Berger Paints India Ltd - Karvy Online

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%