Hold Berger Paints India; target of Rs 675: ICICI Direct

ICICI Direct's research report on Berger Paints India

Berger Paint’s Q2FY21 performance was much ahead of our estimates in terms of volume growth and EBITDA margin. The decorative segment volume growth at 15% YoY in Q2FY21 was one of the best in the industry. The strong volume growth was largely led strong decorative paint demand in the semi urban and rural region where company has a stronghold as against industry leader. On the subsidiary front, BJN Nepal was severely impacted by lockdown in the quarter. However, Poland subsidiary Bolix SA exhibited an improved performance. The subsidiary sales growth at 22% YoY was also attributable to acquisition of STP Ltd in November 2019. On the raw material front, gross margin increased 176 bps YoY mainly due to benign raw material price that sufficed to negate the impact of adverse mix and price cuts initiated in September-December 2019. Going forward, the management saw good demand traction in decorative paints supported by intact demand from tier II & III cities along with expansion into water proofing business. We revise our revenue earnings estimates upward for FY21 and introduce FY23 estimates with revenue, earning CAGR of 13%, 20%, respectively. While we stay positive on the stock, we believe at current valuation most of the positives seems to be factored in the price.

Outlook

We introduce FY23 estimates with revenue earning CAGR of 13% and 20%, respectively in FY20-23E. We roll over our valuation on FY23 and maintain our HOLD rating with a revised target price Rs 675/share, considering the current price captures all near term positives.

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