Buy Berger Paints; target Rs 128: SPA Research

“Berger Paints India (Berger) maintained good sales growth in Q3FY12. Company reported consolidated sales of INR 7,823mn in Q3FY12, a YoY growth of 26.17%. EBIDTA margin declined by 91bps YoY to 10.09% on the back of higher raw material (RM) cost. PAT at INR 491mn was up 11.95% YoY in line with our expectation.  The company reported a YoY growth of 27.45% in its standalone sales to INR 7,010mn in Q3FY12 which accounts for ~89% of consolidated sales. The growth in sales was boosted by 10-11% of YTD price increase taken by the company in its decorative paints business (~80% of standalone revenue). On the volume front, the growth has moderated compared to last year due to lower discretionary spend amid high inflation and uncertain economic environment. Company has been observing higher growth in Tier II and Tier III cities compared to urban regions. It continued to expand its dealer network at faster pace than originally planned and expects to connect with ~16,000 dealers by FY12 compared to ~14,500 in Q2FY12.”

“New product launches and company's strategy to expand in other geographies where it currently has lower presence by increasing dealership network will continue to drive sales growth. With expected improvement in margins, we expect profitability to improve going forward. Company's initiative to enter new category of business i.e. construction chemicals would add another leg of growth in long term. We maintain BUY recommendation with FY13 end target price of INR 128 (20x FY13E EPS),” says SPA Research report.

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