Berger Paints Initiating Coverage - Myiris.com

More documents

Recommendations

Info

Trading at 38% discount to Asian Paints… expect the gap to narrow Comparative valuations Berger Paints Initiating Coverage Valuation and Recommendation Second obvious option… cannot be ignored Berger Paints is the second largest player (17% market share) in the decorative paints market and has recorded healthy revenue run-rate of 18% CAGR over FY05-11. Berger Paints, with a strong presence in the eastern markets with strategically located plants there, is increasing its reach in the southern markets through the franchisee stores. Moreover, it has a strong distribution network of 14,000 dealers with 7,700 tinting machines across India. With a strong second position in the decorative paints market, we believe Berger Paints cannot be ignored. Gaining scale and size… Berger Paints is increasing its capacity by 52% over the next two years, which provides healthy volume growth visibility in the future. Moreover, the inherent growth in the paints industry coupled with the company’s aggression to expand its geographical reach will help Berger Paints attain reasonable revenue size of Rs 33 bn by FY13E. …with healthy growth momentum We forecast 19% revenue CAGR over FY11-13E driven by 15% volume growth and 5% price-led growth. While high raw material costs continue to keep pressure on profitability and will lead to a flat operating margin over this period, we expect the company to post earnings CAGR of 20% over FY11-13E. Valuation gap to Asian Paints to narrow… At the current market price, the stock is trading at 19.9x FY12E EPS of Rs 5.0/share and 16.0x FY13E EPS of Rs 6.2/share. At 16.0 x FY13E EPS, it is trading at 38% discount to the market leader, Asian Paints. Historically, the company has traded at an average discount of 40% to Asian Paints’ one-year forward mean PER. We believe that going forward; this discount should narrow due to the following reasons: � Gaining considerable size with a revenue CAGR of 19% over FY11-13E � Product mix shifting towards higher growth and better margin business of water-based emulsion paints � Increasing presence across India with rising penetration in the south …Initiate with ACCUMULATE and target price of Rs 109/share We have valued Berger Paints at 17.5x FY13E earnings, a 30% discount to Asian Paints target PER multiple of 25x. This gives us a fair price of Rs 109/share, which provides 9.5% upside from the current levels . Hence, we initiate coverage on the stock with an ACCUMULATE rating and a target price of Rs 109/share. CMP Mcap Sales (Rs bn) PAT (Rs bn) EPS CAGR (%) PER (x) EV/EBITDA (x) RoE (%) Rs Rs bn FY13E FY13E FY11-13E FY12E FY13E FY12E FY13E FY12E FY13E Berger Paints 100 34.4 33.2 2.2 19.8 19.9 16.0 11.6 9.6 23.1 24.3 Asian Paints 2976 285.3 108.2 11.5 14.5 30.1 25.8 18.1 15.6 38.2 35.0 Kansai Nerolac* 858 46.2 29.3 2.5 8.3 21.2 18.5 12.9 11.1 21.9 22.4 Akzo Nobel* 902 33.2 15.2 1.8 11.5 18.9 17.9 16.1 17.3 14.4 12.7 * Source: Bloomberg Emkay Research 27 June 2011 10
Berger Paints Initiating Coverage PER band 1 Year forward PER band 150 120 90 60 30 0 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 1 year forward PER band Discount to Asian Paints 35 30 25 20 15 10 5 0 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Berger Paints Asian Paints Jun-09 Apr-11 Jun-10 20x 15x 10x 5x Emkay Research 27 June 2011 11 25 20 15 10 5 0 Apr-03 100% 80% 60% 40% 20% 0% -20% Jun-02 Apr-04 Jun-03 Apr-05 Jun-04 Apr-06 Jun-05 Apr-07 Jun-06 Apr-08 Jun-07 PER discount Apr-09 Jun-08 Apr-10 Jun-09 Apr-11 Jun-10
Page 1 and 2: June 27, 2011 Reco Accumulate CMP R
Page 3 and 4: Holds 17% market share with 14,000
Page 5 and 6: Setting up a 160,000 MT capacity pl
Page 7 and 8: TiO2, 23% of raw material costs, is
Page 9: Berger Paints Initiating Coverage R
Page 13 and 14: Berger Paints Initiating Coverage D
Page 15 and 16: Consolidated Financials Income Stat

Berger Paints Initiating Coverage - Myiris.com

Create successful ePaper yourself

Delete template?

Save as template?