Accumulate Berger Paints; target Rs 109: Emkay

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Accumulate Berger Paints; target Rs 109: Emkay

Emkay Global Financial Services is bullish on Berger Paints and has recommended accumulate rating on the stock with a target price of Rs 109 in its February 3, 2012 research report.

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Emkay Global Financial Services is bullish on Berger Paints and has recommended accumulate rating on the stock with a target price of Rs 109 in its February 3, 2012 research report.

"Berger Paints report 22% yoy growth in standalone APAT to Rs 449 mn on expected lines; Lower Ebidta margins (down 50 bps to 9.6%) get offset by strong volume (12-13%). Poland and Nepal operations report Ebidta margin pressure; Consolidated APAT at Rs 491 mn was Rs 20 mn lower then expectations of Rs 514 mn. Eyeing price increase in industrial and decorative portfolio in Q4FY12; Would regain Ebidta margins in FY13E. Retain our FY12E and FY13E EPS of Rs 5.1/share and Rs 6.2/share, respectively."

"Standalone operations which represent the domestic business deliver performance on expected lines. Sales grew by 27% yoy at Rs 7 bn, led by volume growth of 12-13% - which is higher then Emkay expectation and higher then market growth. We suspect market share gains for Berger in the quarter. EBITDA grew by 22% yoy to Rs 675 mn & PAT grew by 22% yoy to Rs 449 mn, in line with our expectations. But, Ebidta margin decline of 50 bps yoy to 9.6% is negative surprise, since we forecasted flat Ebidta margins. Restricted price increase in industrial portfolio and higher input costs resulted in Ebidta margin decline. Higher then expected volume growth and revenue growth offset the impact from decline in Ebidta margins."

"Core arguments remain intact for Berger Paints (1) gains from increasing scale and size of operations (2) continuous shift in its product portfolio towards premium products (3) retaining market shares and (4) backward integration. This differentiates the earnings trajectory of Berger Paints vis-à-vis peer companies. Hence, we remain optimistic on the company's future growth prospects and expect valuation discount between Berger Paints and Asian Paints to narrow in forthcoming years. Therefore, we maintain our Accumulate rating on the stock with a target price of Rs 109/share," says Emkay Global Financial Services research report.

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