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Bonanza
Berger Paints (Buy)
CMP: ₹242.70
Target: ₹304
In order to cater to increasing demand, Berger Paints has embarked upon greenfield capacity expansion plans. It is setting up an integrated paint plant at Naltoli, with an annual capacity of 24,000 KL of water based paints and 13,200 KL of solvent based paints. In addition, the British Paints division of the company has recently set up a distemper and putty manufacturing facility in Nalbari near Guwahati with a capacity of 1,200 mtpa and 6,000 mtpa, respectively, which has commenced production in FY17. It is also developing warehouses in Howrah, Rishra, Jammu, Goa and Vallabh Vidya Nagar plants. We believe, Berger Paints’ capacity expansion will augurs well as it will benefit from incremental demand in future.
Being the second largest company in decorative paint segment, favourable Indian demographics and government’s initiatives, capacity expansion plans, focus shifted to premium products and foray into the home decor business, we value Berger Paints at 47.00x FY19E EPS of ₹6.5 to arrive at target price of ₹304, an upside of about 22 per cent.
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