Berger Paints - Core argument intact, Retain Accumulate - Emkay

Berger Paints report 22% yoy growth in standalone APAT to Rs449 mn on expected lines; Lower Ebidta margins (down 50 bps to 9.6%) get offset by strong volume (12-13%)

* Poland and Nepal operations report Ebidta margin pressure; Consolidated APAT at Rs491 mn was Rs20 mn lower then expectations of Rs514 mn

* Eyeing price increase in industrial and decorative portfolio in Q4FY12; Would regain Ebidta margins in FY13E

* Retain our FY12E and FY13E EPS of Rs 5.1/share and Rs 6.2/share, respectively. Maintain ACCUMULATE rating with target price of Rs 109/share

Standalone business representing domestic business delivers performance on expected lines

Standalone operations which represent the domestic business deliver performance on expected lines. Sales grew by 27% yoy at Rs7 bn, led by volume growth of 12-13% - which is higher then Emkay expectation and higher then market growth. We suspect market share gains for Berger in the quarter. EBITDA grew by 22% yoy to Rs675 mn & PAT grew by 22% yoy to Rs449 mn, in line with our expectations. But, Ebidta margin decline of 50 bps yoy to 9.6% is negative surprise, since we forecasted flat Ebidta margins. Restricted price increase in industrial portfolio and higher input costs resulted in Ebidta margin decline. Higher then expected volume growth and revenue growth offset the impact from decline in Ebidta margins.

Strong volume growth in domestic operations, remains key feature in the quarter

Our core argument of continued volume growth without loosing market share is playing since last 3 quarters. After a seasonal moderation in volume growth (8-9%) in Q2FY12, volume growth has bounced back to approximately 12-13% in Q3FY12. Efforts towards realigning portfolio with market leader of decorative paints, plugging product gaps and enhancing distribution reach has translated into strong volume growth. Infact, Berger seems to have gained some market share in the process.

Price increases to be taken in Q4FY12

Berger Paints had hinted at regaining Ebidta margins by undertaking price hikes in the Industrial portfolio in Q4FY12. Also, small price hike would be affected on decorative portfolio to offset marginal increase in input costs. These price hikes would regain Ebidta margin partially in Q4FY12; full benefit to flow in FY13E.

Source : Equity Bulls

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