Wednesday, June 20, 2012


Berger Paints India Ltd. (BPIL) is one of the India’s foremost paint companies, currently ranked as second largest on the basis of consolidated sales turnover in Indian paint industry. It enjoys about 19 percent share of the over Rs.21,000 crore of the Indian paint industry.

The company has registered smart numbers for the quarter ending March 2012. Revenues from operations stood at Rs. 746.50 crore as against Rs.592.50 crore in the corresponding quarter of the last year representing an increase of about 26%. Improved sales performance by subsidiaries and joint ventures boosted revenue for the quarter together with strong domestic performance. Operating profit too surged 29.45% in Q4FY12 at Rs.73.40 crore from Rs.56.70 crore in the like quarter last year. A comparatively sharp net profit growth of about 32% to Rs.44.60 crores was clocked for the Q4FY12 compared to Rs.33.90 crore of same quarter previous year. The increase in net profit is due to improved performance in the emulsion business and growing presence in the western part of the country. EPS stood at Rs.1.29 compared to Rs.0.98 in the same quarter last year.

Material cost to sales(%) jumped at 64.3% in quarter ended March 2012 as compared to 62.2% in the corresponding quarter last year. This increase is attributable to consistent rise in raw material prices and impact of depreciating rupee on imported raw materials. Further, there is sustained increase in advertisement and sales promotion spends in decorative business.

With stronger market share, wide distribution network, huge capacity expansion on stream, better product mix and higher A&SP spends; Berger Paints India Ltd. growth prospects look promising. We believe BPIL is trading at an attractive valuation at 22.9x and 19.79x of FY13EPS of Rs.6.29 and FY14EPS of Rs.7.28. We initiate a ‘BUY’ on the stock with a target price of Rs.190 (appreciation of about 32%) with the medium to long term investment horizon.