Reduce Berger Paints: target of Rs 450: ICICI Securities

ICICI Securities's research report on Berger Paints

Similar to peers, Berger Paints (Berger) has reported double-digit volume growth (13.9%) in Q4FY24 but value growth was dismal at 3.1% YoY. We believe higher sales of tile adhesives, putty and entry-levels products is resulting in higher volume growth. Launch of innovative products and distribution expansion have led to market share gains in FY24. However, we believe it may be tough to gain market share in FY25-26E, considering there will be steep competition from new players and existing players also plan to step up investments. Berger’s Q4FY24 EBITDA margin was lower than its target margin band of 15-17%. We note there are multiple headwinds to margins such as: (1) Steep competitive pressures resulting in price cuts and higher trade/ media spends and (2) likely inflationary pressures in input prices. We model Berger’s EBITDA margin to contract to 14.8% in FY26E from 16.6% in FY24.

Outlook

We model Berger to report revenue and PAT CAGRs of 9.2% and 5.7%, respectively, over FY24-26E. We believe increase in competitive pressures post Grasim’s entry is likely to impact industry profit pool and thus valuation multiples. Maintain REDUCE with a revised DCF-based TP of INR 450 (prior: INR 520; implied P/E of 40x on FY26E EPS).