Buy Berger Paints; target of Rs 152: SPA Research

SPA Research is bullish on Berger Paints India and has recommended buy rating on the stock with a target of Rs 152 in its June 6, 2012 research report.

“Berger Paints India (Berger) reported results broadly on expected lines. Company reported consolidated sales of INR 7,466mn in Q4FY12, a YoY growth of 26.79%. EBIDTA margin improved by 90bps YoY to 9.83% on the back of price hikes. PAT at INR 446mn was up 31.76% YoY. Going ahead, we expect company to register sales and PAT CAGR of 17% and 21% respectively over FY12- 14. We introduce FY14E EPS and rollover our multiple (20x) to arrive at 18 months target price of INR 152 (previous INR 128).”

“Berger's India (standalone) business which contributed ~90% to overall sales registered sales growth of 26.25% to INR 6,827mn in Q4FY12. The growth in sales was boosted by ~12% of cumulative price increases taken by the company in its decorative paints business (~80% of standalone revenue) in FY12. However, company was unable to pass increase in RM cost completely in its industrial paints business which it plans to do in next few months. For the full year, standalone entity grew by 26.51% to INR 26,579mn. Consolidated sales of other subsidiaries (Nepal, Bolix and Berger Becker) grew by 33% & 23% in Q4FY12 & FY12 respectively with higher growth in Nepal (~40% YoY in FY12). Going ahead, we expect some moderation in volumes on the back of uncertain and slowing economic environment and expect consolidated sales CAGR of 17% over FY12-14. Berger reported consolidated EBIDTA margins at 9.83% (up 80bps YoY) and 9.90% (down 47bps YoY) in Q4FY12 and FY12 respectively.”

“EBIDTA margins for the full year declined on the back of high RM cost dampened further by decline in INR. However, company has taken further price hikes to the tune of ~5% in last two months in decorative paints business to protect margins. Also, key RM like TiO2 and crude derivatives has been on declining trend recently on the back of global slowdown. With stabilization in exchange rate, we expect EBIDTA margin pressure to subside going forward resulting in margin improvement.”

“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 volume growth. With expected improvement in margins on the back of moderation in RM cost, 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 introduce FY14 EPS and roll-over our multiple (20x) to arrive at 18 months target price of INR 152. We maintain BUY,” says SPA Research report.  

Institutional holding more than 40% in Indian cos  

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