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IDBI Capital
Berger Paints (Sell)
Target: ₹518
CMP: ₹641.45
Berger Paints results were above expectations. The company has outperformed competition (Asian Paints, Kansai Nerolac) on volume growth in decorative coating business by 200-600 bps. General and industrial coating business improved sequentially, driven by gradual unlocking and improvement in industrial activity. Demand from tier 2-3-4 cities outperformed that from metro.
Revenue from subsidiaries grew by 22 per cent y-o-y in Q2FY21, driven by strong performance of polish subsidiary Bolix S.A. and inclusion of revenue from STP Ltd (acquired in November 2019).
Benign raw material cost, control over discretionary expenses and operating leverage supported gross/EBITDA margin expansion. Positively, Berger Paints has ramped up overall investments by 66 per cent (to ₹450 crore) for capacity expansion in Lucknow plant which will be operational by December 2021.
The management expects H2FY21 to be stronger, driven by festivity and recovery of demand in urban cities.
We have upgraded our EPS estimate by 4 per cent/1 per cent in FY22-23. We maintain our Sell rating on the stock (due to expensive valuation) with a revised target price of ₹518 (50x FY23 EPS as per DDM).
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