Hold Berger Paints India - BP Wealth

Berger Paints India Ltd (BPIL) is the third largest paint manufacturer and the second largest decorative paint player in India. They are offering their customers a variety of innovative painting solutions, decorative or industrial. The company is headquartered in Calcutta and services the market through a distribution network comprising of 75 stock points and above 12,000 paint retailers. Their manufacturing facilities are located in West Bengal, Uttar Pradesh, Pondicherry, Goa, and Jammu & Kashmir. Berger Auto & Industrial Coatings Ltd, a wholly owned subsidiary was amalgamated with the company. The firm entered into a Joint Venture Agreement with Nippon Bee Chemical Co Ltd, Japan for the purpose of formation of a company for manufacture and sale of coatings for plastic substrates used in automobiles and parts thereof in India.

Investment Rationale

Aspirations to become a prominent industry player

BPIL is the second largest firm in the decorative paint segment with a market share of 21%.The firm ranks 33rd globally and has plans to reach the top 25 position by 2016.The management intends to increase the market share to 23% in the next four years through a plethora of measures such as:

Ramping production

BPIL's current production capacity stands at 43% of Asian Paints. The company hopes to narrow this gap by building capacity through expansions in both Greenfield as well as Brownfield projects. Expansion for future activities are to be funded through internal accruals. All in all these activities will help BPIL to reach closer to Asian Paint's capacity, the current market leader in the decorative paints arena.

Effective supply chain infrastructure

A strong and efficient distribution network is imperative to ensure high levels of customer satisfaction. BPIL's measures to improve the dealer network and supply side support by adding 400-500 dealers along with 1,600-1,700 tinting machines every year will help them garner a strong foothold in this area.CRM implementation will help the firm transform its operations on an efficient scale and better manage inventories and demand forecasting activities.

Moving higher up the value chain

The firm is reorganizing it's product portfolio to include a greater proportion of premium products. Premium products command higher prices, hence will result in better margins for the firm. Selling exotic products will also help improve the brand's perception leading to a higher sales realization, even for its low range and mid positioned products.

Brand reconciliation efforts

As discussed earlier BPIL is on the rise to improve its brand recognition efforts. The decorative paint market does require constant marketing activities as the products are being pushed to the end consumers in a highly competitive environment. Aggressive marketing initiatives by the management have ensured that these vital opportunities are not lost and constant brand awareness ,as repainting constitutes to an important contributor to the firm's overall revenues.

Outlook & Valuation

We have assigned a target PE multiple of 25x to our FY15 EPS of Rs 9.71 to arrived at a target price of Rs 234 with a Buy rating on the stock.

Source : Equity Bulls

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