Berger Paints Initiating Coverage - Myiris.com
Berger Paints Initiating Coverage - Myiris.com
Berger Paints Initiating Coverage - Myiris.com
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Setting up a 160,000 MT<br />
capacity plant in AP – scalable<br />
to 320,000 MT<br />
<strong>Berger</strong> <strong>Paints</strong> <strong>Initiating</strong> <strong>Coverage</strong><br />
Scope for expansion in operating margins…<br />
Increasing focus on water-based emulsion paints , backward integration of its emulsion<br />
requirements and higher operating efficiencies as the <strong>com</strong>pany gains size and scale could<br />
possibly result in higher operating margins in the future. However, we have modeled in a<br />
flat operating margin scenario over FY11-13E, owing to higher raw material costs<br />
environment. Given its increasing focus on enhancing its margins, we do not rule out a<br />
possibility that <strong>Berger</strong> <strong>Paints</strong> could narrow the margin gap to Asian <strong>Paints</strong> in its growth<br />
phas e. (In FY04, Asian <strong>Paints</strong> with revenue of Rs 25 bn had EBITDA margin of 13.5%,<br />
whereas <strong>Berger</strong> <strong>Paints</strong>, in FY11, with revenue of Rs 23 bn has EBITDA margin of 10.2%).<br />
EBITDA margin gap with the leader…could narrow in future<br />
%<br />
25<br />
20<br />
15<br />
10<br />
5<br />
Source: Company, Emkay Research<br />
<strong>Berger</strong> <strong>Paints</strong> Asian <strong>Paints</strong><br />
FY06 FY07 FY08 FY09 FY10 FY11<br />
Strong capex plans provide visibility to sustainable volume growth<br />
Healthy demand has led <strong>Berger</strong> <strong>Paints</strong> to embark on a strong expansion plan to enhance its<br />
manufacturing capacities. The <strong>com</strong>pany plans to increase its capacity from 306,129 MT by<br />
52% over a period of 2 years. While it has already expended Rs 1.3 bn towards expansion<br />
in its Rishra and Goa plants, it plans to spend an additional Rs 1.4 bn in a greenfield plant<br />
in Andhra Pradesh over the next 2 years. This plant, with an initial capacity of 160,000 MT<br />
and scalability to 320,000 MT, is expected to <strong>com</strong>mercially start production (Phase I and II<br />
with a capacity of 160,000 MT) from FY14. We believe this will help <strong>Berger</strong> <strong>Paints</strong>, not only<br />
sustain volume growth but also give it a stronger presence in the southern markets and<br />
increase its capacity in water-based paints, which is a faster growing segment with a higher<br />
margin profile.<br />
Network of its production facilities Substantial increase in gross block<br />
Source: Company, Emkay Research<br />
Proposed unit in Hindupur (A.P.)<br />
(160,000 MT in Phase I & II)<br />
(Scalable to 320,000 MT)<br />
Howrah (28,560 MT)<br />
V V N (48,840 MT)<br />
Pondicherry (18,150 MT)<br />
Sikandrabad (21,639 MT)<br />
Goa (44,654 MT)<br />
Rishra (33,450 MT)<br />
Jammu (95,920 MT)<br />
Surajpur (14,916 MT)<br />
Emkay Research 27 June 2011 5<br />
Rs bn<br />
11.0<br />
10.0<br />
9.0<br />
8.0<br />
7.0<br />
6.0<br />
5.0<br />
FY09<br />
FY10<br />
FY11<br />
FY12E<br />
FY13E