Buy Berger Paints, target Rs 365: Anand Rathi

Anand Rathi

Berger Paints is the second largest player in the Indian paint industry after Asian paints, currently they are enjoying 18-20 percent market share out of total market size of ~Rs 50,000 crore.

The company has posted a top line CAGR of ~10 percent in last 20 years led by urbanization & demand from re-painting. As per the management, 80 percent demand is coming from repaint and rest is coming from the new paint.

The company is also trying to set up their plant in different location in India to reduce their freight cost which will further improve their operating margin. In FY20 Co will incur ~Rs 200 crore as capex to set up two plants one is in UP to produce mainly decorative paint and another is in Jejuri for industrial paint.

In terms of growth, we continue to expect Indian paints industry to grow at around 1.4-1.6 (x) of Indian GDP in the coming.

We believe Berger Paints is better placed to capture incremental growth in the industry on back of its strong distribution network, cost efficient operations, and strong brand positioning.

The company has lower penetration compared to the leader which provides higher scope for further growth. We initiate our coverage on Berger Paints with a BUY rating and a target price of Rs 365.

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