earnings update - berger paints - Chola Wealth Direct

Berger Paints Sector: Paints /Mid-Cap Earnings Update – 2QFY14 Sensex 20975

November 6, 2013 Nifty 6253 Price: INR 235

Target Price: INR 230

MARKETPERFORMER

Background:

Berger Paints is the second largest decorative paint company. Company has seven manufacturing facilities spread across India, besides four overseas manufacturing facilities. The company has second largest dis tribution netw ork of ~11,500 activ e dealers and ~12,000 tinting machines. Berger has a strong presence in East and North India, w hic h accounts for 60% of its distribution network while South & West India accounts 40% of distributio n netw ork. Company derives ~80% of revenue from decorative paints and the rest from industrial paints of which Automotives accounts for 8%, powder coating accounts for 2% and other industries accounts for 10%. It has strong brands like Berger Silk, Berger Rangoli, Berger Illusions, Berger Weather Coat and Jadoo Enamel. 52 Week High/Low

INR 256/137

Bloomberg / Reuters

BRGR IN/BRGR.BO

Equity (shares in mn)

Decorative segment continues to impress; industrial remains tepid Revenue up 19.1% YoY and 6.4% QoQ at INR 9,662mn.

346.47

Mkt. Cap in mn

EBITDA at INR 1,042mn up 15.7% YoY and 16.1% QoQ

INR 81,265/ $ 1 ,313

Avg. Daily Vol. (‘000)

EBITDA margin fell by 32bps YoY to 10.8%

265.74

Avg. Daily Vol. (mn)

The Effective tax rate during the quarter stood at 25.1%, dow n 84bps YoY

INR 62.33 /$ 1 .01

Adj.PA T grew by 17.4% YoY to INR 627mn Shareholding

Sep 12

Jun 13

Sep 13

Promoters (%)

75.54

75.00

74.96

9 .53

11.09

11.35

FII (% ) DII (%) O thers (%)

3 .42

3 .08

11.51

10.83

0 .00

0 .00

Pledge (% of promoter holding)

Mar 13

Dec 12

Sep 12

Results expectations 75.00 in-line 75.54 with 75.54 16.04

Berger ’s results largely inline 11.09 10.35w ere 9 .51 39.42w ith our expectation. Revenue gr ew 19.1% YoY to INR 9,662mn ( CSEC Est. INR 9,695mn). The grow th w as largely volume driven. The multitude of price hikes taken by the 3 .00 3 .08 2 .89 3 .37 18.32 company betw een May 2013 – Sep 2013 is yet to r eflect in the sales ( May – 1%, Aug – 1.5% & Sep – 1.5%). 10.69 10.83 11.22 11.58 26.22 Decor ative segment continues to grow well recording a double digit volume grow th aided by robust grow th in 0 .00

Valuation Summary (INR bn) Y/E March

Jun 13

0 .00

0 .00

0 .00

0 .00

tier II & III cities w hile Automotive and industrial coating segment w as affected by the economic s low dow n. Construction Chemicals business registered a strong grow th of ~50% on low base. In decorative segment, Berger ’s market share w as flat during the quarter, w hile Asian Paints gained market share from the

2013

2014E

2015E

33.5

38.9

44.6

EBITDA

3 .7

4 .3

5 .2

Adj PAT

2 .2

2 .6

3 .2

Adj EPS*

6 .3

7 .4

9 .2

% growth

21.2

17.6

24.1

PE

37.2

31.6

25.5

8 .5

7 .2

6 .0

22.7

19.1

15.6

EV/Sales

2 .5

2 .1

1 .8

Hindupur – Phase I has commenced production (80,000 MTPA) during the quarter and it w ill be scaled up to

Div Yield (%)

0 .8

0 .9

1 .1

25.0

24.7

25.7

160,000 MTPA w ithin the next 18-24 months. Currently, the company has a total capacity of 480,000 – 500,000 MTPA w ith 72% capacity utilization.

0 .3

0 .1

0 .0

Revenue

P/ BV EV/EBITDA

ROE (% ) Net Debt/Equity

EBITDA fell by ~32bps Gross margin has expanded by 165bps YoY due to low er raw material prices. EBITDA margin fell 32bps YoY to 10.8% as the increase in other operating expenditure (+174bps) and employee cost (+23bps) has offset the gross margin expansion. Tax rate during the quarter stood at 25.1% , dow n 80bps YoY. Adj. PAT margin fell 10bps YoY to 6.5%.

Other Update s

Valuation: At CMP of INR 235, the stoc k is trading at 31.6XFY14E and 25.5XFY15E earnings. We assign

*Consolidated earnings Perf ormance %

competition. International bus iness grew ~40% YoY to INR 1,356mn.

12M

a MARKETPERFORMER rating w ith a target price of INR 230 based on a target P/E of 25XFY15EPS

14.39

68.2

(PEG of 1.2). Risks: Company’s inability to pass on the cost increases on a timely basis, leading to

9 .34

11.79

crunch in margins. Consumer’s down trading or deferring painting due to uncertainty in the economy & job environment. Increase in excise duty in the budget.

1M

3M

Berger

8 .59

Sensex

5 .32

300

200 180 160 140 120 100 80 60 40 20 0

250

200 150 100 50 0

Results Summary 2QFY14 Y/E March ( INR mn) Revenue EBITDA Depre ciation Other I ncome PBT Tax PA T A djusted PA T*

Berger

Relative SENSEX (RHS) EBITDA Ma rgin Tax I nci de nce

Sathyanarayanan M +91-44-30007361 [email protected] urugappa.com

A dj PA T Margin

* Adjusted for forex loss / gain

2QFY14

2QFY13

YoY Growth

1QFY14

QoQ Growth

9,662 1,042 165 83 837 210 627 627

8,111 900 137 49 721 187 534 534

19.1% 15.7% 20.2% 69.6% 16.0% 12.3% 17.4% 17.4%

9,078 897 152 86 737 247 491 491

6.4% 16.1% 8.5% -3.7% 13.5% -14.8% 27.6% 27.6%

10.8% 25.1% 6.5%

11.1% 25.9% 6.6%

9.9% 33.4% 5.4%

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