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Margins to improve in H2

Berger Paints (BRGR IN) reported a mixed Q2FY27, with consolidated revenue growth at 13.2% YoY to INR 32.0bn, in-line with our estimates. Decorative business delivered 10.0% value growth, largely led by pricing actions, while volume growth at 3%, moderated due to the shift in the festival season (late Diwali), extended Eastern rains, and weakness in putty, textures and enamel. The Industrial segment reported double-digit volume and value growth despite steep price hikes. Management expects strong Q3 led by strong festival season demand (October recorded the highest sales growth in 25-30 months), and margin may remain in 15- 17% range led by staggered price hikes, and cost-efficiency initiatives. We retain Accumulate with a lower TP of INR 545 (from INR 575) on 43x (from 45x) Mar ’28E P/E

Pricing drives revenue; volume growth moderates on shift in festival season:

Consolidated revenue rose 13.2% YoY to INR 32.0bn, However, standalone revenue was up 11.9% YoY, largely driven by pricing, impacted due to 3.0% volume growth. Decorative value grew ~10%, though volumes were curtailed by the shift of Diwali to Q3, extended Eastern rains, and deliberate pruning of low-margin lines (Putty, Textures, and Enamels de-grew). Home Shield (Roof Kool & Seal, Damp Shield) and Wood Coatings maintained strong double-digit momentum. Industrial delivered strong double-digit volume and value growth, led by Automotive (buoyant 2W demand) and General Industrial, while Protective Coatings volumes remained stable. Management expects to recover ~90% of the needed industrial price increases by end of November and the rest by December. International business reported healthy growth across the countries but profitability for SBL and BNPAJV was hit by RM headwinds pending full price pass-through.

Festival season demand shifts to Q3; market share stable despite intense competition:

Demand outlook for Q3 is strong as the delayed festival season shifted to October. While Birla Opus matched DPL pricing (eliminating its 5% discount), it continues to offer higher dealer rebates. Nevertheless, BRGR’s market share held steady at 20.2% in H1FY27 (vs. 20.3%). About 4,800+ tinting machines were added in H1 with retail reach at 2,000+ stores. BRGR plans two new plants in West Bengal and Odisha, while maintaining a net cash balance sheet.

Margin hit by inflation in raw material and brand investments; recovery guided in H2:

Gross margin declined 225bps YoY to 39.3%, hit by double-digit RM inflation, high-cost inventory liquidation, and delayed industrial price hikes (industrial gross margin down 5–5.5%). Consolidated EBITDA grew 5.2% YoY to INR 3.7bn (10.3% below estimates), with EBITDA margin down 88bps YoY to 11.6%. BRGR stepped-up A&P spend for the new "Rang Bana Rahe" campaign, (~INR 220mn) which weighed on margins. Management is confident of achieving 15-17% EBITDA margin in Q3 and Q4, driven by price hike and operating leverage.

Maintain Accumulate with a lower TP of INR 545:

We increase our EPS estimates by 2-3% for FY27E/28E/29E respectively to factor in lower interest cost and depreciation. We maintain rating with a lower TP of INR 545 (from INR 575) on 43x (from 45x) Mar ’28E P/E as there is a risk to volume growth due to sharp price increase.

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