Berger Paints' Q4FY18 results (Downgrade to Neutral) - Positive growth trends priced in…
Q4FY18 result highlights
- Consolidated net sales increased by 17% yoy to Rs13bn, EBITDA increased by 24% yoy to Rs2bn, Reported PAT increased by 0.7% yoy to Rs1bn.
- Standalone net sales increased by 14.4% yoy to Rs11.9bn, EBITDA increased by 22% yoy to Rs1.9bn, Reported PAT increased by 50.8%. The growth was driven by 13-14% yoy volume growth in the decorative segment.
- Consolidated gross margins decreased by 90bps yoy (standalone gross margins decreased by 100bps yoy). Staff cost increased by 19% yoy while other expenses grew by 6% yoy. Resultant EBITDA margins increased by 90bps yoy (standalone EBITDA margins increased by 90bps) to 15.4%.
- Other income was down 32% yoy, depreciation & interest expenses increased by 61% and 16% yoy respectively. Loss in JV business and higher tax rate resulted in PAT growth being flat for the quarter.
Key positives: Double digit volume growth in domestic decorative business.
Key negatives: Loss in JV business
Impact on financials: We cut our FY19E earnings by 2.5%.
Valuations & view
Steady improvement in decorative volumes and recovery in the industrial segment resulted in healthy performance for the quarter. The management outlook has remained positive on demand recovery which coupled with benefit of price hikes in decorative segment, improvement in industrial business profitability and steady growth in international subsidiaries (Bolix and Nepal), will aid overall earnings growth. We are factoring consolidated earnings CAGR of 25% for Berger Paints over FY18-20E. We believe the company deserves a discount to Asian Paint’s valuations (currently at 50x/42xFY20E earnings) given its lower scale and higher proportion of industrial business. Hence, we believe current valuations at 49x/40x FY19/20E adequately capture earnings positives, thereby limiting the upside potential from current levels. We downgrade the stock to Neutral.
Berger Paints India Limited is engaged in the manufacture of paints and varnishes, enamels or lacquers. The Company offers products in categories, including interior wall coatings, exterior wall coatings, Berger metal and wood paints, protective coating, undercoats and construction chemicals. Its designer finishes include Silk Illusions Design Metallica, Silk Illusions Non Metallic, Silk Illusions Metallica and Silk Illusions Marble Finish. Its interior emulsions include Silk Luxury Emulsion, Easy Clean, Rangoli Total Care and Bison Acrylic Emulsion. Its interior wall distempers include Bison Distemper. The Company's exterior emulsions include WeatherCoat All Guard, WeatherCoat Longlife, WeatherCoat Smooth, Walmasta, WeatherCoat Tile Protektor and WeatherCoat Kool & Seal. It also offers WeatherCoat Texture, Tartaruga Hi-Build and Tartaruga. It offers enamels, such as Breathe Easy Enamel, Luxol Lustre, Luxol Satin Enamel, Luxol High Gloss Enamel and Berger Butterfly GP Enamel.
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