Hold Berger Paints; target of Rs 540: ICICI Securities

ICICI Securities research report on Berger Paints

In 1QFY21, Berger's revenue decline of 45.8% was an (optical) outperformance versus Kansai (58.6%) & Akzo (64.1%) and at par with Asian Paints (43%). Excluding STP acquisition (in Oct 2019), its performance (c.49% revenue decline) is in-line with industry. Likely higher trade margins, inferior revenue mix and lower profitability/ losses of STP would have impacted EBITDA margins. We believe this is transitory impact and should normalize by Q4FY21. Some cost savings are structural in nature and there will be savings in freight cost post commencement of Uttar Pradesh plant in H1FY21.

Outlook

We expect it to improve margins in FY22 (and beyond). We remain structural bulls, yet retain HOLD rating as premium valuations vs APNT is unjustified.