Berger Paints: 2nd in the lead

Berger Paints India Ltd is a paint company based in India. Its headquarter is in Kolkata. Berger Paints India (BPIL) is the second largest paint company in India with a presence both in decorative and industrial segments. Berger Paints is the 2nd largest decorative paint player in India with an organized market share of 17%. The company also has an international presence in 4 countries (Nepal, Bangladesh, Poland and Russia).

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(A) Brief History – Change of Ownership

The current family managing Berger paints is known as “The Dhingra Brothers”. Mr Kuldip Singh Dhingra & Mr Gurbachan Singh Dhingra acquired Berger which faced financial constraints at the time. The brothers have a family history of continuity in the paints business since 1898 when their great-grandfather and grandfather started a paint shop in Amritsar. Dhingra family built a strong exports business in paints industry. Then in 1991, Vijay Mallya sold controlling stake in Berger Paints to them.

berger paints stock research with details of ownership changes since inception

(B) Leading Team

(i) Mr. Kuldip Singh Dhingra – Chairman

Mr. Kuldip Singh Dhingra is the Chairman. He has been a Director of the Company since 1991. Mr. Dhingra is a Science Graduate from Hindu College, Delhi University. He is the 4th generation of his family which has been continuously in the Paint business since 1898.

(ii) Mr. Gurbachan Singh Dhingra – Vice – Chairman

Mr. Gurbachan Singh Dhingra is the Vice-Chairman of the Board of Directors. He has been a Director of the Company since 1993. Mr. Dhingra holds a considerable experience in the paint industry, especially in its technical aspects. He is the fourth generation of his family which has been continuously in the Paint business since 1898.

(iii) Mr. Abhijit Roy – Managing Director & CEO

Mr. Abhijit Roy graduated in Mechanical Engineering from Jadavpur University, Kolkata and completed his post graduation in Business Administration from the Indian Institute of Management, Bangalore.

Before joining Berger in 1996, Abhijit Roy worked in Asian Paints. In Feb 2011, the company promoted Mr Roy from the post of Vice President – Sales & Marketing as director. Before becoming CEO in 2012, he spent over 16 years in Berger under various capacities. He adopted the strategy of increase in advertising spend instead of increasing dealer discounts. In addition he focused on improving the company’s supply chain management.

(iv) Mr. Kanwardip Singh Dhingra – Executive Director

He is the son of Mr Gurbachan Singh Dhingra. Mr. Kanwardip Singh Dhingra holds a Bachelor’s Degree in Chemical Engineering from University of Akron, Ohio, USA with specialization in Polymer Engineering and Minor in Chemistry. Prior to joining the Company, Mr. Dhingra gathered working experience in the field of paints and specialty coatings in The Rohm & Haas Company, Texas, USA and The Sherwin Williams Company, Ohio, USA.

(v) Mrs. Rishma Kaur – Executive Director

She is the daughter of Mr Kuldip Singh Dhingra.

Mrs. Rishma Kaur holds a B.Sc. in Business Studies from University of Buckingham, U.K. and studied German Language at the University of Augsberg, Bavaria, Germany.

(C) Managerial Remuneration

The executive management’s salary is as under (as a % of net profit for FY20):

  • Mr Abhijit Roy = 0.63%
  • Mr Kanwardip Singh = 0.07%
  • Ms Rishma Kaur = 0.07%

Total managerial remuneration is 0.089% of revenue for FY20 and 0.86% of net profit.

The Dhingra brothers perform advisory role as board members, with their son & daughter taking up roles in executive management.

(D) Group Structure of Berger Paints India Ltd.

berger paints stock research with details of group structure

(E) Shareholding Pattern

berger paints stock research with details of shareholding pattern Dec 2020
berger paints stock research with details of major shareholders

(F) Business Segments of Berger Paints

Berger Paints is present in both Decorative as well as Industrial Paints Segment. Decorative paints include – interior wall coatings, exterior wall coatings, metal finishes, wood finishes, undercoats and construction chemicals. Under the decorative segment, the premium product category is ‘exterior emulsions’. These include WeatherCoat Anti Dustt, WeatherCoat Long Life, WeatherCoat All Guard and WeatherCoat Smooth.

The category share of water based paints (or emulsions) is on the rise in India owing to superior aesthetics, durability, washability and environmental reasons. Solvent based paints or enamels continue to attract attention in certain traditional market segments though the percentage share of overall paint consumption in both volume and value terms seem to be on the decline.

On the other hand, Industrial paints essentially comprise general industrial, automotive, protective, powder, glass, can and pipe coatings.

berger paints stock research with details of business segments

The company is also market leader in protective coatings which contributes 50% of the industrial segment & 11% of the total revenue.

(G) Decorative Products Description

1) Interior Wall Coatings

In Interior wall coating, Berger offers various range of Distemper Paints, Ceiling Paints, Interior Emulsions and Designer Finishes.

berger paints interior wall coatings

2) Exterior Wall Coatings

Exterior wall coatings are those protective and decorative coatings which applied on outside walls of the buildings. Berger offers Exterior emulsions as well as Exterior textures in this category.

3) Exterior Textures

Exterior Texture is basically a art done on walls using different type of paint products. It can be easily felt and touched. Berger offers the products Florentina, Solitiare and Ruff N Tuff in this category.

4) Metal Finishes

In metal finishes berger has Luxol 7 in 1 , Luxol Xtra super Glass Enamel, Luxol high Glass Enamel, Luxol Satin Enamel, Luxol Lustre and Berger Butterfly GP Enamel.

5) Wood Finishes

Wood finishing refers to the process of refining or protecting a wooden surface, especially in the production of furniture.

6) Glass Finishes

Imperia Gold Glass Coatings comes in Clear as well as in Opaque Variety. Clear includes Matt & Gloss. Clear Matt Finishes will provide you Frosted look on Glass.

Imperia Gold Glass Coatings

7) Undercoats

Undercoats are the layer of paints applied after primer and before the topcoat. Berger offers Putty , Interior Primers, Exterior Primers and Metal Primers in this range.

8) Waterproofing Solutions

In Waterproofing solutions Berger provides Wall Waterproofing and wall treatment, Roof waterproofing and roof treatment, Allied and Moisture metal and Prescribed products systems.

9)  ETICS or External Thermal Insulation & Composite Systems.

The thermal protection of both existing and new buildings can be effectively achieved by using the thermal insulation externally.

10) Do it yourself

Berger allows its customers to paint according to their wish and provides various custom made kits for doing so. These include iPaint Self Painting Kit , iPaint Wall Stencil Kit , iPaint Glow in the Dark Kit , iPaint Enamel Paint Kit and iPaint Basic Repair Kit .

(H) Recent Launches

Launches by Berger Paints in recent few years focussed on innovative products as well as premium products. For instance, in FY17, the Company introduced new premium products such as Weathercoat Anti Dustt with unique dust guard technology which doesn’t allow dust to settle on exterior walls, Silk Glamor, a luxury finish for interior walls with crystal reflective technique and Luxol XTRA Super Gloss Enamel, which provides a long lasting glossy finish with superior coverage.

The Company also launched XP Advanced after ‘Express Painting’ service, with specially formulated paints which involve trained painters and carefully selected tools.

Focus on premium category of products is also one of the major reasons for EBITDA expansion of the company.

(I) Manufacturing Capacity

Berger Paints has 20 manufacturing plants of which 14 plants exist in India. The company’s total manufacturing capacity is around 6.10 lakh MT. The company largely expanded its manufacturing capacity over last 10 years.

berger paints stock research with details of installed capacity

The company launches new products each year. The innovative launches like WeatherCoat Anti Dustt, Kool & Seal and Easy Clean are backed by continuous expenditure on Research & Development including capital expenditure on R&D.

Moreover, Berger Paints’ addition to gross block after FY16 has been around 24% each year. Also in last 10 years, the company’s consolidated capex is over Rs 2,200 crore. This is along with maintaining a high level of positive free cash flow. This is also one of the major factors for gain of market share by Berger.

The management does not declare the exact count of dealers/distributors. But, recently management reported that the estimated growth of network is around 12% p.a. The estimated dealer count of Berger Paints is more than 28000.

(J) Technical Collaborations & Acquisitions

  • In FY19, Berger acquired 51% of the paid-up equity share capital of (1,03,03,580 equity shares) of Saboo Hesse Wood Coatings Private Limited, for a cash consideration of Rs 15 million. Berger acquired the company in order to complement its wood coatings business.
  • The company also acquired 51% stake in Berger Rock Paints Pvt. Ltd. in FY19 for a cash consideration of Rs 41mn, which sells automotive refinish paints.
  • Earlier in FY18, Berger acquired 100% of Saboo Coatings Pvt. Ltd., for a cash consideration of Rs 826 million. The name of this company, which is now a subsidiary, changed to SBL Specialty Coatings Private Limited w.e.f. 6th May 2019. Berger acquired the company in order to supplement its industrial coatings business.
  • Further in November 2019, Berger Paints acquired a 95.5% stake in Shalimar Tar Products Ltd (STP Ltd) for a consideration of Rs 130 crores. STP Ltd manufactures construction chemicals, waterproofing chemicals, construction admixtures and tar based products.
  • Also, Berger holds technical license agreement with Nippon Paint Automotive Coatings Co Ltd of Japan.

(K) Financial Parameters

(a) Net Sales

Company’s net sales grew at a CAGR of 13% over last 10 years.

berger paints stock research with details of growth of net sales in last 10 years

(b) Profit After Tax

Company’s earnings grew at a CAGR of 19% over last 10 years. Softening of crude price results in profitability improvement for the company. Moreover, the company is able to pass on the price variations to the end consumers by increasing/decreasing paint prices followed by the industry leader.

berger paints stock research with details of growth of PAT in 10 years

(c) Free Cash Flow

berger paints stock research with details of free cash flow in last 10 years

(d) Working Capital Days

Berger maintained its working capital days over 10 years. Rather, the working capital days reduced overtime.

berger paints stock research with details of working capital cycle

(L) Significant Ratios

The company expanded its margin ratios as well as return ratios.

(a) ROE

berger paints stock research with details of ROE

(b) ROCE

berger paints stock research with details of ROCE

(c) PAT Margin

berger paints stock research with details of 10 years PAT margin growth

(d) EBITM

berger paints stock research with details of 10 years EBIT margin growth

(e) Advertisement & Promotional Expense

The advertisement & promotional expense of Berger Paints is in line with its peers. Rather, the company increased its promotional expenses over & above its peers in few years. The higher A&P spend is mainly to strengthen its brand visibility and gain market share across product ranges.

Higher advertisement expense for FY15 was due to the benefit of reduced raw material cost.

berger paints advertisement & promotional expenses detail

(M) Focus of Management & Outlook FY20 & ahead

(i) New and Innovative Products

  • The Company continued its pursuit for introducing new and innovative products through research and development as well as launch of new product lines to identify and address market needs through tailor-made solutions.
  • The outbreak of Covid-19 prompted the company to launch ‘Silk Breathe Easy Emulsion (positioned as Ghar ka Sanitiser) under its home health & hygiene category, which significantly reduces pollution and kills bacteria.
  • Berger pioneered in providing ‘Express Painting’ service to change the process of painting by offering a faster, cleaner, better way to paint homes using automated tools and completing the painting process in 40% lesser time. As per the company, 90% of customers are satisfied with the service.

(ii) Performance of Products

  • In the Decorative business, new products were well received in the market and contributed to the overall growth of the business line.
  • Further, Company’s premium exterior emulsions products continued to perform well.
  • Also, decorative coatings products, including the Luxol line of solvent based paints and wood coatings, performed well.

(iii) Growth of International Business

  • The company’s overseas business is doing well. The business of Nepal as well as Poland contributes around 7% to its annual revenue.
  • The company acquired a majority stake in Berger Rock Paints, Saboo Coatings (India), Saboo Hesse Wood Coatings (India) and STP Ltd (India) in FY 17-19. These acquisitions will certainly help the company to strengthen its presence in automotive refinish paints, industrial coatings and wood coating segments, respectively.

(iv) Focus on Premium Products

  • Berger had been focusing on the bottom of the pyramid till the early 2010s, now it has been focusing on improving its product mix during the recent years by expanding its premium-end portfolio.
  • These innovative and differentiated products, focus on bridging the gap between unidentified consumer needs and availability, are also helping the company to strengthen its brand presence.

(N) Management Outlook

(i) Probability of Increase in Demand

Decorative paints, driven by repainting demand, are doing better, primarily in upcountry terrains. Management is of a view that if the current trend (in demand) continues, demand will be even higher than pre-COVID levels.

There is a high probability of demand extending all the way up this year, due to on agri-reforms and recovery in rural markets. Good Monsoon will certainly boost the demand of paints because in monsoon seasons people build more houses as compared to other seasons.

The government has been pushing for affordable housing across the country so consequently which will boost the demand of paint products.

(ii) Expected Growth in Earnings

Over FY20 – 23E, the management expects to deliver 0.4%, 16.3% and 18.3% CAGR growth in Revenue, EBITDA and PAT, respectively, led by strong growth witnessed by the organized decorative paints industry from tier II/III/IV cities & rural areas high growth in premium decorative products and portfolio & distribution expansion.

The company deferred its capex plans for FY 21 but when it is completed it will lead to some savings in logistics cost as well.

Management expect the company to continue following this two-pronged approach – boosting margin through premiumisation and driving volume growth & market share through its low-end offerings.

(iii) Entering into Hygiene segment

The Company is entering into the Home Hygiene segment too as an extension of the Breathe Easy brand.

(O) Growth Opportunities and Strength

(i) Urbanization

Increasing urbanization in India coupled with rising income levels have resulted in progressively increasing demand for housing, particularly quality housing, across Indian cities. As a result, this growing demand for quality housing will drive demand for decorative paint demand, going forward.

(ii) Rising income level

Rising income (per capita income grew at 10% CAGR) as well as increasing awareness about decorating/safeguarding home has fueled decorative (exterior, interior) paint demand in India. Changing trends in relation to home improvements and increasing disposable incomes would boost demand for decorative paints, going forward.

(iv) Lower GST rate

Introduction of GST in FY18 and simultaneously rate reduction from 28% to 18% benefited organised players due to a reduction in price gap between products of unorganised and organised players.

(v) Pricing power in hand of top players

Given the oligopolistic nature of the business, the top four players (Berger is among them) contribute 80% of organized market share. This results in high pricing power in the hand of players compared to other discretionary products. Thus it will help the top companies to set prices accordingly.

(P) Risk and Concerns

(i) Dependence on Infrastructure Growth

The Paint Industry is greatly depending upon the overall infrastructure growth in the country if the there is negative growth in infra sector then it also affects the performance of painting players.

(ii) Raw Material Prices

Crude prices senstivity and USD/INR exchange rates will remain an inherent risk to the sector since crude (and its derivatives) and TiO2 are major to raw materials used in paints and are largely imported.

(iii) Monsoon Effect

The vagaries of the monsoon – extended monsoon in some regions and deficit rainfall in others affect demand from the rural sector, as an extended monsoon can reduce the number of dry days before the festive season and deficit rainfall affects income.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry’s Publications. 

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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