Aug 31, 2015 - company may not benefit from the revival in automotive car segment. ..... UK formulation and access to cu
Aug 31, 2015 Berger Paints Ltd Aug India 31, 2015
Materials - Chemicals
Berger Paints India Ltd Bloomberg Code: BRGR IN
HOLD
India Research - Stock Broking
Recommendation (Rs.)
Painting the Imaginative Growth Capacity expansions and extensive distribution to drive revenue growth
Berger Paints India Ltd. (BPIL) has recently commissioned water based paints manufacturing unit at Hindupur, Andhra Pradesh in FY15. The production from this plant is ramping up towards full scale utilization which elaborates BPIL’s focus on premium products to improve product mix for better margins. In India, BPIL has an extensive distribution network of 18000+ dealers growing with an annual pace of ~14% to increase customer reach. We expect net sales to grow with a CAGR of ~13% in FY15-FY17E period.
Benefits of lower input prices partially negated by sale price cuts
BPIL is one of the largest beneficiaries of ~52% YoY fall in global crude oil prices as crude linked raw material forms around 40% of the total raw material cost (including packaging). Titanium Dioxide (TiO2), another key raw material in paints, forms ~25-30% of the total raw material cost. TiO2 prices also fell ~10.5%YoY which would add on the benefit of lower input cost. We expect BPIL to cut sale prices to pass on these benefits to customers but not to the extent of fall in input prices to sustain profit margins. We expect EBITDA margins of ~12.3% and ~11.8% in FY16E and FY17E respectively.
Revival in infrastructure to benefit industrial protective coatings
Protective coatings market size in India is around Rs.15000 Mn and depends on infrastructure growth in power plants, refineries, heavy engineering, chemical, petrochemical and fertilizer plants etc. BPIL’s protective business has already seen an uptick in this business for Q1FY16E and we expect this to continue for FY16E.
Valuation and Outlook
At current price of Rs.208, the stock is trading at PE of 46.1x and 40.8x of its FY16E and FY17E earnings respectively. It is trading at P/BV of 9.9x and 8.6x for FY16E and FY17E respectively. We recommend a “HOLD” rating on BPIL with a target price of Rs.229, an upside potential of 10%.
Key Risks
CMP (as on Aug 28, 2015)
208
Target Price
229
Upside (%)
10
Stock Information Mkt Cap (Rs.mn/US$ mn)
143892/2173
3M Avg. daily volume (mn)
0.35
52-wk High/Low (Rs.)
252.7/167.5
Beta (x)
0.83
Sensex/Nifty
28067/8518
O/S Shares(mn)
693.3
Face Value (Rs.)
1.0
Shareholding Pattern (%) Promoters
75.0
FIIs
9.2
DIIs
2.4
Others
13.4
Stock Performance (%) Absolute
Relative to Sensex
1M
3M
6M
12M
(5)
(2)
(7)
20
2
3
3
21
Source: Bloomberg
Relative Performance* 140 120 100
yyRevival in paints indirectly depends on the monsoon. If the actual rainfall is below expectations, it may hamper BPIL’s revenue. yyAny slowdown in decorative paints segment may impact the overall revenue. as revenue contribution from this segment is very high (~80%). Further, the company may not benefit from the revival in automotive car segment.
80 Aug-14
Nov-14
Feb-15
BPIL
May-15
Aug-15
Sensex
Source: Bloomberg; *Index 100
Exhibit 1: Valuation Summary (Rs. Mn) YE Mar (Rs. Mn) Net Sales EBITDA
EBITDA Margin (%)
FY13
FY14
FY15
FY16E
FY17E
33464
38697
43221
47543
55149
11.1
11.1
11.8
12.3
11.8
3712
4314
5107
5855
6507
Adj. Net Profit
2184
2494
2647
3119
3522
RoE (%)
25.0
24.1
22.2
23.0
22.5
Adj. EPS (Rs.) PE (x)
3.2
65.9
3.6
57.7
3.8
54.4
4.5
46.1
5.1
40.8
Source: Company, Karvy Research
For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY, Thomson Publishers & Reuters
Analyst Contact Mandar Dhavle
040 - 3321 6275
[email protected]
1
Aug 31, 2015 Berger Paints India Ltd
Company Background
Company Financial Snapshot (Y/E Mar) Profit & Loss (Rs. Mn) FY15
FY16E
FY17E
Net sales
43221
47543
55149
EBITDA
5107
5855
6507
Operating Expenses Depreciation
38113
41688
925
Interest
976
501
Other Income
48643
1020
477
360
468
359
359
PBT
4041
4762
5377
Adj. PAT
2647
3119
3522
Tax
1394
1643
1855
Profit & Loss Ratios EBITDA margin (%)
11.8
12.3
11.8
P/E (x)
54.4
46.1
40.8
0.6
0.7
0.8
Net margin (%) EV/EBITDA (x)
6.1
6.6
28.8
Dividend yield (%)
6.4
24.7
22.0
Source: Company, Karvy Research
Lewis Berger, a young chemist, laid the foundations of brand Berger in 1760 in UK. His successors set up Berger, Jenson & Nicholson UK Ltd (BJNUL). In 1923, Berger’s journey in India began as Hadfield’s India Ltd in West Bengal. In 1947, Hadfield’s was acquired by British Paints (Holdings) Ltd., UK. In 1960, Celanese Corp, USA acquired Hadfield and later (in 1969) it was sold to BJNUL. Name of company was changed to Berger Paints India Ltd (BPIL). In 1985-90, UB group acquired controlling stake in BPIL that was later acquired by Mr. K S Dhingra and Mr. G S Dhingra in 1991. In 1997-98, Rajdoot Paints Ltd was merged with BPIL. In 2000, Jenson & Nicholson, Nepal was acquired. BPIL acquired ICI India’s Motors and Industrial business in 2001. In 2007, it commenced operations in Russia. In 2008, it acquired Bolix, S.A., Poland, an external insulation finishing systems company. In 2013, BPIL acquired architectural business of Sherwin Williams Paints. Today BPIL is the second largest paints company in India with 10 strategically located manufacturing units, about 170 sales offices and a countrywide distribution network of 18,000+ dealers.
Cash Flow (Rs. Mn)
Balance sheet (Rs. Mn) FY15
FY16E
FY17E
Total Assets
27158
29989
33516
PBT
Current assets
16650
19656
23503
Interest
Net Fixed assets
10508
Total Liabilities Networth
Current Liabilities & Provisions
10013
27158
29989
33516
6096
5796
5696
12606
Debt
10333
7686
14556
16743
8848
10273
Balance Sheet Ratios RoE (%)
RoCE (%)
22.2
23.0
22.5
0.2
0.1
0.0
25.1
Net Debt/Equity
Equity/Total Assets P/BV (x)
46.4 11.4
26.8
27.3
48.5
50.0
9.9
8.6
Source: Company, Karvy Research
Exhibit 2: Shareholding Pattern (%)
Depreciation
FY15
FY16E
FY17E
4041
4762
5377
449
477
468
925
Tax
Changes in WC
CF from Operations
976
1020
(1437)
(1643)
(1855)
3454
4364
3927
(434)
(23)
Capex
(1615)
CF from Investing
(1829)
(2016)
(2016)
(451)
(477)
(468)
Investment Debt
Interest paid
Dividends (Inc. tax)
CF from Financing Change in Cash
(386) (149)
(1620)
(1768)
(143)
(800)
(900)
(1400)
(300)
(1645)
(1945)
403
(700)
(1500)
(100)
(1804)
(1904)
7
Source: Company, Karvy Research
Exhibit 3: Revenue Segmentation (%) FIIs 9.2%
Promoters 75.0%
Decorative Coatings 80.0% Industrial Coatings 20.0%
DIIs 2.4%
Others 13.4% Source: Company, Karvy Research
Source: Company, Karvy Research
2
Aug 31, 2015 Berger Paints India Ltd
Indian paints industry mirroring demographic dynamics Indian paints industry is estimated at ~Rs.406 Bn, out of which organized sector accounts for ~65% (~Rs.264 Bn) of the total market. Decorative paints account for ~70% of the total demand and the rest 30% of the demand is from industrial paints. BPIL is second largest paints company in India after Asian Paints with an overall market share of ~17.8% based on net sales including Joint Ventures (JVs) and subsidiaries in India but excluding overseas operations. The company expects paint industry to grow over Rs.600 Bn by end of 2016. Exhibit 4: Industry Players (%)
Exhibit 5: Industry Category Segmentation (%)
Unorganized 35.0%
Industrial paints 30.0% Decorative paints 70.0%
Organized 65.0%
Source: Industry estimates, Karvy Research
Source: Industry estimates, Karvy Research
Over the past few years, the Indian paints market has substantially grown and caught the attention of many international players. The country continues to enjoy a healthy growth rate compared to other economies, backed by the increasing level of disposable income; demand from infrastructure, industrial and automotive sectors. The demand for decorative paint is dependent on disposable income and growth in real estate properties. Repainting constitutes about 70% of the total paint demand in the country. Moreover shortening of repainting cycle from about 6-8 years earlier to about 3-3.5 years now is to drive the demand for decorative paints going forward. The majority of demand period for paints is between the months of September to March as majority of Indian festivals occur in second half of the year. The industrial paints segment includes automotive coatings, powder coatings and protective coatings. The demand for automotive coatings depends on overall development in automobile industry. Protective coatings are utilized in power plants, refineries, heavy engineering, chemical, petrochemical and fertilizer plants etc. Powder coatings are used in white goods, furniture, luminaries, generators, invertors, batteries and control panels etc. Exhibit 6: Per Capita Consumption of Paints
8.0
9.6
9
0
4.0
5.6
6 3
11.0
12
India
South Africa
Brazil
China
Russia
The per capita paints consumption in India which is a little over 4 kilogram (kg) is still at very low level as compared to other emerging countries. As India develops and modernizes, the per capita paint consumption is bound to increase. Due to the current low per capita consumption of paints in India, there is room for multi-fold growth.
Per Capita Consumption of Paints (kg) Source: Industry estimates, Karvy Research
3
Aug 31, 2015 Berger Paints India Ltd
Continuous innovation and customer-centric approach retaining the brand loyalty Exhibit 7: Organized Players Market Share (%) Berger Paints 18%
Kansai Nerolac 15% Akzo Nobel 11% Others 2%
Asian Paints 54%
Source: Karvy Research, Based on net sales including share from subsidiaries and joint ventures in India but excluding overseas operations
Berger Paints India Ltd. (BPIL) is a pioneer in tailored customer-centric services and exclusive retail partnership programs with a vibrant portfolio of paints and decor services in various paints segments. It is the second largest paints company in India with an overall market share of ~17.8% including share from subsidiaries and joint ventures in India but excluding overseas operations. BPIL is one of the leaders in decorative paints segment that includes predominantly household paints and contributes around 80% to net sales and industrial paints contributing the rest. The company is focusing more on high value water based paints to improve its product mix for better margins.
Decorative Coatings In India, the decorative coatings market accounts for about 70% of the total paints market. Decorative paints include high-end acrylic exterior and interior emulsions, medium range exterior and interior emulsions and enamels, low end distempers, wall putty, wood coatings, cement paints, primers, thinners and putties. These are either water based or solvent based. Water based paints are now preferred by the customers owing to better aesthetics, durability and environmental reasons. Presently, the growth of the Indian paints industry is being witnessed in Tier-II and Tier-III cities as compared to urban cities. The growing popularity of quality paints and increasing income levels of people residing in Tier-II and Tier-III cities have pushed the growth in premium paint market of Indian decorative paints industry. BPIL is the second largest player in decorative paints with a market share of close to 18% in this segment. The segment includes predominantly household paints and contributes around 80% to net sales. The company has a vibrant portfolio of paints and decor services in various paints segments. The company caters to premium, mid-market and economy segments. BPIL is steadily ramping up its decorative portfolio by introducing new and revamping existing products to meet consumer aspirations. Exterior
Interior
Metallic
Wooden
yyWeatherCoat yyWalmasta yyTartaruga
yySilk yyEasy Clean yyRangoli yyBison yyJadoo
yyBreath Easy yyLuxol Enamel yyLuxol Lustre yyJadoo Enamel yyButterfly GP Enamel
yyWoodkeeper yyMelamine
Source: Company, Karvy Research, Note: 1 K / 2K PU (1/2 component Polyurethane)
Exhibit 8: Decorative paints categorization (%)
Emulsion 28.0% Others 34.0% Enamel 38.0%
BPIL is focusing more on premium segment that fetch more margins. Low-end enamel paints form ~38% of the total sales and yield profit margins of around 10-12%, whereas high-end emulsions that account for ~28% of the total sales fetch higher profit margins of about 15-18%. A high-end product mix would expand overall margins for the company.
Source: Industry estimates, Karvy Research
4
Aug 31, 2015 Berger Paints India Ltd
Protective Coatings BPIL continues to be the leader in high performance protective coatings business. Berger Protecton is a protective coating range of products from Berger, which caters to different environmental and industrial corrosion protective requirements like concrete or steel substrates. The research and development for protective coatings has a sound base of parent Berger paints, UK formulation and access to current global technology, which is established through Valspar – USA and Orica – Australia. Apart from this, the continuous in-house research caters to the industrial challenges of corrosion with high performance protective coating formulations. The company also provides protection consultancy that adds value to user industries and to engineering consultants by being involved, from the stage of project conception to the installation stage. Consultancy offers the right painting specifications to ensure durability and also aid in painting practices to authenticate protection for different conditions and varying severity of corrosion. It also extends value-added service during the maintenance stage by conducting corrosion audits and helping in upgrading the painting system by conducting workshops to introduce good painting practices. The company expects further pick up in this business upon execution of planned infrastructure projects and availability of more funds in the market due to rate cuts by banks.
General Industrial (GI) and automotive coatings General Industrial
Automotive
yy Construction & Agricultural Equipment yy Electrical Industry
yyPassenger Car, including Utility Vehicles (UVs) & MultiPurpose Vehicles (MPVs)
yy Furniture & Office Equipment Industry
yyThree wheelers
yy Barrel & Container Industry
yyAuto ancillaries
Source: Company, Karvy Research
Source: Company, Karvy Research
yy Consumer Durable Industry
yyCommercial Vehicles (CVs)
yy Cycle Industry
yyTwo wheelers - scooters, motorcycles and mopeds
yy Cylinder Industry
Main Customers in GI segment include:
yyConstruction & Agricultural Equipment - Mahindra & Mahindra Tractors, Force Motors, Telco Construction, L&T, Sewing Statter yyElectrical Industry – Crompton, Orient, GEC, Havells, Bajaj, Greaves Cotton, Johnson Lifts, Khaitan yyFurniture & Office Equipment Industry - Godrej
yyCycle Industry – Hero Cycles, Atlas Cycles, TI Cycles
yyBarrel & Container Industry - Dimple Barrels, Pearson Drums & Barrels, Balmer Lawrie, Yashraj Containers, Bharat Barrels Main Customers in Automotive segment include:
yyCars & Medium Utility Vehicles (MUVs) - Tata Motors, Force Motors, Mahindra & Mahindra, Hindustan Motors yyLCVs, MCVs, HCVs - Tata Motors, Ashok Leyland, Force Motors
yyThree Wheelers - Piaggio India, Mahindra & Mahindra, Force Motors, TVS, Atul Auto
yyTwo Wheelers - Hero Honda, Honda Scooter, TVS Motors, Yamaha Motors, Royal Enfield
yyAuto Ancillaries - Kalyani Lemmerz, Spicer, Synergy Castings, Surin Auto, Rasandik Engg., Krishna Maruti, Wheels India, Suprabha, Indoshell, Caparo.
Powder Coatings Berger offers powder coating solutions for white goods, furniture, luminaries, hospital items, garden tools, power solutions (generators), invertors, batteries and control panel manufacturers etc. Main customers include LG, Whirlpool, Godrej, Carrier, IFB, Amtrex Hitachi, Microtek, Balaji Powertronics, Voltas, Videocon, Philips, Crompton, Usha, Wipro, etc.
5
Aug 31, 2015 Berger Paints India Ltd
Geared up for recovery with newly commissioned plants and extensive distribution BPIL is a professionally managed company headquartered in Kolkata, with 10 strategically located manufacturing units in north, south, east and west regions. It has over 170 sales offices and a distribution network of 18000+ dealers. The company plans to expand this network with an annual pace of ~14% approximately. The company has recently commissioned its water based paints manufacturing unit with a capacity of 80,000 tonnes per annum at Hindupur, Andhra Pradesh in FY15 and production from this plant is ramping up to achieve full scale utilization. The company’s powder coating plant at Jejuri near Pune in Maharashtra was commissioned with an initial capacity of 900 MT/annum. The company plans routine expansion and maintenance expenditure for next two years. A capital outlay of Rs700-800 Mn is expected in FY16E on account of capacity expansions in Jejuri and British Paints division - Hindupur plants. There would be further tapering of capital expenditure in FY17E.
Benefits of lower input prices partially negated by sale price cuts Exhibit 9: Raw Material Segmentation (%) Solvents 22.2% Oils 6.7%
Pigments 20.2% Resins 11.4%
Extenders 7.1% Acids and Chemicals 22.5%
Others 9.9%
Source: Company, Karvy Research
Exhibit 10: Titanium Dioxide (TiO2) 300 250
INR/kg
Apr-15
Aug-15
Dec-14
Apr-14
Aug-14
Dec-13
Apr-13
Aug-13
Dec-12
Apr-12
Aug-12
Dec-11
Apr-11
Aug-11
Dec-10
150
Aug-10
200
Paint is essentially composed of a binder, pigment and solvent. The binder exists to hold the pigment to the surface. The binder is a polymeric substance, and is either dissolved in the paint or suspended in it by emulsifiers. Phthalic Anhydride is one of the most common binders used in solvent-based paints. They are basically polyesters and are used for both air-drying and heat-cured paints. Vinyl and Acrylic emulsions are most common water-based binders for household use. Pigments not only give the paint its colour and finish, but also serve to protect the surface underneath from corrosion and weathering as well as helping to hold the paint together.
Titanium Dioxide is a mineral with whitish and opaque appearance. It is widely agreed, single most important pigment in use today, known for its opacity and tinting power coupled with its pure white tint and fine particle size. It improves elasticity and durability of paints. There are two main forms of TiO2 – Rutile and Anatase. Rutile has a high absorbance property than Anatase. The selection of Rutile or Antase grades depends on the application of paints. TiO2 forms around 25-30% of the total raw material cost. TiO2 prices in India fell ~10.5% YoY which would generate savings in raw material cost for BPIL.
Source: Bloomberg, Karvy Research
Solvents are necessary to ensure an even mixing of the paint components and to make them easy to apply. The solvents used differ with the way in which the paint will be applied as the drying rate required differs depending on the manner of application, e.g. the solvents in spray paints need to evaporate much more quickly than those in brush-applied paints like White Spirit and Mineral Turpentine which are probably the most widely used solvents in paint manufacturing. These solvents are petroleum distillates and hence their prices depend on crude oil.
6
Aug 31, 2015 Berger Paints India Ltd
Packaging cost linked to crude oil derivative pricing Polypropylene (PP) and High Density Polyethylene (HDPE) are some of the various crude oil derivatives used for making containers carrying paints. Therefore drop in crude oil prices would subsequently reduce prices of these petro-chemicals, thereby generating savings for BPIL on account of packaging expenses. HDPE and PP prices fell ~28% and ~34% YoY respectively. Exhibit 11: PP Vs Crude Oil Prices
Exhibit 12: HDPE Vs Crude Oil Prices
2100
120
2100
100 80
80 1100
60
Source: Bloomberg, Karvy Research
HDPE cfr India (USD/MT)
Aug-15
Feb-15
Aug-14
Feb-14
Aug-13
Feb-13
Polyprepylene cfr India (USD/metric tonne) Brent Crude Oil (USD/barrel)
Aug-12
600
Feb-12
40 Aug-11
Aug-15
Feb-15
Aug-14
Feb-14
Aug-13
Feb-13
Aug-12
Feb-12
Aug-11
Feb-11
Aug-10
60
Feb-11
1100
100
1600
Aug-10
1600
600
120
40
Brent Crude Oil (USD/barrel)
Source: Bloomberg, Karvy Research
Domestic operations showing mixed reactions Paints industry is growing more in rural market as compared to that of urban. But, of late, the pace of this growth is lowered mainly due to slowdown in rural market from last 7 to 8 months because of poor monsoon last year. The product mix has been changing from liquid paints to kgs because of sale of putty and other low-end products of that nature. This has resulted in higher volume growth as compared to value growth. Moreover, BPIL has taken a price cut of 2% in March 2015 to pass on the benefit of lower input prices which pulled down the value growth. On standalone basis, BPIL achieved a value growth of about 12.5% in FY15 and it was about 10% in terms of volume. We expect volume growth of 2-2.5% above value growth considering the fact that BPIL would cut prices to pass on the benefits of lower input costs and product mix to be more towards low price components like putty.
International business dragging consolidated performance The company spends around 4 to 4.5% of the total sales for Mergers and Acquisitions across the globe. International subsidiaries of BPIL have been under pressure since last two years. Exhibit 13: Subsidiaries and Joint Ventures Direct Subsidiaries
Country
% Voting Power
Berger Jenson & Nicholson (Nepal) Private Limited
Nepal
100.0
Berger Paints (Cyprus) Limited
Cyprus
100.0
Beepee Coatings Private Limited Lusako Trading Limited
India
Cyprus
100.0 100.0
Indirect Subsidiaries BJN Paints India Limited
Berger Paints Overseas Limited [a 100% subsidiary of Berger Paints (Cyprus) Limited]
India
100.0
Poland
100.0
Bolix S.A. [a 100% subsidiary of Lusako Trading Limited]
Poland
Bolix Ukraine Limited Liability Company [a 99% subsidiary of Bolix S.A.]
Ukraine
Build-Trade [a 100% subsidiary of Bolix S.A.]
Build-Trade SKA [a 100% subsidiary of Bolix S.A.]
99.9
Russia
100.0 99.0
Poland
100.0
India
49.0
Joint Ventures Berger Becker Coatings Private Limited BNB Coatings India Limited
India
49.0
Source: Company, Karvy Research
BJN-Nepal, a wholly owned subsidiary, has two factories and a distribution network. During FY15, BJN-Nepal achieved a turnover of Rs.963.4 Mn and net profit of Rs.141.2 Mn. However, Nepal operations were affected by devastating earthquakes in April and May, 2015. Nepal operations are profitable even more than Indian operations on margins front. The company expects Nepal operations to be back on track very soon. Berger Paints Overseas Limited (BPOL) in Russia is getting affected due to political turmoil resulting in a plummeting Ruble. It is very small portion (Rs.50-60 Mn) of the overall business. Operations in Poland are affected due to overall slowdown in Europe, but still it is making profits. Recovery in Europe can help increase profits from operations in Poland. 7
Aug 31, 2015 Berger Paints India Ltd
Exhibit 14: Business Assumptions Y/E Mar (Rs. Mn)
FY14
FY15
FY16E
FY17E
Revenue
38697
43221
47543
55149
EBITDA
4314
5107
5855
6507
Adjusted PAT
2494
2647
3119
3522
3.6
3.8
(2431)
(1615)
(800)
(700)
2327
3128
3493
3053
Consolidated Revenue Growth (%)
15.6
EBITDA Margins (%)
11.7
11.1
EPS
Adjusted EPS Growth (%)
11.8
14.2
Capex
Net CFO
6.1
3103
Net Debt
Free Cash Flow
3454
673
Source: Company, Karvy Research
1839
10.0 12.3
4.5
17.9
4364 3564
16.0 11.8
5.1
12.9
3927 3227
Exhibit 15: Karvy vs Consensus Karvy
Consensus
Divergence (%)
FY16E
47902
48622
(1.5)
FY17E
55509
57202
(3.0)
FY16E
6214
6422
(3.2)
FY17E
6866
7802
(12.0)
FY16E
4.5
5.2
(13.8)
FY17E
5.1
6.6
(22.5)
Comments
Revenues (Rs. Mn) We expect high volume, low value sales in FY16E and recovery of realizations in FY17E.
EBITDA (Rs. Mn) We expect input prices to recover in FY17E.
EPS (Rs.)
Source: Bloomberg, Karvy Research; Net Sales and EBITDA include other income for comparable analysis
8
Aug 31, 2015 Berger Paints India Ltd
Continuous innovation, customer-centric approach enabling sales growth Over the last five years (FY11 to FY15), the company’s net sales and EBITDA grew at a CAGR of around 17% and 20% respectively with the help of new business development, sale of higher value added products and enrichment of product portfolio. We expect BPIL to achieve CAGR growth of ~13% in both net sales and EBITDA for FY15-FY17E period.
15
FY13
47543
0
43221
10000
38697
20000
33464
30000
55149
40000
FY14
FY15
FY16E
Net Sales (Rs. Mn)
6000
10
4000
5
2000 0
Growth (%)
Source: Company, Karvy Research
11.8
11.8
11.1
12
12
11.1
0
FY17E
13
12.3
5855
10.0
8000
5107
11.7
13.5
20
5107
16.0
4314
15.6
60000 50000
Exhibit 17: EBITDA and EBITDA Margins
3712
Exhibit 16: Net Sales and Sales Growth
FY13
FY14 FY15 EBITDA (Rs. Mn)
11
FY16E FY17E EBITDA margin (%)
Source: Company, Karvy Research
BPIL achieved robust Return on Equity (RoE) and Return on Capital Employed (RoCE) of ~22.2% and ~25.1% respectively in FY15. BPIL managed well to keep its Debt/Equity ratio very low in the range of 0.5x to 0.6x with the help of consistent internal accruals. Exhibit 18: Return on Equity (x)
Exhibit 19: Return on Capital Employed (x)
26
28
25.0
25 24
23.0 22.2
22.5
26
25.5
25
22 21
26.8
27
24.1
23
27.3
FY13
FY14
Source: Company, Karvy Research
FY15 RoE (%)
FY16E
FY17E
24
25.1 24.4
FY13
FY14
FY15 RoCE (%)
FY16E
FY17E
Source: Company, Karvy Research
9
Aug 31, 2015 Berger Paints India Ltd
Sensitivity Analysis Exhibit 20: Sensitivity of earnings and target prices for Brent crude oil price movement (Keeping other costs constant) FY16E
Base Assumption
YoY change in Brent Crude Oil Prices -20%
-10%
0%
10%
20%
30%
EBITDA margin (%)
12.3
12.1
11.6
11.1
10.7
10.2
9.7
BVPS (Rs.)
21.0
20.9
20.7
20.5
20.3
20.0
19.8
4.5
4.4
4.2
4.0
3.8
3.5
3.3
EPS (Rs.) FY17E
YoY change in Brent Crude Oil Prices
Base Assumption -20%
-10%
0%
10%
20%
30%
EBITDA margin (%)
11.8
12.6
12.2
11.8
11.4
11.0
10.6
BVPS (Rs.)
24.2
24.6
24.4
24.2
23.9
23.7
23.5
EPS (Rs.)
5.1
5.5
5.3
5.1
4.9
4.7
4.4
Target price
229
220
212
203
195
186
177
(8)
(17)
(25)
(34)
(43)
(51)
Change in TP Source: Karvy Research
Exhibit 21: Sensitivity of earnings and target prices for TiO2 price movement (Keeping other costs constant) FY16E
Base Assumption
YoY change in TiO2 Prices -10%
0%
10%
20%
25%
30%
EBITDA margin (%)
12.3
12.4
12.1
11.9
11.6
11.5
11.4
BVPS (Rs.)
21.0
21.0
20.9
20.8
20.7
20.6
20.6
4.5
4.5
4.4
4.3
4.2
4.1
4.1
EPS (Rs.) FY17E
YoY change in TiO2 Prices
Base Assumption -10%
0%
10%
20%
25%
30%
EBITDA margin (%)
11.8
12.2
12.0
11.8
11.6
11.5
11.4
BVPS (Rs.)
24.2
24.4
24.3
24.2
24.0
24.0
23.9
EPS (Rs.)
5.1
5.3
5.2
5.1
5.0
4.9
4.9
Target price
229
212
208
203
199
196
194
(16)
(21)
(25)
(30)
(32)
(35)
Change in TP Source: Karvy Research
10
Aug 31, 2015 Berger Paints India Ltd
Exhibit 22: Company Snapshot (Ratings) Low 1
High 2
Quality of Earnings Domestic Sales Exports
Net Debt/Equity
Working Capital Requirement Quality of Management Depth of Management Promoter
Corporate Governance Source: Company, Karvy Research
33
3
33 33
4
5
33 33 33 33 33 33
11
Aug 31, 2015 Berger Paints India Ltd
Valuation & Outlook At current price of Rs.208, the stock is trading at PE of 46.1x and 40.8x of its FY16E and FY17E earnings respectively. It is trading at P/BV of 9.9x and 8.6x for FY16E and FY17E respectively. We recommend a “HOLD” rating on BPIL with a target price of Rs.229, representing an upside potential of 10%. Exhibit 23: PE Band
Exhibit 24: PB Band 280
280 230
230
180
180
130
130
80 Aug-13
Dec-13 Apr-14 BRGR 50x
Aug-14 Dec-14 30x 60x
Apr-15
Aug-15 40x
Source: Karvy Research
80 Aug-13
Dec-13
Apr-14
Aug-14
BRGR 8x
Dec-14
Apr-15
6x 12x
Aug-15 10x
Source: Karvy Research
Exhibit 25 (a): Comparative Valuation Summary
Berger Paints India Asian Paints
CMP
Mcap
(Rs.)
Akzo Nobel India
Source: Bloomberg, Karvy Research
P/E (x)
EPS (Rs.)
(Rs. Mn)
FY14
FY15
FY16E
FY17E
FY14
FY15
FY16E
208
143892
34.2
28.8
24.7
22.0
57.7
54.4
46.1
40.8
3.6
246
132547
17.4
25.5
22.5
18.7
30.7
48.4
37.5
31.3
3.9
858
Kansai Nerolac Paints
EV/EBITDA (x)
1290
823231 61883
25.5 16.4
34.1 23.4
28.2 22.7
23.4 19.3
43.1 25.9
59.0
44.2
32.3
46.6
FY17E FY14
FY15
FY16E
FY17E
3.8
4.5
5.1
36.5 12.7
14.5
19.4
23.5
40.5 32.2
39.9
47.3
55.5
5.1
6.6
7.9
Exhibit 25 (b): Comparative Operational Metrics Summary CAGR % (FY15-17E)
RoE (%)
Sales
EBITDA
EPS
Berger Paints India
13.0
12.9
15.4
24.1 22.2
Kansai Nerolac Paints
15.2
23.8
24.3
15.3 18.1
Asian Paints
Akzo Nobel India
Source: Bloomberg, Karvy Research
15.1 8.8
23.7 15.4
27.2 17.9
FY14 FY15 FY16E 32.8 31.8 35.3 33.6
Price Perf (%)
Net Sales (Rs. Mn)
3m
6m
12m
FY14
FY15
FY16E
FY17E
23.0
22.5 (2.4)
(7.3)
20.4
38697
43221
47543
55149
19.6
19.6
5.8
52.1
31753
35.4 36.4
FY17E 35.3
9.0
11.6
4.8
35.1 (6.0) (12.4)
37.5 125816 13.1
23996
140053
158987
185622
25999
27275
30773
35707
40127
47368
Key Risks yyRevival in paints in India depends on the monsoon. If the actual rainfall is below expectations, it may hamper BPIL’s revenue. yyDecorative paints revenue contribution is very high (~80%) as compared to industrial paints (~20%). Any slowdown in this segment may impact the overall revenue. Further, the company may not benefit from the revival in automotive car segment.
12
Aug 31, 2015 Berger Paints India Ltd
Financials Exhibit 26: Income Statement YE Mar (Rs. Mn)
FY13
FY14
FY15
FY16E
FY17E
Revenues
33464
38697
43221
47543
55149
Operating Expenses
29752
34384
38113
41688
48643
11.1
11.1
11.8
12.3
11.8
Growth (%) EBITDA
Growth (%)
Depreciation & Amortization Other Income
13.5
3712
567 314
15.6
4314
707 360
11.7
5107
925 360
10.0
5855
16.0
6507
976
1020
359
359
EBIT
3459
3966
4542
5238
5846
PBT
3082
3500
4041
4762
5377
Adjusted PAT
2184
2494
2647
3119
3522
Interest Expenses Tax
Growth (%)
Source: Company, Karvy Research
377 898
21.3
466
1006 14.2
501
1394 6.1
477
1643 17.8
468
1855 12.9
Exhibit 27: Balance Sheet YE Mar (Rs. Mn)
FY13
FY14
FY15
FY16E
FY17E
Cash & Bank balances
2270
1841
1698
2101
2107
Inventory
6353
6957
7195
7751
9139
Sundry Debtors
Loans & Advances Investments
4114 809 108
4857 1095
907
5352 945
1345
5887 1002 2745
6829 982
4245
Gross Block
9795
13220
14613
15413
16113
CWIP
2059
1532
1130
1130
1130
Net Block
Other Non Current Assets Other Current Assets Total Assets
Current Liabilities & Provisions Debt
Other Liabilities
Total Liabilities
Shareholders Equity Reserves & Surplus Total Networth
Total Networth & Liabilities Source: Company, Karvy Research
5989 57
102
8638 12
110
9307 71
117
9131 72
170
8811 72
200
21861
25949
27158
29989
33516
5497
6235
6096
5796
5696
6245 588
12329
693
8839
9532
21861
7768 743
14745
693
10510
11203 25949
7686 770
14552
693
11913
12606 27158
8848 789
15432
693
13863
14556 29989
10273
804
16773
693
16050
16743 33516
13
Aug 31, 2015 Berger Paints India Ltd Exhibit 28: Cash Flow Statement YE Mar (Rs. Mn)
FY13
FY14
FY15
FY16E
FY17E
PBT
3082
3500
4041
4762
5377
Depreciation Interest
Tax Paid
567 324
(843)
707 428
(1022)
449
(1437)
477
(1643)
468
(1855)
Inc/dec in capital expenditure
(2179)
(2431)
(1615)
Cash flow from investing activities
(2033)
(3014)
(1829)
(2016)
(2016)
Dividend paid (Incl tax)
(811)
(1044)
(1620)
(1645)
(1804)
Cash flow from financing activities
1281
(519)
(1768)
(1945)
(1904)
Inc/dec in investments Inc/dec in borrowings Interest paid
Net change in cash
(60)
2080
(327) 446
3103
(796) 525
(424) (429)
3454
(386) (149) (451) (143)
(23)
1020
(1584) 1197
(434)
976
Inc/dec in Net WC
Cash flow from operating activities
(255)
925
4364
(800)
(1400)
(300) (477) 403
(900) 3927
(700)
(1500)
(100) (468) 7
Source: Company, Karvy Research
Exhibit 29: Key Ratios YE Mar
FY13
FY14
FY15
FY16E
FY17E
EBITDA Margin (%)
11.1
11.1
11.8
12.3
11.8
Net Profit Margin (%)
6.5
6.4
6.1
6.6
6.4
EBIT Margin (%)
10.3
10.2
10.5
11.0
10.6
Dividend Payout ratio
14.3
15.3
32.7
31.1
31.5
RoE (%)
25.0
24.1
22.2
23.0
22.5
FY13
FY14
FY15
FY16E
FY17E
3.2
3.6
3.8
4.5
5.1
BV (Rs.)
13.8
16.2
18.2
21.0
24.2
P/BV (x)
15.1
12.8
11.4
Net Debt/Equity RoCE (%)
Source: Company, Karvy Research
0.3
25.5
0.3
24.4
0.2
25.1
0.1
26.8
0.0
27.3
Exhibit 30: Valuation Parameters YE Mar Adj. EPS (Rs.) DPS (Rs.) PE (x)
EV/EBITDA (x) EV/Sales (x)
Source: Company, Karvy Research
0.9
65.9 39.6
4.4
1.1
57.7 34.2
3.8
1.3
54.4 28.8
3.4
1.4
46.1
9.9
24.7
3.0
1.6
40.8
8.6
22.0
2.6
14
Aug 31, 2015 Berger Paints India Ltd Stock Ratings Buy
:
Sell
:
Hold
:
Absolute Returns > 15%
5-15%
