Berger Paints' Q3FY18 results (Outperformer) - Strong operational performance
Q3FY18 result highlights
- Consolidated net sales increased by 14% yoy to Rs13.4bn(est:13bn), EBITDA increased by 21% yoy to Rs2.2bn(est:Rs2.2bn), Reported PAT increased by 19.5% yoy to Rs1.3bn.
- Standalone net sales increased by 13.6% yoy to Rs11.9bn, EBITDA increased by 23% yoy to Rs2bn, PAT increased by 19.7%. We estimate double digit volume growth in the decorative segment.
- Consolidated gross margins improved by 20bps yoy (standalone gross margins increased by 60bps yoy). Staff cost increased by 9% yoy while other expenses grew by 11% yoy. Resultant EBITDA margins increased by 100bps yoy (standalone EBITDA margins increased by 130bps) to 16.6%.
- Other income was up 23% yoy, depreciation & interest expenses increased by 15% and 77% yoy respectively. Share of profit from JV increased by 73% yoy, indicative of improved performance of JVs. Tax rate was up 120bps, resulting in PAT growth of 19.5% yoy.
Key positives: Recovery in Decorative volumes. Uptick in Industrial segment sales.
Impact on financials: We reduce our FY18/19/20E earnings estimates by 3%/2%/2%.
Valuations & view
An improving volume growth trajectory in both the decorative and industrial segments bodes well for Berger Paints’ FY19 India growth outlook. Further, strong growth in international subsidiaries (Bolix and Nepal) will aid consolidated sales CAGR of 16% for Berger Paints over FY18-20E. With price increases likely in the decorative segment going forward and crude prices starting to come off from highs of over USD70/barrel, we believe EBITDA margins will improve for Berger from FY18 levels; we are factoring a 22% earnings CAGR for Berger Paints over FY18-20E. The stock trades at 34xFY20E earnings. Maintain Outperformer
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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