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Berger On an expansion spree - Views on News from Equitymaster
 
 
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  • Oct 3, 2000

    Berger On an expansion spree

    Berger Paints is the third largest paint manufacturer in the country commanding a 14% market share. It has products catering for both the decorative as well as the industrial segment.

    The company has reported an 11% rise in sales for 1QFY01 coupled with a notable improvement in operating margins from 9.6% in 1QFY00 to 10.4% in 1QFY01.

    The group acquired Jenson & Nicholson (Nepal), a wholly owned subsidiary of Jenson & Nicholson (India) Limited in FY00. J&N (Nepal) has been in operation for the last 16 years and holds a significant share of the growing paint market in Nepal. The acquisition entitles Berger access to some of its popular brands like J&N Brolac, Robbialac. This is expected to bring considerable strength to the product portfolio of Berger Paints. Moreover the company is looking at acquisitions in SAARC countries as these are emerging economies and there are ample growth opportunities.

    Despite these positives, the company has reported a 5% drop in realisations for paints and resins in FY00. This is expected to persist, as the company cannot afford to increase prices in the face of rising competition. Besides, demand for industrial paints would continue to remain strained, as industrial production is more or less stagnant.

    Nevertheless, the recent acquisition of Rajdoot Paints and J&N (Nepal) has widened the reach of the company. Moreover, raw material imported as a percentage of total raw material cost has come down from 22% (includes 18% for raw materials and 4% for stores and spares) in FY99 to 18% in FY00. This has made it less vulnerable to the increasing solvent prices and the depreciating rupee. Further, it has planned to increase the number of computerized tinting machines from 600 to 1,000 in FY02, which is expected to bring considerable control over operating costs.

    The stock is currently trading at Rs 101 at a P/E multiple of 10.2 on the annualised FY01 earnings.

     

     

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