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Company Report

Berger Paints India Ltd

CMP

Rs.144.05

Target Price

Rs.190.00

BSE Code

509480

NSE Code

BERGEPAINT

Market Cap (Rs. Cr.)

4986.34

52 Week High/Low

153.30/78.15

Industry

Paints

Face Value

Rs.2.00

Shares O/S

346153264

EPS

5.20

Book Value

22.87

P/E

27.70

P/B

6.30

Shareholding Pattern

18th June, 2012

Berger Paints India Ltd. (BPIL) is one of the Indias foremost

paint companies, currently ranked as second largest on the basis
of consolidated sales turnover in Indian paint industry. It enjoys
about 19 percent share of the over Rs.21,000 crore of the Indian
paint industry.

The company has registered smart numbers for the quarter

ending March 2012. Revenues from operations stood at Rs. 746.50
crore as against Rs.592.50 crore in the corresponding quarter of
the last year representing an increase of about 26%. Improved
sales performance by subsidiaries and joint ventures boosted
revenue for the quarter together with strong domestic
performance. Operating profit too surged 29.45% in Q4FY12 at
Rs.73.40 crore from Rs.56.70 crore in the like quarter last year. A
comparatively sharp net profit growth of about 32% to Rs.44.60
crores was clocked for the Q4FY12 compared to Rs.33.90 crore of
same quarter previous year. The increase in net profit is due to
improved performance in the emulsion business and growing
presence in the western part of the country. EPS stood at Rs.1.29
compared to Rs.0.98 in the same quarter last year.

Material cost to sales(%) jumped at 64.3% in quarter ended March

2012 as compared to 62.2% in the corresponding quarter last year.
This increase is attributable to consistent rise in raw material
prices and impact of depreciating rupee on imported raw
materials. Further, there is sustained increase in advertisement
and sales promotion spends in decorative business.

Valuation

Research Analyst: Vineeta Mahnot

With stronger market share, wide distribution network, huge

capacity expansion on stream, better product mix and higher A&SP
spends; Berger Paints India Ltd. growth prospects look promising.
We believe BPIL is trading at an attractive valuation at 22.9x and
19.79x of FY13EPS of Rs.6.29 and FY14EPS of Rs.7.28. We initiate a
BUY on the stock with a target price of Rs.190 (appreciation of about
32%) with the medium to long term investment horizon.

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Business Details
Established in 17th December, 1923, the company then known as Hadfiled's (India) Limited; was a small paint
company based in Kolkata having its only manufacturing facility at Howrah, West Bengal to produce ready mixed
stiff paints, varnishes and distempers. Post independence, towards the end of 1947, British Paints (Holdings) Limited,
U.K acquired Hadfield's (India) Limited and thus British Paints (India) Limited was incorporated. From a production
capacity of 150 tonnes and sales turnover of around Rs. 25 lakhs in 1947, the company has come a long way to become
at one point of time; a part of the worldwide BERGER group in 1983 and thereby acquiring its present name Berger
Paints India Limited to having subsequently gone through further ups & downs as well as ownership changes to gain
its present status wherein the majority stake is with Delhi based Dhingra brothers and business revenue more than Rs
2400 crs.
Today Berger Paints India Limited, having
solely used and developed the name and
trademark BERGER and all its variants in India,
is a household name in paint. It is the third
largest paint manufacturer and second largest
manufacturer in decorative paints. With Head
Office in Kolkata the company manufactures
and markets a range of decorative & industrial
paint products under various product brands
and has it operations spread throughout the
length & breath of the country; with seven
manufacturing facilities in India and more than
85 depots, several regional & area offices,
besides four facilities overseas. It has a
workforce of over 2500 employees and a countrywide distribution network of 15000 plus dealers. The company's
manufacturing facilities are located in West Bengal, Uttar Pradesh, Pondicherry, Goa, and Jammu and Kashmir. The
company has its presence mainly in the Tier II and Tier III cities.
Its subsidiaries are Beepee Coatings, Berger Jenson & Nicholson (Nepal), Berger Paints (Cyprus) and Berger Paints
Overseas. It also acquired 100% stake of Motor and Industrial paints business of ICI India. The company has a joint
venture with Nippon Bee Chemical for manufacturing of coatings for plastic substrates used in automobiles and
mobile phones. It has wide range of colour bank with over 5000 shades. Lewis Berger ColorBank offers computerised
paint technology through its outlets which mixes different shades to create desired paint. It has a network of 2500 such
counters.

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Strong Industry growth

The industry size for paints is estimated at over Rs. 21,000 crores wherein the organized sector accounts for 70% while
the remaining is with the unorganized sector comprising of around two thousand small scale paint units. The paint
market is dominated by decorative paints, which accounts for nearly 70% of the total demand. The balance 30%
belongs to industrial paints - comprising automotive and industrial, protective, powder, coil and marine coatings. As
per the data published by the Central Statistical Organisation (CSO), paints production fell in four months and
remained subdued in six months for 2011-12. Paints industrys aggregate production for 2011-12 rose by a mere 0.5 per
cent. However, the industrys sales rose by a sharp 29.6 per cent during the year.
Paint production to remain healthy in 2012-14
Units

2008-09

2009-10

2010-11

2011-12(E)

2012-13(E)

2013-14(E)

Capacity

Tonnes

12,72,151

14,14,607

Production

15,46,459

17,15,014

23,67,014

27,38,514

Tonnes

10,07,606.1

Sales

11,85,195.6

13,52,465.8

15,11,275.3

17,12,274.9

19,69,116.1

Tonnes

Export

Rs.crore

11,15,159.2

12,85,816.4

14,85,665.2

16,78,624.2

19,06,917.1

22,01,535.8

147.6

216.0

223.5

251.2

291.4

Import

312.1

Rs. crore

837.7

816.0

992.4

1,151.5

1,420.2

1,623.4

Realisation

Rs./tonne

1,00,514.7

98,911.2

99,636.1

1,07,407.7

1,15,355.9

1,21,700.5

Sales

Rs. crore

11,209.0

12,718.2

14,802.6

18,029.7

21,997.4

26,792.8

Domestic
market value

Rs.crore

11,899.1

13,318.2

15,571.5

18,930.0

23,126.2

28,104.1

Source: CMIE

CMIE expects the production to grow by 13.3 per cent in 2012-13. The production is further expected to increase by 15
per cent in 2013-14 to around 19.6 lakh tonnes. Sales volumes are likely to remain higher than the production volumes
as some companies undertake trading alongwith manufacturing. The sales volumes are expected to grow by 14-15 per
cent per annum during 2012-14 period and are likely to cross 20 lakh tonnes by March 2014.
This healthy rise in volumes will be owing to an expected increase in the demand for both decorative and industrial
paints. Of the total demand for paints, 70 per cent comes from the decorative segment. Of this, demand for
refurbishment (repainting of existing houses) accounts for around 65 per cent. Taking into account the rising consumer
demand and diversified needs, the paint companies are coming out with new variants of paints. Also, the companies
are spending more on advertisement to tap these consumers. These initiatives are expected to increase the demand
from refurbishment.

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Additionally, the number of projects scheduled for completion in the real estate segment is increasing. Projects worth
around Rs.67,000 crore are expected to be completed in the real estate sector in 2012-14 as compared to Rs.31,500 crore
invested during 2010-12. This will lead to an increase in the demand for fresh painting as well.
Demand for industrial paints is derived mainly from the automobile sector. The demand remained subdued in the
previous year but the automobile production is expected to gain pace in the coming two years. Volumes for passenger
cars are likely to increase by 11-14 per cent during 2012-14. Commercial vehicles production is expected to grow by
around 8-13 per cent per annum during this period. This will increase the demand for industrial paints. Further, the
demand for protective coatings, high performance coatings and other industrial coatings from various user industries
is also expected to rise aiding the growth for industrial paints.
The paints industry is set for huge capacity expansion during
the year 2012-13. Around 6.5 lakh tonnes capacity is expected
to be added during the year. The overall cost for this
expansion is estimated to be Rs.1,700 crore spread over eight
projects. Further in 2013-14, five projects with investment of
Rs.1,253 crore are slated for completion. This will increase
the industrys capacity by 3.7 lakh tonnes.
The industrys sales rose by a robust 29.6 per cent in the year
2011-12. This growth is a combination of higher volumes as
well as improved realisations. Raw material expense
remained on the higher side owing to the increase in the
prices of crude oil and titanium dioxide during the year. This faster 32 per cent rise in the raw material costs as
compared to sales resulted into an 150 basis points contraction in the operating profit from core operations. The
operating margin stood at 13.5 per cent. The PAT margin shrunk by 80 basis points to 9.6 per cent during the year.
CMIE expects the industrys sales to grow by a healthy 22.1 per cent in the year 2012-13. This growth will be a result of
both higher volumes and improved realisations. Volumes are expected to increase by 14-15 per cent and the
realizations are likely to rise by around 6-7 per cent during the year. Realisations are expected to rise as the paint
companies have taken price hikes to pass on the rising input costs. Raw material-to-sales ratio is expected to expand
by 70 basis points. This will be on account of rising input prices and depreciation of rupee against the USD as around
25 per cent of the industrys raw materials are imported. Thus, the industrys profit margins are likely to contract by
30-40 basis points. The core operating profit margin is expected to be at 13.2 per cent and the net margin at 9.2 per cent
during the year.

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Strong Capacity expansion plans

BPIL has large capacity expansion plans and is well on track to
complete those projects. The 60000 MT Brownfield capacity
expansion in Decorative paints at Rishra, West Bengal is
progressing well, with first phase of 22000 MT already
completed. Its Tamil Nadu Paints project is scheduled for
completion in June 2012. The 60000 MT brown field expansions
at Goa is also progressing well, with first phase of 21600 MT
capacity already added. Greenfield project at Hindupur in AP
with an investment of Rs.200 crore would add new capacity of
320000 MT in decorative paints. All necessary approvals are in
place and the commercial production is expected to start in
FY13. The company plans to double the production capacity
from the present 2.5 million tonnes by 2013. The company
expects the Russian operations to breakeven in FY13 instead of
the projections of FY12 earlier. Companys construction chemical
business is poised to grow well in coming years and is expected
to reach the sales target of Rs.100 crore in next three years time.

Excellent financial performance

On a consolidated basis, Berger Paints India has registered
excellent numbers for the year ended March 2012. Revenues
from operations shot up by 26% at Rs.2947.70 crore; helped by
price hikes and volume growth. In Decorative segment value
sales growth was witnessed due to five price increases during
the year. In Decorative business front, the company hiked the
prices by about 1.5% in March 2012 and by 2.5% in April 2012
and by about 3% on May 2012. Operating profit jumped about
21% from Rs.250.30 crore to Rs.303.50 crore. Margins are little
cooled on account of sharp increased in raw material prices like
solvents, rutile, vegetable oils and other petroleum-based
products. BPILs share in the emulsion business has improved
significantly and the company is hopeful that the trend will
continue in FY13 also. PAT improved by 20% to Rs.180 crore
from Rs.150 crore of last year. Operating profit margin stood at
10.30% and NPM at 6.11%. EPS for the financial year ended
March 2012 stood at Rs.5.20.

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Consolidated Profit & Loss Account

Rs. Crore
Particulars
Net sales

FY10

FY11

FY12

FY13E

FY14E

1891.30

2340.70

2947.70

3507.76

4016.39

23.76%

25.93%

19.00%

14.50%

2090.40

2644.20

3139.45

3590.65

Growth
Expenditure

1692.17

EBITDA

199.14

250.30

303.50

368.32

425.74

25.69%

21.25%

21.36%

15.59%

10.53%

10.69%

10.30%

10.50%

10.60%

Other income

25.89

30.20

30.50

34.38

38.16

Depreciation & Amortization

35.82

40.10

47.20

54.04

62.36

EBIT

189.21

240.40

286.80

348.65

401.53

EBIT margin

10.00%

10.27%

9.73%

9.94%

10.00%

Interest

17.20

24.30

32.30

37.87

41.47

PBT

172.01

216.10

254.50

310.78

360.06

Tax

51.62

66.00

74.40

93.23

108.02

PAT
Minority interest/Share of
JV/Associates

120.39

150.10

180.10

217.55

252.04

0.00

0.00

0.00

0.00

0.00

Adjusted PAT

120.39

150.10

180.10

217.55

252.04

24.68

19.99

20.79

15.86

Growth
EBITDA margin

Growth
Net Profit margins

6.37

6.41

6.11

6.20

6.28

Extraordinary item

0.00

0.00

0.00

0.00

0.00

Reported PAT

120.39

150.10

180.10

217.55

252.04

Equity Capital

69.21

69.20

69.20

69.20

69.20

Res. & Surplus

527.25

620.30

722.30

887.94

1,077.69

Equity Shares

34.61

34.61

34.61

34.61

34.61

EPS

3.48

4.34

5.20

6.29

7.28

Particulars

FY10

FY11

FY12

FY13E

FY14E

Return on Equity

20.18

21.77

22.75

22.73

21.98

Return on Capital employed

21.90

23.88

25.32

25.72

25.36

Debt/Equity

0.45

0.46

0.43

0.42

0.38

Current Ratio

1.84

2.05

1.92

1.97

2.08

Cash per share

1.19

3.62

5.27

6.44

8.30

Book value per share

17.24

19.92

22.87

27.66

33.14

Ratios

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Balance Sheet
Rs. Crore
Particulars

FY10

FY11

FY12

FY13E

FY14E

Share Capital

69.21

69.20

69.20

69.20

69.20

Reserves & Surplus

527.25

620.30

722.30

887.94

1,077.69

Shareholders funds

596.47

689.50

791.50

957.14

1146.89

Borrowings
Foreign Currency Translation
Diff acc

267.37

317.30

341.00

398.61

436.56

0.02

0.00

0.00

0.00

0.00

Deferred tax Liability

26.42

26.30

31.20

31.20

31.20

Sources of funds

890.28

1033.10

1163.70

1386.95

1614.65

Gross block

675.66

721.59

818.13

948.04

1056.94

Accumulated Depreciation

246.19

286.29

333.49

387.53

449.89

Net block

429.47

435.30

484.64

560.51

607.05

Capital work in progress

32.60

81.80

98.16

122.22

145.86

Goodwill

0.00

0.00

0.00

0.00

0.00

128.16

55.80

9.90

18.01

33.05

0.00

0.00

0.00

0.00

0.00

Inventories

329.86

443.80

554.40

627.13

718.19

Sundry debtors

242.32

272.80

358.60

418.09

446.88

Cash and bank balance

41.26

125.30

182.40

222.98

287.28

Investments
Projects in progress

Other current assets

0.00

0.00

0.00

0.00

0.00

Loans and advances

43.23

55.30

98.70

125.43

143.64

Total current assets

656.67

897.20

1,194.10

1,393.62

1,595.99

Deferred tax asset

Current liabilities and
provisions

0.00

0.00

0.00

0.00

0.00

356.61

437.00

623.10

707.42

767.30

Net current assets

300.05

460.20

571.00

686.20

828.69

0.00

0.00

0.00

0.00

0.00

890.28

1,033.10

1,163.70

1,386.95

1,614.65

Misc exp
Uses of funds

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Cash Flow Statement

Rs. Crore
Particulars

FY11

FY12

FY13E

FY14E

PAT

150.10

180.10

217.55

252.04

Depreciation

40.10

47.20

54.04

62.36

Interest

24.30

32.30

37.87

41.47

Direct Taxes Paid

66.00

74.40

93.23

108.02

(76.11)

(53.70)

(74.62)

(78.19)

0.00

0.00

0.00

0.00

CF from Operations (a)

138.39

205.90

234.84

277.69

Capital expenditure

(95.14)

(112.90)

(153.97)

(132.54)

Chg in investments

72.36

45.90

(8.11)

(15.04)

Other investing activities

0.00

0.00

0.00

0.00

CF from investing (b)

(22.77)

(67.00)

(162.09)

(147.58)

Free Cash flow (a+b)

115.62

138.90

72.75

130.11

Equity raised/(repaid)

-0.01

0.00

0.00

0.00

Debt raised/(repaid)

49.79

28.60

57.61

37.95

Interest paid

(24.30)

(32.30)

(37.87)

(41.47)

Dividend(inctax)

(44.99)

(48.45)

(51.91)

(62.29)

other financing activities

(12.06)

(29.65)

0.00

(0.00)

CF from financing

(31.58)

(81.80)

(32.17)

(65.81)

84.04

57.10

40.58

64.30

Change in WC
Other Operating Activities

Net chg in cash (a+b+c)

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Quarterly Consolidated Financial Highlights

Rs. Crore
Particulars

Q4FY12

Q4FY11

Q3FY12

YoY%

QoQ%

Revenues

746.60

592.50

783.30

26.01

(4.69)

Expenditures

673.20

535.80

697.30

25.64

(3.46)

Operating Profit

73.40

56.70

86.00

29.45

(14.65)

Net Profit

44.60

33.90

49.10

31.56

(9.16)

OPM%

9.83

9.57

10.98

26bps

(115bps)

NPM %

5.97

5.72

6.27

25bps

(30bps)

EPS

1.29

0.98

1.42

31.63

(9.15)

Past Price movement of the stock

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Disclosure of Interest Statement

Company Name

1. Analyst Ownership of the Stock

No

2. Hem & its Group Company Ownership of the Stock

No

3. Hem & its Group Companies Director Ownership of the Stock

No

4. Broking relationship with company covered

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Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject
securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly
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