Berger Paints (Berger) has outperformed the Sensex in FY13 so far, driven by robust volume growth and stable market share. Berger's shift to high-growth and high-margin emulsion products, backward integration efforts for its emulsion requirements and expanding distribution network will enable it to hold on to its market share, believe analysts.
The stock has given away some gains in the past three months (up 2.8%) to underperform the Sensex which gave returns of 9% in the same period. At 20 times FY14 estimated earnings, the stock is trading at a 25% discount to its larger peer- Asian Paints.
Notably, this valuation gap has reduced to half its historical average discount of 40% to Asian Paints. Going forward, analysts expect this discount to shrink further to about 15% levels. Analysts expect its revenues and earnings to clock in compounded annual growth of 17% and 20% respectively over FY12-17. Most analysts remain bullish on the stock and expect upsides of 15-18% over a one-year period.
"Berger has remained our top pick in the paints space owing to consistent growth, market share gains, superior margin management and potential to surprise in earnings/margins due to mix gains", says Anand Shah of Elara Securities. He has a buy call on the stock with a target price of Rs 176 a share.
Berger posted volume growth of 7% in this fiscal to date and analysts expect it to grow this metric to 10.1% by March 2013 and 13-14% for FY14. Despite intensifying competition, the company has managed to keep its market share in the narrow band of 16-18% and analysts expect it to maintain this position going forward.
"Having already built a robust distribution network, strong relationships with dealers/painters, and a wide product portfolio, Berger is now targeting premiumisation of its product portfolio with a renewed focus on advertising and promotional activities. We expect Berger to maintain its market share in the future whilst Kansai Nerolac and Akzo Nobel would lose share to Asian Paints", says Rakshit Ranjan analyst at Ambit Capital.
In addition to premiumisation, Berger also has the second-best distribution network amongst paint companies. Its distribution network is about 42% higher than that of Kansai Nerolac's - a major edge over peers. Berger enjoys a strong foothold in tierII and III cities , which will aid its growth going forward. Analysts believe Berger needs to increase its distribution efficiencies significantly to start gaining market share from Asian Paints. Further, Berger also needs to strengthen its brand for its sub-brands namely Silk, Rangoli, Bison and Jadoo to overcome Asian Paints. Notably, Berger's move to rope in Katrina Kaif as its brand ambassador will aid in building strong brand recall across its products.
