Shares of Berger Paints India hit their lowest levels in 52 weeks in early trade on February 3, a day after the company posted a decline in its consolidated net profit for the December quarter.
However, the recent correction in the stock triggered bargain buying from lower levels which helped it recoup its losses. At 10.52 am, shares of Berger Paints India traded 1.92 percent higher at Rs 551.00 on the National Stock Exchange as they recovered from their 52-week low of Rs 527.15.
The paint manufacturer's consolidated net profit for the Oct-Dec period declined 20.5 percent on year to 200.9 crore dragged by higher expenses and a weak operational performance.
Change in product mix, adverse impact of an extended monsoon and use of high-cost inventory weighed on the company's EBIDTA margin which contracted 239 basis points on year to 13% in the quarter ended December. One basis is one-hundredth of a percentage point.
However, resilient volume growth on the back of judicious price hikes and focus on increasing market share helped the paint manufacturer post a 5.6 percent rise in revenues to Rs 2,693.6 crore in the quarter under review.
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Brokerage views
ICICI Securities
Analysts at ICICI Securities believe revenue growth is likely to be slower in the upcoming financial year due to negligible price hikes and lower volume growth coupled with higher competitive pressures and revival of the unorganized sector.
Revenue mix is also likely to remain inferior due to inflationary pressures and higher discounting by smaller players at lower end of market, the brokerage firm said in a note.
Adding to that, the brokerage house also sees limited upside in the stock at its current valuations and on that account maintains a Reduce rating with a target price of Rs 505.
Asian Markets Securities
The brokerage firm expects Berger Paints India to report double digit volume growth and improve its EBIDTA and gross margins in the upcoming financial years.
Apart from that, the brokerage also believes that the capacity addition at the paint manufacturer's Sandila plant will help the company better service demand and bring efficiency in operations.
Moreover, factoring in the near 8% correction in the stock since the previous quarter, the brokerage firm also upgraded its rating for the stock to Accumulate and assigned a target price of Rs 606.
Morgan Stanley
The brokerage firm has assigned an Underweight rating to the stock and slashed its target price by nearly 12 percent to Rs 507.
The cut in target price comes on the back of the company's lower-than-expected earnings for the Oct-Dec quarter.
"While market share gains and focus on accelerating pace of network expansion are positives for the paint manufacturer, changing industry dynamics and margin headwinds keep us Underweight on the stock," the brokerage said as per CNBC-TV18.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
