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Single digit revenue growth but double digit growth in volumes: Berger paints reported single digit consolidated revenue growth of 3.6% YoY while subdued growth of 8.7% sequentially to Rs 2,767.3cr and its standalone business grew just by 2.8% YoY but volume grew in double digit of 10.9%. Amongst segments decorative business growth was mixed as in the first half it remained subdued because of lower offtake of interior and exterior emulsion, erratic monsoon, high base last year, extended festive season which led to postponed demand to next quarter while demand started improving towards the latter half. On the flip side, construction chemical, waterproofing coupled with protective & powder coating and Automotive & industrial segment saw consistent growth. In the International market, strong growth was reported from Bolix Poland while subdued performance continued from Nepal business.

Improvement in margin was strong: Berger paints Gross profit margin came in at 41.1% in Q2FY24, up by 582bps YoY and 130bps QoQ and gross profits grew healthy by 20.7% YoY but declined by 5.7% QoQ to Rs 1,137.9cr. Also its EBITDA grew by 30.1% and margin improved by 349bps YoY but sequentially EBITDA declined by 14.9% with de-growth in margin at 126bps. Basically, the growth in profit & margin as compared to last year was led by decline in raw material cost as well as other expenses and better top-line performance. Also, its newly launched products such as long life and glamor are seeing strong traction and meanwhile its low margin products enamels delivered muted sales that aided margin growth. Further PAT grew by 33.1% YoY but declined by 17.7% QoQ to Rs 292.1cr and margin at 10.6%, up by 234bps YoY but declined by 116bps QoQ.

Key Highlights: 1) Market share in India operation increased above 20% in H1FY24 as compared to 19.3% in FY23 led by expansion in distribution network, increase in construction chemical helping in gaining share. 2) Standalone volume growth was at 10.9%. 3) The company has spent some of its gross margin savings towards advertising in digital. 4) It added 2000+ retail touchpoints in Q2FY24 as well as Installed 1700+ Colorbank machines. 5) Recently the company has introduced an AI driven application, “Berger MY COLOUR” App with 2500+ shades. 6) Berger is not a strong player in Karnataka. 7) Capacity expansion for FY25 at west Bengal for industrial paints and construction chemicals with capacity of 3500 KL/MT and some brownfield expansion in existing facilities. Also it has further plans to come up with a greenfield facility in Odisha for manufacturing of both decorative and industrial paints and the construction & commissioning to be completed by end of 2027. 8) Management remains optimistic on the growth outlook in Q3 and expects double digit top-line growth with margins to be in the range of 17-18%

Outlook & Valuation: Berger Paints reported decent numbers for Q2FY24 with double digit volume growth and strong improvement in margin while its revenue in value was in single digit. Going ahead, we remain optimistic as well as management outlook for Q3FY24 and thereon is positive as it expects top-line and margin growth to be driven by healthy festive demand, improved rural demand and higher spending by government on infra & housing. Additionally, margins to improve led by easing raw material prices and healthy product mix. On the financial front, we estimate its revenue/EBITDA to grow at 21%/41% CAGR over FY23-25E and maintain a Buy rating with a price target of Rs 693.

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