Berger Paints - Competitive Intensity Not Significant As Yet: Nirmal Bang

Nirmal Bang Report

Demand environment continues to remain sluggish and no significant improvement is expected sequentially. For Berger Paints India Ltd., the mix is likely to improve in Q2 FY25 leading to a reduction in volume and value gap, as the company is seeing some traction in the premium part of the portfolio.

There has been no significant impact of competition for the company as the new entrant is largely targeting markets where the leader has a strong presence.

The company has increased its focus on the construction chemicals side (~10-15% salience). While the average selling price is low, margins are higher in this segment. Salience can improve to ~20% in the coming years  While crude prices have seen some correction, crude derivatives like Monomers have seen an increase.

The benefit is expected to come with a lag; but some improvement is expected in gross margin in Q2 FY25 and beyond. However, our Ebitda margin forecast at 16.6% for FY25 is already at the upper end of the guidance of 15-17% and therefore we have not made any changes to estimates.

Current valuation of ~49 times FY26E earnings per share however seems fair as we maintain our hold rating valuing the stock at ~44 times September-26E EPS.

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