Berger growth shines; stock pricey
₹3,030 crore rose nearly 10% year-on-year (y-o-y) aided by robust volume growth in the decorative paints business. Berger outshone larger peer Asian Paints Ltd with decorative paints volume growth of about 14% versus the latter’s 10%. As such, Berger’s India operation market share rose to 20.2% among the top five listed paint companies.
The management aims to deliver double-digit revenue growth in FY24 aided by accelerated distribution expansion, robust demand environment and an extended festival season. In Q2, the company’s performance could witness moderation in growth due to monsoon, but Q3 is likely to be robust, management said. Last quarter, Berger saw demand improve in urban and rural markets.
It launched a slew of new paint products; and added 1,500 dealers and 1,300 tinting machines to boost penetration. The increased thrust on stepping up distribution channel is understandable given that competitive intensity in the sector is likely to heat up. Nonetheless, Berger’s consolidated gross margin has expanded by 407 basis points (bps) y-o-y in Q1 to 39.8%.
Given steep hit Berger faced due to elevated raw material prices, a bounce-back was much awaited. So, pace of further margin recovery will be a crucial monitorable since management expects to continue to benefit from moderation in raw material prices. That said, the management does not see any price cuts in the short term as demand conditions are firm.
But it added that the competitive landscape is prompting paint companies to give higher rebates and discounts. For FY24, the management sees gross margin in the 38-40% range. On the back of improving cost efficiencies, the Ebitda margin guidance has been revised higher to a 17-18% band from the 16-17% guided
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