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Sell Berger paints @₹460 : HDFC Securities

HDFC Securities’ research report on Berger Paints

Berger Paints (BRGR) has gone toe-to-toe with dominant leader APNT over FY 2010-20 despite the former’s higher industrial salience, implying that its decorative biz has outpaced APNT’s.

Growth has been smartly navigated alongside improving profitability via aggressive product innovation/ premiumisation, efficient marketing and distribution expansion (GM/EBITDAM differential has reduced from 856/924bp to 320/560bp over FY 2010-20).

While this narrative will continue, outperformance is unlikely to be as steep over FY 2020-23, given that (1) BRGR will have to contend with APNT’s stepped-up aggression at the bottom of the pyramid and (2) margin levers seem to be missing. We build in revenue/EBITDA/PAT CAGR of 8/9/10% over FY20-23E (closely tracking APNT) and initiate coverage on the stock with a Sell recommendation and a DCF-based target price of ₹460/shares (implying 55x Sep-22P/E) as there is nothing on the investor table at 66x Sept-22 P/E. RoICs are likely to mean revert to 22% by FY 2022/23.

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