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Berger Paints: A strong end to the year - Views on News from Equitymaster
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Berger Paints: A strong end to the year
Jul 18, 2014

Berger Paints as announced the fourth quarter results of financial year 2013-2014 (4QFY14). The company has reported 19.6% YoY growth in sales while its net profits have grown by 26.3% YoY. Here is our analysis of the results.

Performance summary
  • Top line increases by 19.6% YoY during the quarter.
  • Operating profits increase 20.7% YoY in 4QFY14 with margins remaining more or less flat.
  • Net profits increased at a robust pace of 26.3% YoY due to strong performance at the operating level and a 30.2% YoY increase in other income. For the full year, profits were up by 14.2% YoY.
  • The board recommended a dividend of Rs 2.2 per share for the fiscal under consideration.
  • The consolidated D/E ratio of the company stood at 0.47x at the end of FY14.
  • During the year, Berger allotted 0.2 m shares to its employees towards the exercise of options granted under the ESOP plan.

Consolidated financial snapshot
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Sales 8,058 9,635 19.6% 33,346 38,545 15.6%
Other operating income 28 25 -11.0% 118 153 29.2%
Expenditure 7,208 8,600 19.3% 29,752 34,384 15.6%
Operating profit (EBDITA) 878 1,060 20.7% 3,712 4,314 16.2%
Operating profit margin (%) 10.9% 11.0%   11.1% 11.1%  
Other income 82 107 30.2% 314 360 14.4%
Interest 99 130 30.9% 377 466 23.8%
Depreciation 156 208 33.0% 567 707 24.7%
Profit before tax 705 829 17.6% 3,082 3,500 13.5%
Tax 267 275 3.3% 898 1,006 12.0%
Profit after tax/(loss) 438 553 26.3% 2,184 2,494 14.2%
Net profit margin (%) 5.4% 5.7%   6.5% 6.4%  
No. of shares (m)         346.5  
Basic & Diluted  earnings per share (Rs)*         7.2  
P/E ratio (x) *         40.8  
* On a trailing 12-months basis

What has driven performance in 4QFY14?
  • Net sales increased 19.6% YoY in 4QFY14. For the full year, sales increased by 15.6% YoY. The sales growth has resurged in the fourth quarter due to revival in demand especially from the decorative segment. Also, for Berger, subsidiaries and JV's posted another quarter of good performance carrying forward from where they left in 3QFY14.

  • Berger Paints' operating margin stood at 11.0% in 4QFY14, compared to 10.9% in 4QFY13. Due to inflationary pressures, margins remained more or less flat. The total material cost increased from 59% in 4QFY13 to 60.3% in 4QFY14. However, the increase in material cost was offset by decline in employee cost and other expenditure (both as a percentage of sales) to 5.5% (5.8% in 4QFY13) and 23.1% (24.3% in 4QFY13) respectively during the quarter.

  • Bottom line increased 26.3% YoY in 4QFY14 due to strong performance at the operating level and 30.2% YoY growth in other income. However, a 30.9% YoY and 33% YoY growth in interest and depreciation expenses curtailed profitability growth to an extent. Interest expenses increased due to higher borrowings while depreciation expenses were presumably higher as the company is in expansion mode.
What to expect?
At the current price of Rs 292, the stock is trading at a price to earnings multiple of 40.8 times its trailing twelve month earnings. Despite an inflationary environment and sluggishness in industrial demand the company was able to grow its top line by 19.6% YoY. Strong rural penetration, better pricing power and higher volumes in the decorative segment resulted in double digit revenue growth. While maintaining the same should not be a challenge as company undertakes calibrated price increases at regular intervals, competitive risks still prevail. In the past, it has reacted well to such competitive pressures by recording market share gains. However, from here on, we feel that expansion in multiple will be a difficult task as most of the benefits are already priced in. As a result, we maintain our view of buying the stock at Rs 135 or lower.

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