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Margin Gains

Berger Paints has the second largest distribution network in the country, with a strong presence in North and East India

We recommended Berger Paints based on the fact that the company was a solid no. 2 in the domestic paints market. Berger has the second largest distribution network in the country, with a strong presence in North and East India.

Berger has been a steady performer. The latest results (Q2) saw revenues grow by 14.6 per cent on the back of the festive season. Domestic sales growth came in higher at 15.7 per cent.

Berger's gross margins jumped 182 basis points (YOY) on the back of improved sales mix and a lower raw material price. Higher other expenses, up by 19.6 per cent (YOY) limited EBITDA margin expansion to 59 basis points.

Outlook
A falling crude could ease up on titanium dioxide (TiO2) prices in the months ahead. That could spell a major boost to the margins for Berger as TiO2 is the primary raw material for paint companies. What could not go in the stock's favour in the near term is the recent jump in valuations. At the time of our recommendation, Berger was trading at a P/E of 30 times. The jump in the stock price since has seen valuation jump to 64 times. Hold.

Gain of 135 per cent at market price of ₹452. Recommended in March 2013 at ₹192.