Management Speak: Berger Paints (Outperformer) - Painting a bright future…

We hosted Berger Paints India Ltd. (BRGR) on a non-deal roadshow. Following are the key takeaways:

Industry growth slows, yet outperforms FMCG peers: Management indicated that the Paint industry has been impacted by the economic slowdown and the growth rates seen over the past few quarters are lower by 5-6% compared to a normalised scenario/internal expectations a year back. However, the volume growth outperformance by paint companies compared to other consumption peers can be attributed to relatively lower penetration of paints coupled with benefit of entry into newer geographies as well as newer related segments by the players.

Innovation, new segment & market driving BRGR’s outperformance: The company has been consistently growing ahead of industry driven by a) dealer addition (~8-10% p.a), b) launch of innovative products with differentiated attributes ahead of market (Weathercoat Antidust, Easyclean) c) entry into new related segments – construction chemicals, wood coatings and d) entry in newer markets (tier 3/4 towns). Company will continue to focus on these initiatives in order to drive consistent profitable growth over medium to long term.

Confluence of initiatives driving margin improvement: Over the past few years BRGR has seen healthy improvement in margins, reducing the gap compared to the market leader. Some of the key initiatives driving this are a) improved scale, b) premiumisation, c) backward integration, d) logistics benefits and e) branding efforts resulting in better ASPs. With focussed efforts across these initiatives, company expects to continue on the journey of margin improvement over the medium term.

Our View:

While management did allude to the fact that the paints industry is not averse to slowdown in the economy, however, BRGR through its internal initiatives & strong execution capabilities has been able to outperform the industry growth in the past. From a medium to long term perspective, we like BRGR’s strategy in terms of a) driving premiumisation with innovative product launches ahead of market, b) penetrating/deploying resources in newer markets and c) creating future avenues for growth through diversification in related business where it has clear synergy benefits and capabilities to scale up the business. We believe these initiatives are building blocks for a sustainable & profitable growth over the long term for the company. Maintain Outperformer.