Berger Paints hits new high in weak market, surges 12% so far in August

Shares of Berger Paints hit a new high of Rs 372, up one per cent on the BSE in an otherwise weak market on Thursday on hopes of strong volume growth in decorative segment. In comparison, the S&P BSE Sensex was down one per cent or 312 points at 37,140 at 01:36 pm.

Thus far in August, Berger Paints has outperformed the market by surging 12 per cent, against a one per cent fall in the benchmark index. The company delivered strong April-June quarter (Q1FY20) results led by low double-digit domestic decorative paint volume growth and robust growth in subsidiary businesses.

While announcing Q1 results on August 5, the management had said it expects decorative paint segment to sustain performance subject to monsoon outcome. The impact of volatility in crude oil prices, adverse movement in exchange rates, demand conditions in automotive sector continue to remain potential concerns, the company said.

The company derives around 80 per cent of revenue from decorative paints and the rest from industrial paints of which automotives account for 8 per cent, powder coating accounts for 2 per cent and other industries accounts for 10 per cent. It has strong brands like Berger Silk, Berger Rangoli, Berger Illusions, Berger Weather Coat and Jadoo Enamel.

Analysts at Equirus Securities expect earnings growth of Berger Paints to continue during FY20 as the prices of key raw materials remain on a downward trajectory. The brokerage firm expects FY20/ FY21 volume growth to be at 12 per cent each, and EBIDTA margins at 16.4 per cent and 16.6 per cent, respectively.

“We are positive on the long term fundamentals of the domestic decorative business on account of Housing for All, Swachh Bharat Abhiyan and premiumisation; however, benign real estate demand will continue to act as a headwind for domestic decorative demand,” analysts at Cholamandalam Securities said in a results review note.