Berger: Tough times ahead - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Berger: Tough times ahead

Nov 13, 2001

A slowdown in the economy and weakening industrial production has clearly affected growth prospects of the paint companies in the current year. As against a growth of 12% in FY01, the paint industry is expected to grow by 6%-7% in the current financial year. Berger Paints, the third largest paint manufacturer, reported a 11% fall in profits for 1HFY02. Given the slowdown in the economy, will the second half be any different for the company?

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Sales 1,335 1,410 5.6% 2,456 2,572 4.7%
Other Income 4 5 54.3% 7 11 54.4%
Expenditure 1,198 1,273 6.3% 2,202 2,336 6.1%
Operating Profit (EBDIT) 137 137 -0.2% 254 236 -7.3%
Operating Profit Margin (%) 10.3% 9.7%   10.3% 9.2%  
Interest 27 25 -8.9% 46 46 -1.3%
Depreciation 21 28 33.5% 40 55 37.6%
Profit before Tax 93 90 -3.3% 175 146 -16.7%
Tax 18 15 -13.7% 34 20 -40.3%
Profit after Tax/(Loss) 75 75 -0.9% 141 125 -11.0%
Net profit margin (%) 5.6% 5.3%   5.7% 4.9%  
No. of Shares (eoy) (m) 26.6 26.6   26.6 26.6  
Earnings per share (Rs)* 11.3 11.2   10.6 9.4  
P/E   7.1     8.5  
(*annualised)            

Berger reported a 5.6% growth in sales for the second quarter ended September 2001, which is higher than 3.5% rise in sales in 1QFY02. This could be due to a rise in decorative paint demand in light of the festive season. The company is expected to post a turnover growth of 10%-12% in 3QFY02. Although key raw material prices have stabilised in 1HFY02, the subdued demand scenario has pressurised margins. A 50% rise in other income, primarily from lease rentals, has prevented a sharp fall in net profits for 2QFY02.

We expect the company to report around 6% growth in sales to Rs 5,226 m and a 9.7% fall in net profits to Rs 257 m for FY02. Though paint demand is expected to fare better in the second half of the current year, prices would continue to remain under pressure. Since the company derives more than 15% of revenues from the industrial paint segment, the fall in manufacturing output and lasklustre investment scenario is expected to subdue industrial paint demand. As a result, margins are expected to decline by 60 basis points for FY02. Besides, Berger has been aggressively increasing the number of dealer tinting machines in recent years in line with the industry trend. This would result in higher depreciation charges in FY02 and lower profit growth (depreciation charges for 1HFY02 have increased by 37.6% to Rs 57 m).

But the expansion in dealer tinting machines will result in higher other income in the form of lease rentals. Though Berger has tightened its belt on the working capital front, inventory levels witnessed a notable rise due to lower demand in the second half of the last year. Given the prevailing demand scenario, we expect the trend to continue in the current year also.

The scrip is currently trading at Rs 80 on a P/E multiple of 8.5x annualised 1HFY02 earnings.


Equitymaster requests your view! Post a comment on "Berger: Tough times ahead". Click here!

  

More Views on News

BERGER PAINTS Announces Quarterly Results (1QFY21); Net Profit Down 88.9% (Quarterly Result Update)

Sep 1, 2020 | Updated on Sep 1, 2020

For the quarter ended June 2020, BERGER PAINTS has posted a net profit of Rs 196 m (down 88.9% YoY). Sales on the other hand came in at Rs 9 bn (down 45.8% YoY). Read on for a complete analysis of BERGER PAINTS's quarterly results.

BERGER PAINTS Announces Quarterly Results (3QFY20); Net Profit Up 37.9% (Quarterly Result Update)

Feb 6, 2020 | Updated on Feb 6, 2020

For the quarter ended December 2019, BERGER PAINTS has posted a net profit of Rs 2 bn (up 37.9% YoY). Sales on the other hand came in at Rs 17 bn (up 4.9% YoY). Read on for a complete analysis of BERGER PAINTS's quarterly results.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

BERGER PAINTS SHARE PRICE


Sep 23, 2020 (Close)

TRACK BERGER PAINTS

  • Track your investment in BERGER PAINTS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

BERGER PAINTS 5-YR ANALYSIS

COMPARE BERGER PAINTS WITH

MARKET STATS