This Multibagger Paints Stock Rated Outperformer By Brokerage, Gave 174.43% Returns In 5 Years

Chola Wealth Direct, a leading brokerage in its recently published report on Berger Paints (India) Limited has rated it Outperformer with a target price of Rs 710/share. Considering the estimated target price by the brokerage, the stock is likely to gain 8% in 12 months if the stock is purchased at the Current Market Price. Berger Paints (India) Limited is a Paints Company having a Market Capitalization of Rs 64,123.62 crore.

Stock outlook

The Current Market Price (CMP) of stock is Rs 660.15/share. The stock's 52 week low is Rs 543.60/share and 52 week high is Rs 856.95/share, respectively. The stock hit the 52 week low this year, while the 52 week high last year.

Returns over the past 5 years

In the past 1 week, the stock gave a negative return of 5.3%. Whereas, in the past 1 and 3 months, it gave a positive return of 12.64% and 16.21%, respectively. Over the year, the stock has fallen nearly 16.07%. However, in the past 3 and 5 years, the stock surged and gave massive 80.89% in 3 years and multibagger 174.43% returns in 5 years, respectively.

Good quarter: Strong topline aided by higher volumes

Berger's 1QFY23 revenue expanded 53.4% YoY/26.2% QoQ to ₹27.6bn. The strong demand in both decorative & industrial paints reflected in improved volumes. The EBITDA at ₹4.0inceasedby 69.7% YoY/16.9% QoQ while PAT improved to ₹2.5bn up by 80.6%YoY/15.2%QoQ.TheRM inflation, in some key materials, persisted during 1QFY23 dragging on the gross margin.

While the gross margins dipped due to higher RM inflation the company managed to post improved EBITDA margin at 14.7% vs 13.3% in 1QFY22. The lower employee costs & other expenses compensated the effects of input cost inflation.

Business Performance

Berger paint's revenue growth was largely in line with its peers Kansai (46.2%) and Asian Paints (54.1%). The company has lost some market share in North India in the past 2-3 quarters. Berger Paints is expected to face higher competitive pressure than its peers as its competitors are likely to introduce more products in North and East India. The three-year revenue CAGR of Asian Paints, (18.8%), Kansai (10%0 and Berger (17.1%) indicates that Berger Paints has been maintaining its market share in the long term even though it has lost some of its market share in North India.

Competitive intensity is expected to increase more in key regions of Berger paints (North and East India). Kamadhenu, Sirca and Shalimar are present largely in North India. JK Cement is largely present in North India. Kansai generates 50% sales from North India and is also planning to increase its share of voice.

EBITDA margin

Increase in competition will drive the need for innovation which is good for the industry. This can impact companies operating largely in value for money products. While Berger Paints is in line with its peers with regards to performance, innovation can lead to becoming the market leader despite losing some market share.

Berger Paints reported a strong growth in revenue. A price hike of 23% has contributed to the increase in revenue. Decorative paints form a large portion of Berger paints which also helps the company to generate massive increase in revenues. Berger reported EBITDA margin increase of 141bps due to operating leverage. The results show that there is a solid grow thin the performance of the company.

Valuation

Berger paints has been one of the leading players in the industry in the wake of strong financial performance, improved distribution network, superior product portfolio and increased market share. The intensified competition in recent phase is alarming for Berger to maintain its market share. At CMP, the stock is trading at 62.9x FY23E and 54.5x FY24E earnings. "We revise our rating on the stock to an OUTPERFORMER (earlier: BUY) with a target price of ₹710 (earlier: ₹740) due to constant lag to industry leader and intensified competition in operating regions," the brokerage said.

According to the brokerage, the key risks would be Volatility in crude oil prices and adverse exchange rate movements.

 

Disclaimer

The stock has been picked from the brokerage report of Chola Wealth Direct. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.