Chola Securities
Berger Paints (Sell)
Target: ₹601
CMP: ₹759.30
Berger’s top line growth expanded 25 per cent (y-o-y) to ₹2,110 crore; growth was driven by a strong performance in its decorative business (+30 per cent y-o-y). Low-cost inventory aided the gross margin expansion of 310 basis points. However, aggressive marketing and advertising spends (during the Diwali period) offset some of these gains at the operating level.
Management stated faster recovery would be seen in FY2022, with recovery in re-painting activities and new construction activities. While the volume trajectory in rural areas and tier II/III cities was sustained, the recovery in metro and tier I cities boosted the overall volume performance in the quarter gone by.
The performance of the international business varied; while operations in Russia faced some challenges due to the prevailing economic conditions and currency fluctuations, Nepal fared well after a protracted lockdown in the initial months of this financial year. Other markets (such as Indonesia and Sri Lanka) also gained some strength during the quarter.
For Q3-FY21 the company reported robust set of earnings, outperforming domestic industry peers.
The management expects strong momentum seen in Q3-FY21 to continue in Q4-FY21. While the long term demand outlook for the sector and company’s earnings prospects remain optimistic, the stock valuation remains expensive