Sell Berger Paints; target of Rs 440: Dolat Capital

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Dolat Capital's research report on Berger Paints

Berger's Q4FY20 results came in line with our estimates, but EBITDA and APAT was a miss. Sales de-growth in domestic decorative business (-13%) was lower compared to APL (-8%). We believe that comparatively higher contribution from urban markets resulted in significant sales decline.  Nevertheless, benign RM prices resulted in expansion in GM. RM prices are likely to remain stable in the near term.  Going ahead, as the second-largest company in the domestic decorative paint industry, Berger is likely to benefit further, due to (1) rising distribution reach, (2) strong presence in urban markets, (3) attractive product offering in all categories, and (4) calibrated pricing.  Government boost for the real estate sector and better monsoon are likely to augur well.

Outlook

Hence, we expect acceleration n volume growth for the industry in the ensuing quarters. In addition, recent fall in crude oil prices should ease pressure on margins. However, considering rich valuations, we maintain SELL with TP of Rs 440 (50x FY22E EPS).

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