market leader. Although it lags behind the market leader on volume as well as revenue CAGR for the past 3 years, it continues to grow its market share. Following the COVID disruptions, the company has managed to grab an additional market share from unorganised segments.
An average of 25 analysts polled by MintGenie have a 'sell' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
