Berger Paints - Gathering momentum - IDFC

We interacted with Mr. Srijit Dasgupta, Director and CFO of Berger Paints (Berger), India's 2nd largest paints company. Key highlights of our interaction:

- Berger Paints is the second largest paints company in India with ~18% market share in the decorative paints business. The company exclusively owns the Berger brand in India, Nepal and Sri Lanka.

- Paints industry volumes have a 1.5-1.6x correlation with GDP. Over the longer term, assuming an annual GDP growth of 7%, Berger expects industry volumes to grow by 11-12% per annum and its own volumes by 100-150bp ahead of the industry with focus on the faster growing premium segment and expanding distribution.

- Increasing focus on the decorative paints segment (currently 80% of the business) and within that premium emulsions will not only drive margin improvement but also improve the working capital cycle and cash flows.

- Berger is setting up a 320,000 tonnes water-based paints plant in Hindpur, to more than double its existing capacity of 250,000 tonnes. The first phase of this expansion will be complete by 1QFY14 and add 80,000 tonnes to capacity.

The paints industry is one of the most attractive consumption spaces in India given its increasing growth multiplier to GDP, limited number of pan-India players and sustained price discipline. Berger stands to be a key beneficiary of this opportunity over the next few years given its emphasis on premiumisation, a net cash balance-sheet position and a promoter focused on the core business. At CMP of Rs156, the stock trades at 26x FY13E and 22x FY14E Bloomberg consensus earnings, which is at a 28% discount to market leader Asian Paints valuations.

Source : Equity Bulls

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