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Showing posts with label BERGER PAINTS. Show all posts
Showing posts with label BERGER PAINTS. Show all posts

Thursday, June 23, 2016

BERGER PAINTS (I) LTD : FLYING COLOURS !!

*As the author of this blog I disclose that I do hold BERGER PAINTS (I) LTD in my investment portfolio.

BERGER PAINTS quotes ex-bonus basis from July 15, 2016. Company declared bonus of 2 new shares for ever 5 shares held. 



Scrip Code: 509480 / BERGEPAINT
CMP:  Rs. 203.57 ( pre bonus Rs. 285) Market Cap: Rs. 19,764.12 Cr; 52 Week High/Low: Rs. 301.90 / Rs. 184.35. 
Total Shares: 69,34,77,912 shares; Promoters : 51,98,26,540 shares – 74.96 %; Total Public holding : 17,36,51,372 shares –25.04 %; 
Book Value: Rs. 23.50; Face Value: Rs. 1.00; EPS: Rs. 5.33; Dividend: 125.00 %; P/E: 53.54 times; Ind. P/E: 45.38; EV/EBITDA: 29.28 times.
Total Debt: Rs. 609.56 Cr; Enterprise Value: Rs. 20,203.92 Cr. 

BERGER PAINTS INDIA LTD: The Company was founded in 1760 but started its business in Kolkata, India in the year 1923. Berger Paints India Limited was established by Lewis Berger – who laid the foundations of the brand Berger way back in 1760 in the UK, with modest beginnings in India in 1923, the company has undergone many change of hands – In the year 1947, it was acquired by British Paints (Holdings) UK, which renamed the company as British Paints (India). This UK Company was then acquired by Celanese Corporation, which later sold the Indian company to Berger, Jenson Nicholson Ltd in 1969. In 1983, the company was renamed as Berger Paints India and it started using the trade name of Berger. Presently, the majority stake is with the Delhi based Dhingra brothers. Berger Paints engages in the manufacture and sale of various decorative and industrial paints in India and internationally. The company declared its very first bonus in ratio of 1 new for every 2 held on June 1967; 7 new shares for every 15 held on June 1973; 1 new for every 1 held on October 1998; 1 new shares for every 2 held on January 2004; 3 new shares for every 5 held on June 2006 and lastly in ratio of 2 new shares for every 5 held on July 15, 2016. The company first announced the splits in its face value of shares from Rs. 10 to Rs. 2 on March 2004 and then it again split its face value of shares from Rs. 2 to Rs. 1 on November 2014. The company’s products include interior emulsions, designer finishes, distempers, exterior emulsion, primer, texture finishes, enamels, cement mix, crack fill paste. The company also offers general industrial and automotive coatings, such as pre-treatment chemicals, water base primers, polyester topcoats, polyester-metallic-pearl basecoats, thermosetting acrylic basecoats, thermosetting acrylic clear coats, alkyd-amino topcoats, poly-urethane paints, quick drying paints, polyester surfacers, epoxy surfacers, alkyd amino HLPS, and heat resisting paints and powder and protective coatings. It serves home owners, professionals, and industrial users through a network of dealers. It has a wide variety of product portfolio including interior and exterior wall coatings as well as metal and wood paints. It has strong and well established brands like Berger Silk, Berger Rangoli, Berger Illusions, Berger Weather Coat, Jadoo Enamel, etc. It also provides colour consultancy services. Berger Paints has six subsidiaries and two JVs located across geographies including Cyprus, Russia, Poland and Nepal. Berger Paints subsidiary includes Beepee Coatings Private Limited, Berger Jenson & Nicholson (Nepal) Pvt Ltd, Berger Paints (Cyprus) Ltd, Lusako Trading Ltd in Cyprus and Berger Paints Overseas ltd. The company is compared with Asian Paints Ltd, Kansai Nerolac Paints Limited, Akzo Nobel India Limited, Jenson and Nicholson India Ltd, Jyoti Resins and Adhesive Ltd and Noroo Holdings Company Limited and globally compared with AkzoNobel of Netherlands, PPG of USA, Henkel of Germany, Sherwin-Willams of USA, Axalta of USA, RPM of USA, Valspar of USA, BASF of Germany, Kansai of JAPAN, Fujikura Kasei Co Ltd of Japan, Nippon Paint Holding of JAPAN, SIKA from Switzerland,  

Investment Rationale:
Berger Paints India Limited is the second largest paint company in the country with a consistent track record of being one of the fastest growing paint companies, quarter on quarter, for the past few years. This paint major has one of the largest networks consisting of 16,500 plus distribution channel members served through 135 stock points & 10 production units with about 170 Sales offices including those belonging to the company’s own division and subsidiaries and has employee strength of 2,500. It has 4 distinct business verticals namely decorative coatings, protective coating, automotive coatings, Industrial and Powder coatings with about 10,000 + products. The paint industry can easily grow at 12 % to 13 % annually over the next few years from its current size of Rs. 35,000 Cr. The per capita paint consumption in India is a little over 4 kgs, which is still very low as compared to the developed western nations. Therefore, as the country develops and modernizes, the per capita paint consumption is bound to increase. The unorganised sector controls around 35 % of the paint market, with the organised sector accounting for the balance 65 %. In the unorganised segment, there are about 2,000 units having small and medium sized paint manufacturing plants. Top organised players include Asian Paints, Kansai Nerolac, Berger Paints and ICI. Demand for paints comes from two broad categories: Decoratives and Industrials. The major segments in decorative include exterior wall paints, interior wall paints, wood finishes and enamel and ancillary products such as primers, putties etc. Decorative paints account for over 70 % of the overall paint market in India. Asian Paints is the market leader in this segment. Demand for decorative paints arises from household painting, architectural and other display purposes. Demand in the festive season i.e. September-December is significant, as compared to other periods. This segment is price sensitive and is a higher margin business as compared to industrial segment. There are three main segments of the industrial sector which includes automotive coatings, powder coatings and protective coatings. Kansai Nerolac is the market leader in this segment. User industries for industrial paints include automobiles engineering and consumer durables. The industrial paints segment is far more technology intensive than the decorative segment. The paints sector is raw material intensive, with over 300 raw materials from which nearly 50 % are petro-based derivatives which is involved in the manufacturing process. Since most of the raw materials are petroleum based, the industry benefits from softening crude prices. The volumes in paint industry as a whole continued to perform well with a growth rate, which is estimated to be more than 2 times of GDP for decorative products. The acceleration underscores the resilience of the industry - brought about by the continuous efforts of the industry to open up new markets, introduce superior products, extending the network and convincing the customers about the benefits of more frequent painting of houses. No doubt, this also reflects growing urbanisation, desires of an ever increasing middle class and reduction in repainting cycle. Despite this, the per capita consumption of paints in India is now about 4 kg compared to the international average of 10 - 13 kg. The total size of the market is roughly estimated at Rs. 35,000 crores. Given the much anticipated recovery in urban sentiments, GDP revival and the expected fillip to the economy, this may increase to more than Rs. 50,000 crores by 2017-18. Berger Paints enjoys market share of 18 %. Berger Paints has set up Uber like model called as whereby the company is creating a huge inventory of painting contractors. Express Painting is a model where anyone wishing to paint his house will contact local painting contractor who suggests the owner which paint to use, so in Express painting the home owner can SMS the company and Berger will arrange a painter in that vicinity. Company has done KYC of all the contractors so quality and authenticity of the workers is assured. BERGER has launched a new EXPRESS PAINTING (XP) which eases the trouble of the home owners from the dust and odour. BERGER is now offering a painting process using a mechanised with in-built vacuum suction which sucks the dust into a bag. This tool reduces the time taken by 40 % and ensures even coating of paint. This painting service from Berger Paints is witnessing good demand and as the company trains more painters the service is expected to expand. Service cost to consumers is at par with industry unlike Asian Paints. However, paints being sold through this channel are of premium range. Besides this Berger Paints is setting up a full fledge Training academy in Kochi for painters. About 3,200 sqft space has been rented nearby Chembumukku for this and is been in operation from November 2015 onwards. There are painting booths and equipment’s for painters. They will be trained on the use of paints and equipments which have been imported making the painting process safer and better. Berger has invested roughly around Rs. 70 lakhs.  Berger has JV with Nippon JV, this JV will address 4 Wheelers like cars & UVs and 3W and this JV will open up a new business stream. Berger will bring its relationships while Nippon will bring the technology. Berger paint saw increase in volume growth for the entire year of 12.5 % and is expected to be better going forward. Management expects that H1FY17 won’t be that great but after monsoon post September volume growth will spur. Berger has been consistent in its financial strength, and Berger Paints India Ltd has recommended a final dividend of Re. 1.00 (100 %) per equity share of Re.1.00 each. And also recommended bonus Shares in the proportion of 2 Bonus Shares of Re. 1/- each for every existing 5 fully paid-up Ordinary Shares of Re. 1/- each and the record date for bonus is set at 15 July, 2016. The FY17 can be good as going forward after September and October which is typically paint season which will witness a pick up due to rains and volumes are expected to be better. So Berger is definitely a winner and best pick in the paint sector.   

Outlook and Valuation:
Berger Paints India Ltd (BPIL) is one of the largest paint companies in India with its premium brands viz., Breathe Easy, Silk and Weather coat Allguard continued to perform well in all the markets. Berger paints India ltd is amongst top 30 paints companies in the world with global footprints across continents. It is also amongst the top 6th paint company in Asia. Berger Paints India Limited has it’s headquarter in Kolkata, with 7 strategically located manufacturing units, and over 85 sales offices, the company also has an international presence in 4 countries. Berger is the lone supplier to nuclear power plants with its protective coatings in industries. And also supplies its products to professionals and Home owners. In the recent past, Indian economy had been growing at a rate of less than 5 %. In spite of that, the paint industry in general and Berger Paint in particular, continued to maintain their respective growth trajectory, specifically in the decorative coatings segment. In the coming times, the country will have to contend with issues of inflation control and interest rates, current account and fiscal deficits, subsidies and non-plan expenditure – all the time keeping an eye on eradication of poverty, attraction of investment and generation of employment. Indian Coatings industry has been growing over past several years at a rate ahead of the countrys GDP growth. The industry has two main segments: Decorative Paints and Performance Coatings, comprising Protective, Powder, Metal, Marine, Vehicle Refinishes and Coatings for specialised applications, and consists of both organised and unorganised sectors. Decorative Paints account for a major part of the industry. The main drivers for the growth of this business have been shortening of repainting cycle and better demand from smaller towns. Another important driver for demand for Decorative paints is the new homes underpinned by rising income levels and shift from joint families to nuclear families. Performance Coatings business is essentially a B2B market in contrast to the Decorative paints, which is largely B2C market. This business is technology intensive with a diverse set of growth drivers, which include key customer relationships, sustained focus on R&D and innovation, with strong emphasis on offering a solution rather than a product. Due to increased Government funding for infrastructure, demand for paints both in industrial and decorative segment is set to rise, thereby rendering Indian paint industry to be poised for further growth. The key drivers and challenges of the market indicate the factors for growth of the market including growth in real estate construction, growth in automotive industry, growth in industrial sector, growth in disposable income, low penetration and increased Government expenditure on infrastructure. India is an emerging economy and with a rising GDP and the subsequent growth in industrial activities and infrastructural developments. Aided with increased Government spending on infrastructure in India, market is optimistic about its impact on the paint industry. For new constructions, paint has become an integral component of the development stage. Another factor boosting the market is the growth in the automotive industry which creates huge demand for industrial paints. Further, with enhanced level of communication in terms of media exposure, awareness about latest trends governing the sector has reached a whole host of consumers. Fulfilling needs to look unique becomes possible with more disposable income at the hands of people which is seen to be on an upward trend. Moreover, low per capita consumption of paints in India provides enough opportunity for further growth in this sector. However, the sector is also facing certain challenges. Factors like rising input prices and stringent environmental regulations pose as a barrier for growth. To conclude, the paint industry has a promising future in India, provided players in the market implement innovation and cutting edge technology to combat the negative factors. BERGER PAINT is setting up a decorative paint facility in Assam of 36,000 tonnes per annum to cater to demand from North East region, the capacity is expected to commission by March’17. Hindupur phase 1 facility is fully commissioned having current capacity of 80,000 tones per annum which can be expanded up to 3,20,000 tones per annum in phases depending upon demand environment. Total capex for FY17 is Rs 130 Cr to be spent on Assam capacity, incremental liquid paint Capacity in Jejuri (Maharashtra) and increasing its distribution reach. Berger Paints is best amogst its peers on rationale that it is the 2nd largest player in Indian decorative paint segment, after Asian Paints, with a market share of 18 % to 19 %. Capacity addition at various locations (through internal accruals) and dealer network expansion from current 15,000 to aid growth. Also, Express Painting and Berger Nippon JV will add to base growth. A portfolio shift towards higher value and higher margin products should help boost earnings. With majority of the capex behind, Berger will be Free Cash Flow +ve and could potentially raise payouts to investorsAt the current market price of Rs. 285.00, the stock is trading at a PE of 42.53 x FY17E and 33.13 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 6.70 in FY16E and Rs. 8.60 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. 

KEY FINANCIALSFY15FY16AFY17EFY18E
SALES ( Crs) 4,322.104,634.105,324.906,265.90
NET PROFIT (₹ Cr)264.70369.80464.60593.00
EPS () 3.805.306.708.60
PE (x)74.6053.4042.5033.30
P/BV (x)15.8013.4011.109.20
EV/EBITDA (x)38.4030.0024.7019.60
ROE (%) 22.30 27.1028.5030.10
ROCE (%)25.1031.1035.6038.50

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*As the author of this blog I disclose that I do hold  Berger Paints I LTD in my any of the portfolios.

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Disclaimer
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible. 


As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
 

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Friday, March 13, 2015

BERGER PAINTS (I) LTD: ADD COLOURS TO YOUR PORTFOLIO !!!

*As the author of this blog I disclose that I do hold BERGER PAINTS (I) LTD in my investment portfolio.


Scrip Code: 509480 / BERGEPAINT
CMP:  Rs. 214.10; Market Cap: Rs. 14,843.21 Cr; 52 Week High/Low: Rs. 248.00 / Rs. 102.33. 
Total Shares: 69,32,84,120 shares; Promoters : 51,97,33,336 shares – 74.97 %; Total Public holding : 17,35,50,784 shares –25.03 %; 
Book Value: Rs. 16.33; Face Value: Rs. 1.00; EPS: Rs. 3.65; Dividend: 60.00 %; P/E: 58.65 times; Ind. P/E: 62.00; EV/EBITDA: 28.03.
Total Debt: Rs. 528.19 Cr; Enterprise Value: Rs. 14,917.27 Cr.

BERGER PAINTS INDIA LTD: The Company was founded in 1760 but started its business in Kolkata, India in the year 1923. Berger Paints India Limited was established by Lewis Berger – who laid the foundations of the brand Berger way back in 1760 in the UK, with modest beginnings in India in 1923, the company has undergone many change of hands – In the year 1947, it was acquired by British Paints (Holdings) UK, which renamed the company as British Paints (India). This UK Company was then acquired by Celanese Corporation, which later sold the Indian company to Berger, Jenson Nicholson Ltd in 1969. In 1983, the company was renamed as Berger Paints India and it started using the trade name of Berger. Presently, the majority stake is with the Delhi based Dhingra brothers. Berger Paints engages in the manufacture and sale of various decorative and industrial paints in India and internationally. The company declared its very first bonus in ratio of 1 new for every 2 held on June 1967; 7 new shares for every 15 held on June 1973; 1 new for every 1 held on October 1998; 1 new shares for every 2 held on January 2004 and lastly 3 new shares for every 5 held on June 2006. The company first announced the splits in its face value of shares from Rs. 10 to Rs. 2 on March 2004 and then it again split its face value of shares from Rs. 2 to Rs. 1 on November 2014. The company’s products include interior emulsions, designer finishes, distempers, exterior emulsion, primer, texture finishes, enamels, cement mix, crack fill paste. The company also offers general industrial and automotive coatings, such as pre-treatment chemicals, water base primers, polyester topcoats, polyester-metallic/pearl basecoats, thermosetting acrylic basecoats, thermosetting acrylic clear coats, alkyd-amino topcoats, poly-urethane paints, quick drying paints, polyester surfacers, epoxy surfacers, alkyd amino HLPS, and heat resisting paints and powder and protective coatings. It serves home owners, professionals, and industrial users through a network of dealers. It has a wide variety of product portfolio including interior and exterior wall coatings as well as metal and wood paints. It has strong and well established brands like Berger Silk, Berger Rangoli, Berger Illusions, Berger Weather Coat, Jadoo Enamel, etc. It also provides colour consultancy services. Berger Paints has six subsidiaries and two JVs located across geographies including Cyprus, Russia, Poland and Nepal. Berger Paints subsidiary includes Beepee Coatings Private Limited, Berger Jenson & Nicholson (Nepal) Pvt Ltd, Berger Paints (Cyprus) Ltd, Lusako Trading Ltd in Cyprus and Berger Paints Overseas ltd. The company is locally compared with Asian Paints Ltd, Kansai Nerolac Paints Limited, Akzo Nobel India Limited, Jenson and Nicholson India Ltd, Jyoti Resins and Adhesive Ltd and Globally compared with Akzo Nobel NV of Netherlands, BASF SE of Germany, Dai Nippon Toryo Co of Tokyo, Dow Chemicals of USA, Schulman (A) Inc of USA, Kraton Performance Polymers Inc of USA, Sherwin Williams Co of USA, PPG Industries of USA, Kanto Denka Kogyo Co of Japan, Noroo Holdings Company Limited, Fujikura Kasei Co Ltd of Japan.

Investment Rationale:
Berger Paints India Limited is the second largest paint company in the country with a consistent track record of being one of the fastest growing paint companies, quarter on quarter, for the past few years. This FMCG has one of the largest networks consisting of 16,500 plus distribution channel members served through 135 stock points & 10 production units with about 170 Sales offices including those belonging to the company’s own division and subsidiaries and has employee strength of 2,500. It has 4 distinct business verticals namely decorative coatings, protective coating, automotive coatings, Industrial and Powder coatings with about 10,000 + products. It has business ventures or technology transfer tie ups with various renowned paint companies in the world like Nippon Bee of Japan and Becker Acroma spa of Italy. Berger Paints India Ltd’s product has attained instant recognition worldwide and continues to meet quality requirements that are demanded today in domestic markets. To meet the surging demand of its brands, the company is undertaking huge expansion projects across various locations in India. The company is confident that this new plant which is strategically located and well connected to Bangalore, Hyderabad, Chennai, kochi and Mumbai will be able to fully meet the increasing demand for water based coatings in commercially important regions of India. The Company’s products have been accepted well in 2013-14 and expect the same kind of support from the customers in the near future also. It is expected that the company to post a CAGR of 11 % & 12 % in its top-line and bottom-line over 2013 to 2016E respectively. There has been significant growth of water based coating both for interior and exterior applications during the last 2 decades in paint industry. This upsurge in demand has been specifically strong in the southern region which provided to set up this new water based paints plant at Hindupur for catering to the requirements of this important region with an initial capacity of 80,000 tonnes per annum. The company starts production in the first half of the current fiscal. Once fully completed, the capacity of the Hindupur plant will be 3,20,000 MT per annum of water based paints and 1,00,000 MT per annum of emulsions, used as intermediates for water based paints. The Jejuri plant for industrial paints too is likely to commence operation this fiscal. Berger currently has 11 manufacturing units in Bengal, Goa, Pondicherry, Andhra Pradesh, Gujarat, Jammu and Delhi. The Indian paint industry is largely divided into decorative and industrial segments. Decorative paints enjoy a market share of 71 % and industrial paints have the balance of 29 %. Decorative paints can be further classified into higher end acrylic exterior and interior emulsions, medium range exterior and interior emulsions and enamel paints, low end distempers, wall putty, primers and thinners and wood coatings. They can also be broadly categorised into water and solvent based paints. Water based paints have an edge and are growing at a higher rate because most paintable surfaces in architectural constructions use water based coatings. It also has the added advantage of being more environmentally friendly. Industrial paints, on the other hand, comprise automotive including auto refinish, general industrial including consumer durables, protective coatings, coil coatings and powder coatings. As in the previous year, in the year 2013-14 too, paint industry volumes as a whole continued to perform well with a growth rate, which is estimated to be more than 2 times of GDP for decorative products. The acceleration underscores the resilience of the industry - brought about by the continuous efforts of the industry to open up new markets, introduce superior products, extending the network and convincing the customers about the benefits of more frequent painting of houses. No doubt, this also reflects growing urbanisation, desires of an ever increasing middle class and reduction in repainting cycle. Despite this, per capita consumption of paints in India is now about 2.6 kg compared to the international average of 10 - 13 kg. The total size of the market is roughly estimated at Rs. 35,000 crores. Given the much anticipated recovery in urban sentiments, GDP revival and the expected fillip to the economy, this may increase to more than Rs. 50,000 crores by 2016-17. Industrial paint demand continued to be lukewarm with sluggish growth in the infrastructure industries, particularly in automobiles, high inflation, a rather tight money market and increase in prices of raw materials. However, with the expected increase in infrastructure spending and recovery of the industry, the Company believes that this sector will bounce back.

Outlook and Valuation:

Berger Paints India Ltd (BPIL) is one of the largest paint company in India with its premium brands viz., Breathe Easy, Silk and Weather coat Allguard continued to perform well in all the markets. Berger paints India ltd is amongst top 30 paints companies in the world with global footprints across continents. It is also amongst the top 6th paint company in Asia. Berger Paints India Limited has it’s headquarter in Kolkata, with 7 strategically located manufacturing units, and over 85 sales offices, the company also has an international presence in 4 countries. Berger is the lone supplier to nuclear power plants with its protective coatings in industries. And also supplies its products to professionals and Home owners. In the recent past, Indian economy had been growing at a rate of less than 5 %. In spite of that, as mentioned earlier in this report, the paint industry in general and Berger Paint in particular, continued to maintain their respective growth trajectory, specifically in the decorative coatings segment. In the coming times, the country will have to contend with issues of inflation control and interest rates, current account and fiscal deficits, subsidies and non-plan expenditure – all the time keeping an eye on eradication of poverty, attraction of investment and generation of employment. The paint Companies believes that these are problems which are surmountable with will and tenacity. Several important policies had been stalled in the recent past and once these are cleared, the paint Companies believes that the paint industry will grow at an even faster pace. In infrastructure, it is reported that out of the projects worth Rs. 22,000 billion & only one-third have been revived in the recent past. In this context, it is important to note that the global paints market is worth about $ 121 billion (2012); with total production being 38 million metric tonnes (MT). In the Asia Pacific region, water based (architectural paints) constitutes 65 % by volume. The Indian paint industry volume and value, by comparison, has far to go. Globally, by volume, the split is approximately 50 % architectural paints and the remaining 50 % - industrial performance coatings. The Asia Pacific region contributes 44 % paints and coatings market. India constitutes only 15 % and China 57 % by volume of the Asia Pacific market. Thus, there is actually a major opportunity of growth in both decorative and industrial segments in India. Recently on 18 February 2015, Berger paints is planning to set up an industrial coating plant at Stavropol, an industrial area in southwest corner of the Russian Federation, which houses several automobile and manufacturing businesses. The company has signed a memorandum of Understanding with Stavropol regional government in this regard. The company has received 6 hectares of land at a very favourable price on a nominal lease till 2030 and production is expected to start in 12 to 15 months. The company will conduct a feasibility study for setting up a modern industrial coating in the region and aims to satisfy the demands in Russia and develop bilateral Co-operation. Berger Paints plans to begin with small investment and increase it gradually and will employ 50 people with a target of 3,000 tonnes per year and then scale up it up to 50,000 tonnes. Around $5 million will be invested to set up the plant in Russia. The management has clearly stated that company has taken care of Indian requirement for the next 5 years post setting up the facility in Hindupur, Andhra Pradesh and will keep on investing in India as and when needed, also the logistical issues in exporting of paint from India to other countries is much more as paint is bulky and so company decided to set up one plant to Russia. Berger Paints has plants in Nepal, Bangladesh, Poland and the overseas turnover accounts for less than 5 % to the total turnover of the company. On financial side the International business saw muted performance impacted by one-off correction in Nepal and flat numbers in BJN India due to consolidation and restructuring exercise in Sherwin Williams. Instability in Ukraine impacted growth in Bolix S.A., while loss of customer in DIY segment continued to impact Poland sales. BNB Coatings continue to show robust sales growth, but Becker Coatings had a flat quarter. Company expects BJN India will be through with its restructuring and will pick up from FY16, while growth in Nepal is also expected to revive from next quarter. The Company’s Q3FY15 revenue was muted, but lower inputs led to higher EBITDA margins. Berger’s Revenues were at Rs. 1,120 Cr, up 8.5 % YOY. The Gross margin was up 2.40 % YoY to 41.9 % led by low input prices, erstwhile price hikes and better mix. But, EBITDA margin expansion was lower at 0.60 % YoY to 13.3 % due to higher Ad spends. The EBIDTA grew 13.3 % YoY to Rs. 150 Cr, but higher depreciation led to flat APAT at Rs. 82.1 Cr. Berger’s reported tepid Domestic operations a 10.8 % YoY growth to Rs. 990 Cr with volume growth at 6 % YoY. Growth in decorative paints was lower due to sluggish demand and early festive season vs previous year. General industrial & auto paints showed healthy growth trends and is expected that the domestic growth to pick up, but in near term, industrial paint sector could outperform decorative growth rates. Given the pricing power ability, it is likely to have uptick in revenue CAGR. While volume growth was tepid, market share gains and display of strong margin expansion is reassuring. It is expected that the domestic growth to revive in ensuing quarters and strong margin tailwinds to flow through in ensuing quarters. It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also.

KEY FINANCIALSFY14FY15EFY16EFY17E
SALES ( Crs)3,869.704,350.905,209.206,437.60
NET PROFIT (₹ Cr)249.40278.60429.30566.00
EPS ()3.604.006.208.20
PE (x)60.5054.1035.1026.60
P/BV (x)13.5012.6011.4010.20
EV/EBITDA (x)35.0029.3020.4016.00
ROE (%)24.1024.1034.1040.60
ROCE (%)24.5026.9037.7045.50


*As the author of this blog I disclose that I do hold BERGER PAINTS (I) LTD in my investment portfolio.

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Disclaimer
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
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Monday, March 3, 2014

BERGER PAINTS INDIA LTD : SLOWLY BUT PERFORMING STEADILY !!!

Scrip Code: 509480 / BERGEPAINT
CMP:  Rs. 212.00; Buy at current levels.

Short Term Target: Rs. 222.60; Medium to Long Term Target: Rs. 233; STOP LOSS – Rs. 195.04; Market Cap: Rs. 7,341.34 Cr; 52 Week High/Low: Rs. 256.40 / Rs. 185.00.

Total Shares: 34,64,81,317 shares; Promoters : 25,97,17,461 shares –74.96 %; Total Public holding : 8,67,63,856 shares – 25.04 %; Book Value: Rs. 28.41; Face Value: Rs. 2.00; EPS: Rs. 6.56; Divd: 90.00 %; P/E: 32.24 times; Ind. P/E: 34.78; EV/EBITDA: 17.17.
Total Debt: 303.02 Cr; Enterprise Value: Rs. 7,668.45 Cr.

BERGER PAINTS INDIA LTD: The Company was founded in 1760 but started its business in Kolkata, India in the year 1923. Berger Paints India Limited was established by Lewis Berger – who laid the foundations of the brand Berger way back in 1760 in the UK, with modest beginnings in India in 1923, the company has undergone many change of hands – In the year 1947, it was acquired by British Paints (Holdings) UK, which renamed the company as British Paints (India). This UK Company was then acquired by Celanese Corporation, which later sold the Indian company to Berger, Jenson Nicholson Ltd in 1969. In 1983, the company was renamed as Berger Paints India and it started using the trade name of Berger. Presently, the majority stake is with the Delhi based Dhingra brothers. Berger Paints engages in the manufacture and sale of various decorative and industrial paints in India and internationally. The company’s products include interior emulsions, designer finishes, distempers, exterior emulsion, primer, texture finishes, enamels, cement mix, crack fill paste. The company also offers general industrial and automotive coatings, such as pre-treatment chemicals, water base primers, polyester topcoats, polyester-metallic/pearl basecoats, thermosetting acrylic basecoats, thermosetting acrylic clear coats, alkyd-amino topcoats, poly-urethane paints, quick drying paints, polyester surfacers, epoxy surfacers, alkyd amino HLPS, and heat resisting paints and powder and protective coatings. It serves home owners, professionals, and industrial users through a network of dealers. It has a wide variety of product portfolio including interior and exterior wall coatings as well as metal and wood paints. It has strong and well established brands like Berger Silk, Berger Rangoli, Berger Illusions, Berger Weather Coat, Jadoo Enamel, etc. It also provides color consultancy services. Berger Paints has six subsidiaries and two JVs located across geographies including Cyprus, Russia, Poland and Nepal. Berger Paints subsidiary includes Beepee Coatings Private Limited, Berger Jenson & Nicholson (Nepal) Pvt Ltd, Berger Paints (Cyprus) Ltd, and Berger Paints Overseas ltd. The company is compared with Asian Paints Ltd, Kansai Nerolac Paints Limited, Akzo Nobel India Limited, Jenson and Nicholson India Ltd, Clariant Chemicals Ltd, Shalimar Paints ltd, Jyoti Resins and Adhesive Ltd and globally comapared with PPG Industries of USA, Advanced Emissions Solutions of USA, Sersol Bhd of Malaysia, Mercury industries Berhad of Malaysia, Sersol Bhd form Malaysia, Industrial Asphalts (Ceylon) Ltd from Sri Lanka, Petroasian Energy Holdings Ltd of Hong Kong, Landing Internatioanl Development ltd of Hong Kong, Toyo Drilube Company ltd of Japan, Atomix Co., Ltd of Japan, Ubis (Asia) public Co., Ltd of Thailand, Eason Paint Public Company Ltd of Thailand, Dimet (Siam) Public Comapny Ltd of Thailand, Isamu Paint Co Ltd of Japan, Tatung Fine Chemicals Co Ltd of Taiwan, Basil Read Holding ltd of South Africa, Raubex Group Ltd of South Africa, Delta Holding SA from Morocco, Dai Nippon Toryo Company Ltd, of Japan, Noroo Holdings Company Limited, Fujikura Kasei Co Ltd of Japan.

Investment Rationale:
Berger Paints India Limited is the second largest paint company in the country with a consistent track record of being one of the fastest growing paint companies, quarter on quarter, for the past few years. This FMCG company has one of the largest networks consisting of 16,500 plus distribution channel members served through 135 stock points & 10 production units. It has 4 distinct business verticals namely Decorative coatings, Protective coating, Automotive coatings, Industrial and Powder coatings with about 10,000 + products. It has business ventures or technology transfer tie ups with various renowned paint companies in the world like Nippon Bee of Japan and Becker Acroma spa of Italy. Berger Paints India Ltd’s product has attained instant recognition worldwide and continues to meet quality requirements that are demanded today in domestic markets. To meet the surging demand of its brands, the company is undertaking huge expansion projects across various locations in India. The company is confident that this new plant is strategically located and is well connected to Bangalore, Hyderabad, Chennai, Kochi and Mumbai and this will be able to fully meet the increasing demand for water based coatings in commercially important regions of India. Berger paints has inaugurated its largest water based paint manufacturing unit in Hindupur, Anantapur district, AP. The factory has an initial capacity of 80,000 tonnes per annum. It is in its final phase, the factory will have a capacity of 3,20,000 tonnes per annum. Additionally there will be a plant for the manufacturing of 1,00,000 KL of emulsion, a key material, for which a provision is already made. Berger India Group is opening a plastic packaging factory on the other side of the road. Also another Berger factory is coming up in the Gollapuram industrial area near to Hindupur, for manufacturing of 40,000 tonnes of paint. Total investment in the Hindupur area by the Berger India Group will be close to Rs. 550.00 Cr. On financial side, Berger Paints India registered good Q3FY14 consolidated sales showing a growth of 11.74 % to Rs. 1,024.80 Cr. The growth in revenue was on the back of healthy performance by the subsidiaries. Berger's PAT was at Rs. 82.30 Cr declined by 0.36 % YoY and by 0.20 %s at Rs. 194.10 Cr for the 9MFY14. Berger domestic revenue grew by 7.4 % to Rs. 882.80 Cr YoY. The lower revenue growth was on the back of sluggish demand in industrial paints; especially project based protective coatings segment and relatively higher base in the decorative paints. In decorative business, growth was from economic and premium end products. Demand for Berger products in Tier II & III remained healthy, which has resulted in company sustaining its market share in decorative business of about 19 %. EBIDTA margin were at Rs. 131.50 Cr and for the 9MFY14 were at Rs. 325.40 Cr. The EBIDTA margin were lower due to high employee cost and other expenditure. Employee cost increased by 23.08 % to Rs. 57.80 Cr YoY and other expenditure increased by 13.63 % to Rs. 217.40 Cr YoY on the back of commencement of commercial production of Hindupur plant. The increase in the finished products prices did not contributed much to the EBIDTA margin as the increase in the prices was offset by rise in the input prices. Berger’s combined subsidiaries registered sales growth of 50 % in Q3FY14 to Rs. 147 Cr on the back of strong growth in Nepal and India JV operations (Berger Becker Coating-BNB Chemicals). Major contributor Bolix (Poland) witnessed increased in sales due to season and currency gains. Combined subsidiaries EBIDTA margin expanded by 0.31 % to Rs. 25.2 Cr while its PAT margin declined marginally by 0.34 % to Rs. 16.6 Cr. Berger has taken price hike of 2.2 % in the decorative segment in February 2014 and the company feels that it has gained market share marginally in decorative segment during 9MFY14.

Outlook and Valuation:
Berger Paints India Ltd is amongst Top 30 in the world and India's one of the largest paint company with its premium brands viz., Breathe Easy, Silk and Weather coat Allguard which continued to perform well in all the markets. Berger paints India ltd has its global footprints across the continents. It is also amongst the top 6th paint company in Asia. Berger Paints India Limited has it’s headquarter in Kolkata, with 7 strategically located manufacturing units, and over 85 sales offices, the company also has an international presence in 4 countries. Berger is the lone supplier to nuclear power plants with its protective coatings in industries. And also supplies its products to professionals and Home owners. Company is expected to post a CAGR of 12 % in its top-line and 13 % in its bottom-line. Paint industry, as a whole, continued to do better, in spite of the adverse developments, and has shown growth at a higher rate than GDP. The growth is fuelled by higher income levels of people across urban and rural segments, historically, low consumption of paints offers a very high potential for the future, and with growing popularity of branded paints with better quality and longer durability and the desire of people to remodel and embellish existing dwelling units or thier homes makes paint indusrty more attractive for investments. The industry has given a fillip to this demand by expanding its distribution network penetrating newer and hitherto unexplored geographies, offering a wide degree of choice in terms of attributes and prices and educating consumers and applicators in regards to benefits of various brands and uses of paint. The industry estimates that there could be the Total revenues of around Rs. 26,000 Cr for Indian companies, and may touch around Rs. 50,000 crores by FY 2016. Over the last three years, paint prices have increased by about 30 % - to partially compensate for increase in raw material prices. However, there has been no significant increase in architectural paint prices since the third quarter of the fiscal year is under review and, on the contrary, there has been a marginal decrease. There has been some softening in prices of titanium dioxide and some other chemicals and crude prices. However, the overall raw material index for the period was higher than that of 2011-12. The ratio of decorative and industrial paints is 70:30 which is expected to continue in the future in view. The higher rate of growth in decorative paints augurs well for the industry. The year witnessed some weakening of enthusiasm in industrial paints market with marked fall in automotive sales, lower spending in infrastructure and general slowdown in the industry. Company believes that this weakening is not a permanent phenomenon and is ready to accept challenges of higher demand and better quality requirements in this segment, as and when they arise. The growth in the decorative paint is fuelled by rising paint consumption in Tier II&III towns and company strong focus to grow its premium portfolio in recent years. However sluggish demand in the industrial segment affects the overall revenue of decorative business. The Q4FY14 is expected to be better on the back of good monsoon and demand from tier II & III cities. It is expected that industry paint segment will revive on the back of improvement in macro environment. At the current market price of Rs. 212.00, the stock is trading at a PE of 31.26 x FY14E and 28.53 x FY15E respectively. The company can post Earnings per share (EPS) of Rs. 6.78 in FY14E and Rs. 7.43 in FY15E. One can buy BERGER PAINTS (INDIA) LTD with a target price of Rs. 233.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 222.60


KEY FINANCIALSFY12FY13FY14EFY15E
SALES ( Crs)2,662.103024.213,379.153,717.06
NET PROFIT (₹ Cr)177.40209.80235.05257.61
EPS ()5.136.066.787.43
PE (x)28.0934.9131.1828.45
P/BV (x)5.907.446.014.96
EV/EBITDA (x)16.1719.9517.6215.88
ROE (%)21.0021.3119.2717.44
ROCE (%)34.0932.1128.4426.05

I would buy BERGER PAINTS (INDIA) LTD for Medium to Long term for target of Rs. 233.00 and for the shorter term the target would br Rs. 222.60. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 195.05 on every purchase(Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold BERGER PAINTS in my investment portfolio.

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

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