Analyst Corner – Berger Paints: Maintain ‘hold’ with DCF-based TP of Rs 800

Standalone enterprise reported income and PAT development of 53% and a couple of.5%, respectively.

Q4FY21 outcomes: Berger reported consolidated income, Ebitda, PAT development of 49.5%, 61% and 101%, respectively. We imagine quantity development was ~55% YoY. Key causes for sturdy efficiency have been (1) continued momentum in client off-take from Q3FY21, (2) restoration metros and tier-1 cities, (3) restoration in industrial paints and (4) favorable base. Gross margin was secure at 43.7% YoY however Ebitda margin expanded 118bps possible on account of value saving initiatives. Standalone enterprise reported income and PAT development of 53% and a couple of.5%, respectively.

Income restoration in step with sector: The paint sector (4 market main corporations) reported income and Ebitda development of 6% and 12.4%, respectively in FY21. Whereas Berger’s Q4FY21 are superior to its friends, we notice Berger’s FY21 income and Ebitda development of seven.1% and 12%, respectively is essentially in-line with the sector development charges.

Greater deal with ancillary merchandise: It has been specializing in ancillary merchandise similar to waterproofing and putty. It believes there may be immense potential for these segments to develop contemplating low penetration. We mannequin waterproofing to contribute considerably to Berger ornamental enterprise in medium time period.

Rising enter costs however some margin tailwinds: Enter costs are up 10-100% YoY however we mannequin Berger to report simply 50bps decrease Ebitda margins on account of (1) improve in income share of premium paints with restoration in metros, (2) selective worth hikes and decrease commerce schemes, (3) value saving initiatives, (4) working leverage and (5) optimistic contribution from ancillary companies.

Rs of 15.9% and 17.5% YoY respectively over FY21-23. RoE is predicted to be secure ~24% over FY21-23. Nonetheless, we imagine the inventory worth upside is restricted at present valuations and therefore keep HOLD ranking with a DCF-based goal worth of Rs 800. Key upside danger is higher-than-expected market share positive aspects in paints. Key draw back dangers are steep improve in enter costs and improve in aggressive strain.