Berger Paints India Ltd : Mixed numbers; maintain Buy - Religare Broking
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Buy Berger Paints India Ltd For Target Rs.900
YoY Revenue grew strong: Berger paints reported strong revenue growth of Rs 2,671cr, up by 20% YoY largely driven by volume growth of 11% YoY and remaining via better realization and price hikes. Both its business segments i.e. decorative and industrial witnessed decent demand as compared to last year. However, comparing QoQ numbers, revenue de-grew by 3.2% as exterior paints demand remains muted due to the monsoon season.
Margins dented by high raw material cost: Berger Paints gross profit grew by 10.6% YoY but margins came in at 35.3% YoY a decline of 300bps impacted due to high raw material cost as compared last year. Further, EBITDA and PAT margins too remained subdued and declined by 228bps and 163bps led by high expenses of employees, interest cost and others. Going ahead management expects improvement of margins in 2HFY23, driven by increasing demand for high margin business and improved product mix.
Concall highlights:
1) Launched new products in emulsions and water proofing segments.
2) Industrial business picked-up pace largely because of the increase in demand for Automobiles and further government focus on spending on infrastructure will drive growth.
3) Focused on improving the distribution network and increased sales point by 6233 in 1HFY23.
4) Urban market demand was better as compared to rural and going ahead pickup in rural areas will help improve revenue growth.
5) No significant price hike taken during the quarter because of declining price trend in key raw materials such as Titanium Dioxide, monomer and solvent towards the end as well as weak demand in Q2 due to monsoon.
6) The company plans capacity expansion at West Bengal and has acquired 30 acres land for setting up manufacturing of construction chemical, resin and industrial products. Also the new factory at Uttar Pradesh will start its commercial production.
Outlook & Valuation: Berger Paints reported mixed numbers for Q2 but going ahead we expect growth momentum to pick-up pace in 2HFY23 driven by improving demand for the paint sector, new launches in the decorative segment, strong distribution reach and brand recall value. Further, product mix, easing raw material prices and increase in sales of exterior coating and waterproofing segment (high margin business) will aid margin improvement in 2HFY23. On the financial front, we have estimated its revenue/PAT to grow at a CAGR of 20%/28.7% FY22-24E and maintain a Buy rating with a target price of Rs 900.
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