Recommendation from Paints Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
BERGER PAINTS INDIA LIMITED : A COLOURFUL JOURNEY
HERE IS WHY
✓Huge growth potential
✓Focus on cost reduction
✓Good financial improvement
Berger Paints India Limited manufactures and distributes paints, enamels, varnishes and synthetic resins. The company’s products are used in homes, offices, factories, interiors, exteriors, metal, wood, plastic, and others. It is the second-largest paint company in the domestic market with 10 strategically located manufacturing units and a countrywide distribution network of 26,500 active dealers. The company also has an international presence in four countries, viz. Nepal, Bangladesh, Poland and Russia.
The company has presented a robust performance in Q3FY21 with pick-ups in volume across major segments and regions. Also, there was improvement seen in margins due to optimized cost mix. The company reported net sales of Rs 6,365.82 crore in FY20, an increase of 5.01 per cent. It had reported net sales of Rs 6,061.86 crore in FY19. The company reported PBIDT of Rs 1,060.99 crore in FY20, an increase of 13.41 per cent. It had reported PBIDT of Rs 935.54 crore in FY19. The company reported PAT of Rs 664.40 crore in FY20, an increase of 34.28 per cent. It had reported PAT of Rs 494.79 crore in FY19. The company has reported cash from operating activities of Rs 724.64 crore in FY20 as against cash from operating activities of Rs 610.84 crore it reported in FY19.
The company’s net sales were at Rs 2,118.19 crore in December 2020, up by 24.90 per cent from Rs 1,695.87 crore in December 2019. PBIDT was at Rs 414.99 crore in December 2020, up 40.07 per cent from Rs 296.27 crore in December 2019. The quarterly net profit was at Rs 273.97 crore in December 2020 against net profit of Rs 185.88 crore in December 2019, an increase of 47.39 per cent. There was increase in volume in Q3FY21 backed by festival season and resumption of construction activity. Operating profit grew on back of high margin product mix and moderate costs.
The management is actively looking to spread its selling points via the e-commerce platform, which may further boost volumes and market share. The company is also encouraging digital advertising as a part of its strategic move. It expects overall margin to improve with good demand across all segments. Tier II and III towns and rural areas showed better growth in volumes in Q3FY21 as compared to the metros, which showcase better distribution reach. Over the long term, waterproofing is expected to become a significant part of the company’s decorative segment.
Berger Paints launched various innovative products in the decorative paints category through a sharp increase in its research and development spend. The launch of premium products and favourable input prices is expected to drive gross margins. As there will be growth in sectors like infrastructure, real estate, white goods, appliances, agricultural equipment, furniture and fixtures, automobiles, etc. the company’s revenue will grow. All these need coatings and the company is well-poised to take benefit of the favourable demand swing, which it expects to take place in the medium term. The company has zero promoter pledge with FII/FPI or institutions increasing their shareholding. It has reduced its debt and is almost debt-free. The total debt to equity ratio is 0.2016. On the returns front, it has ROE and ROCE of 26.05 per cent and 30.47 per cent. By virtue of these factors, we recommend our reader-investors to BUY this stock.
