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Steady revenue growth; margins expand

Berger Paints India (Berger) is the second-largest paints company in the domestic market, with 16 strategically located manufacturing units and a countrywide distribution network of 25,000+ dealers.

• The company’s consolidated revenue increased 9.8% YoY to Rs. 3,030cr, driven by robust volume growth and strong performance in the decorative business.

• EBITDA margin expanded 370 bps YoY (+330 bps QoQ) to 18.4%, supported by lower raw material prices.

• The company reported strong earnings performance in Q1FY24, with improved sales and margins. Berger’s earnings potential appears promising, with favourable demand prospects, new product launches, and sustained profitability. We reiterate our BUY rating on the stock with a revised target price of Rs. 774 based on 53x FY25E adjusted EPS.

Strong revenue growth led by volume surge

During Q1FY24, consolidated revenue rose 9.8% YoY, totaling Rs. 3,030cr. This growth was propelled by a robust volume increase of 12.7% YoY. The decorative division grew 11.4% YoY, resulting in increased market share, even in the face of a challenging comparison to a high base and an inflationary setting. The waterproofing segment also maintained its strong growth trajectory. However, the powder coating business in the industrial segment shrank in the quarter due to a high base and a decline in the fan industry. The company’s JV, Berger Nippon Paint Automotive Coatings, had a notably strong quarter, benefiting from an increase in the passenger car and SUV sector. Bolix, Poland, delivered a solid quarter, propelled by impressive results in the UK business. In contrast, the company’s overseas subsidiary, BJN Nepal, faced another quarter of declining growth due to a slowdown in the construction sector and significant inflationary pressures.

Reduced input prices boosted margins

Reduced input prices boosted margins EBITDA surged to Rs. 557cr, marking a significant YoY growth of 37.5%. It was accompanied by an enhancement in EBITDA margin, which reached 18.4% from 14.7% in Q1FY23. Additionally, profit after tax improved, reaching Rs. 354cr, reflecting a substantial 39.8% YoY increase in Q1FY24. The favourable impact of moderated input prices contributed positively to the margins.

Key concall highlights

• During Q1FY24, Berger Paints expanded its presence by incorporating over 1,500 new retail touchpoints and implementing more than 1,300 colour bank machines.

• In Q1FY24, the company managed to increase its market presence, reaching a market share of 20.2% from 19.3% in Q4FY23, owing to distribution expansion and new product innovations.

• The company intends to maintain EBITDA margins within the range of 16%-18%.

Valuation

The company is optimistic about achieving double-digit revenue growth in FY24, driven by favourable factors such as positive monsoon progress, infrastructure investments, and an extended festive season. The outlook for profitability remains positive since raw material prices are expected to moderate in the upcoming quarters., Grasim's entry could introduce increased competitive pressures, potentially impacting profits. However, we reiterate our BUY rating on the stock with a revised target price of Rs. 774 based on 53x FY25E adjusted EPS.

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