Hold Berger Paints India; target of Rs 835: ICICI Direct

ICICI Direct's research report on Berger Paints India

Berger’s Q4FY21 volume growth at 58% YoY (Q2:15%; Q3: 28%) is one of the best in the industry and much ahead of our expectation of 28%. Apart from a favourable base, the decorative paints volume growth was largely driven by a pick-up in construction activity in Q4 and healthy growth in construction chemical (largely water proofing business). On the other hand, a strong recovery in automotive sales helped a strong recovery in the performance of industrial paints (~15% of topline). For FY21, overall volume growth came in at 15% despite a loss of sales in Q1. However, the paint industry will witness near term demand challenges due to lockdown and margin pressure due to low operating leverage. Hence, we revise our revenue, earning estimates downward by ~5% each. We believe paint demand will pick up gradually post opening up of the markets. Also, the management has reiterated strong growth momentum would continue in the water proofing segment, which will aid in future volume growth.

Outlook

We maintain our HOLD rating on the stock with a revised target price of Rs 835/share (earlier Rs 810).