Accumulate Berger Paints; target of Rs 152: Emkay

Emkay Global Financial Services is bullish on Berger Paints and has recommended accumulate rating on the stock with a target of Rs 152, in its June 4, 2012 research report.

"Berger Paints continues to gain alongside industry - price-rises and volume-led growth in the market place. During Q4FY12, standalone operations (largely, domestic business) reported revenue growth of 26.0% (equally split in volume n prices) to Rs6.8 bn, Ebidta growth of 34.3% yoy to Rs670 mn and APAT growth of 29.8% yoy to Rs488 mn. The Ebidta margin expands by 60 bps yoy to 9.9%, led by operating leverage. The underlying volume growth was 13-14%, balance being driven by price increases. Standalone operations characterized by domestic business continue to report strong growth momentum."

"Being seasonally weak quarter for international business alongside continued stress in portfolio, there is nothing to cheer about the performance. The key highlights are as under (1) Revenues grew 30.4% yoy to Rs627 mn (2) Core Ebidta grew 21.2% yoy to Rs16 mn and (3) Adjusted loss of Rs42 mn against Rs37 mn in Q4FY11. International Business reported APAT of Rs26 mn in FY12 against Rs18 mn in FY11. Consequently, Consol APAT stood at Rs446 mn, growing 31.6% yoy."

"Strong domestic operations offset weak performance of international business for last few quarters. The volume growth performance and Ebidta margin expansion in Q4FY12 beats our expectation by 10%. Consequently, FY12 performance beats expectation by 3% with reported APAT of Rs1.8 bn and EPS of Rs5.2/Share against expectation of Rs1.76 bn and EPS of Rs5.0/share."

"Core arguments remain intact for Berger Paints (1) gains from increasing scale and size of operations (2) continuous shift in its product portfolio towards premium products (3) retaining market shares and (4) backward integration. This differentiates the earnings trajectory of Berger Paints vis-à-vis peer companies. Hence, we remain optimistic on the company’s future growth prospects and expect valuation discount between Berger Paints and Asian Paints to narrow in forthcoming years. Therefore, we maintain our ACCUMULATE rating on the stock with a target price of Rs152/share," says Emkay Global Financial Services research report.

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