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Standing out in a slow market

Berger Paints (BRGR IN) continues to gain market share, driven by its new go-to-market strategies in urban areas, particularly in exterior paints, wherein it holds a competitive edge. We reiterate Accumulate as the company has scope to expand its market share and counter potential losses from new entrants. However, key risks include a prolonged slowdown in the paint industry and heightened competitive intensity

Continues to outperform in a challenging environment: Net sales grew 3.2% YoY to INR 29.7bn in Q3, 1% above our estimates, led by value/volume growth of 0.4%/7.4% in the standalone business. The value-volume gap resulted from a 5% price reduction implemented a year ago and an unfavorable product mix (lower-value, high-volume products grew at a faster pace). BRGR recorded a sequential improvement in both value and volume growth, outperforming the industry and indicating strong market share gains. Decorative coatings saw high single-digit volume growth, with the exterior premium segment performing well, but the interior premium segment remaining subdued. The Construction Chemicals, Waterproofing, and Wood Coatings categories witnessed robust double-digit growth. Region-wise, all the markets, except West India, performed well for BRGR. The company continued its expansion efforts by adding 2,000 new outlets and installing 1,800 tinting machines in Q3. In the Industrial Coatings segment, Protective Coatings maintained strong momentum, whereas Automotive, General Industrial, and Powder Coatings experienced muted growth.

Focus on urban markets to improve market share: BRGR is optimistic as regards a sequential improvement in volume, supported by strong sales momentum in January. The company targets close to double-digit volume growth and mid-single-digit value growth, factoring in price cuts and mix impact. It attributes its market share gains to strategic distribution expansion and urban-focused initiatives, effectively countering aggressive competition from a new entrant that has secured a 3.5% market share YTDFY25. To strengthen its urban presence, BRGR has established a dedicated team and implemented a targeted go-to-market strategy, aimed at enhancing brand visibility and deepening market penetration. These efforts are expected to sustain revenue growth in the near-to-medium term.

Margin guidance unchanged: EBITDA margin decreased by 80bps YoY to 15.9%, above our estimate of 15.7%. On a standalone basis, EBITDA margin stood at 16.2%, aligning with BRGR’s projected range of 15-17%. Despite concerns over competition and fluctuating raw material prices, the management is committed to its EBITDA margin guidance of 15-17% for the standalone business.

Reiterate Accumulate; TP pared to INR 505: We cut 26E/27E EPS by 8.4%/10.1% due to lower sales and margin. We reiterate Accumulate as the management is confident of gaining market share through distribution expansion and increased focus on urban markets. We lower our TP to INR 505 (from INR 550) on 45x (unchanged) FY27E P/E as we roll forward. Despite our negative outlook on the paints sector due to competitive intensity, BRGR should continue to outperform other incumbent players

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SEBI Registration number is INH000000933