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Berger: Colour in numbers

Jun 14, 2002

Berger Paints, the third largest player in the Indian paint industry, has recorded an impressive performance for the full year ended March 2002. While topline grew by 7%, slightly below industry growth levels, there is considerable improvement at the operating level, which is encouraging.

(Rs m)4QFY014QFY02ChangeFY01FY02Change
Net sales 1,171 1,265 8.1% 4,940 5,291 7.1%
Other Income 9 16 88.5% 21 31 47.8%
Expenditure 1,089 1,149 5.5% 4,464 4,779 7.1%
Operating Profit (EBDIT) 82 116 41.7% 476 512 7.5%
Operating Profit Margin (%)7.0%9.1%9.6%9.7%
Interest 14 15 10.3% 83 74 -10.8%
Depreciation 23 30 28.8% 84 114 35.1%
Profit before Tax 53 87 62.9% 330 355 7.6%
Extraordinary items (1) (9) (1) (9)
Tax 5 5 -6.0% 44 32 -27.1%
Profit after Tax/(Loss) 47 73 55.5% 285 314 10.2%
Net profit margin (%)4.0%5.8%5.8%5.9%
No. of Shares (m) 26.6 26.6 26.6 26.6
Diluted Earnings per share 7.1 11.1 10.7 11.8
P/E Ratio (x) 6.5

This is a commendable performance by Berger considering the fact that the industry in itself is witnessing slower demand on account of general weakness in the economy. Since Berger also derives a key portion of revenue from industrial paint segment, for which demand has been on the lower side as compared to the decorative paint category, sales growth achieved is impressive. We had projected a net sales of Rs 5,226 m against which the company has recorded marginally higher growth.

The weakness in crude prices and consequently fall in key raw material costs, that has benefited paint majors, was more than compensated by fall in product prices. Led by Asian Paints, there was a 3% reduction in product prices in 3QFY02. So we expect average realisation of Berger to have declined by around 1.5% in FY02. The company has taken advantage of lower interest rate scenario with interest outgo lower by 10%. But there is a sharp rise in depreciation, which is line with the industry trend. Paint companies are on a dealer tinting machine expansion spree over the last three years with average capex of around Rs 0.6 m per outlet. This has resulted in higher depreciation costs. Extraordinary item here pertains towards provisioning for voluntary retirement scheme.

The company's performance in FY03 is expected to be more or less in line with FY02 performance, but for higher growth in sales. However, we expect operating margins to remain under pressure as there is intense competition in the sector and given the growth projection for the economy by CMIE at 4.4% in FY03, improvement in realisations is unlikely. Besides, much depends on crude prices, which though has shown some signs of stabilisation in recent months. On the expected EPS of Rs 13 per share in FY03, the stock currently trades at a P/E multiple of 6 times.

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