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Mixed growth in revenue: Berger paints standalone revenue for Q4FY23 grew by 13.6% YoY with volume growth of 11.1% while its consolidated revenue grew by 11.7% YoY but saw a decline of 9.3% QoQ to Rs 2,443.6cr. The growth was driven by double digit growth in the decorative segment as well as healthy demand for construction chemicals and pick up in sales of industrial segments. For FY23, its standalone revenue grew by 22.3% YoY to Rs 9,470cr with strong volumes growth of 15.5% YoY and its consolidated revenue grew by 20.6% YoY to Rs 10,567.8cr. The company achieved the milestone of 10,000cr in revenue on consolidated basis.

Gross margin saw steady improvement: The company’s gross profit grew by 14.4% YoY and 4.2% QoQ to Rs 973.5cr because of decline in raw material prices and this further led to improvement of gross margins by 93bps YoY and 514bps QoQ. However, Its EBITDA margins saw mixed trend wherein it improved by 211bps QoQ but declined by 75bps YoY due to high advertisement spends and other overhead expenses as well as provisions for delay of receivables in Andhra Pradesh Government project. Further, PAT was down by 15.6% YoY and 7.5% QoQ due to increase in depreciation and interest expense while other income declined as well as there was loss on account of fire in the factory of Berger Becker Coatings, a JV of the company. Going ahead, the management plan is to maintain gross margins at the same levels of 38-40% while EBITDA margins to improve to 16-17% led by operating efficiency and further easing in raw material cost.

Capacity expansion with focus on increasing utilization: 1) The company’s current capacity is ~95,000MT while it added new plant in Uttar Pradesh with total capacity of 33,000MT at an investment of Rs 1,036.6cr. 2) This plant is set up for manufacturing products across all categories such as water and solvent based paints, putty and construction chemicals. 3) Further, the plan is to increase overall capacity utilization to 60-70%. 4) No new green field project in FY24 but some capacity additions in existing plants. 5) New plant is to be commissioned in Panagarh, West Bengal by FY25 to produce Industrial paints & construction chemicals.

Concall highlights: 1) Consolidated revenue crossed Rs 10,000cr mark and also Berger gained market share in FY23. 2) Its strongest markets are East and North while in West and South they are trying to gain share as there are some states where they have strong presence. 3) Company added around 8000+ retail touch points in FY23 Installed 5200+ Colorbank machines. 4) Protective coating and non-auto industrial business have crossed sales of Rs 1,000cr and Rs 1,450cr, respectively. 5) New products are launched in weather coat and Imperia range during the quarter. 6) Management has plans to spend on advertisements. 7) Amongst industrial segments, auto, general industrial, protective and Infrastructure business saw decent pick-up driven by steady demand and new opportunities while powder coatings business saw significant de-growth on account of downturn in the fan industry.

Outlook & Valuation: Berger Paints numbers were steady with decent revenue growth YoY and gross margin expansion while EBITDA and PAT margin saw mixed trends. Going ahead, management continues to remain optimistic on the growth prospects and their focus will be on product innovation, scaling up distribution reach and intent to improve manufacturing efficiencies through automation. Besides, we believe positive industry trends like government focus on housing and infrastructure, strong demand for decorative as well as improving sales from industrial and construction chemicals and easing raw material prices bodes well for overall growth. On the financial front, we expect revenue/EBITDA to grow at 21%/38% CAGR over FY23-25E and have maintained a Buy rating with the target price of Rs 766, giving a PE multiple of 42x FY25E EPS.

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