Berger Paints shines in Q3, but the spectre of competition looms
Source: Live Mint
Amid worries of heightened competitive intensity, Berger Paints India Ltd’s decorative paints business saw 7.4% year-on-year volume growth in the December quarter (Q3FY25) – the highest among its listed peers. Growth was driven by increased sales of low-value products such as texture paints, tile adhesive and admixture, coupled with earlier price cuts of 4.5-5%. But that’s not all – Berger is going all out to beat the competition blues with other strategies as well.
Solid distribution expansion and urban initiatives also buoyed growth for Berger and helped it garner market share. Berger expanded its distribution reach by 2,000 outlets and added 1,800 tinting machines in Q3. It aims to add 8,000 retail touchpoints to its distribution network in FY25. Also, management is optimistic about a sequential improvement in volume, supported by strong sales momentum in January. It aims for close to double-digit volume growth in the March quarter (Q4FY25).
Also read: Delhivery’s growth hits a speed bump, but fixes are in motion
“Berger has been consistently gaining market share (now at 20%+, up ~200 bps over three years), powered by distribution expansion, enhanced focus on urban markets and growth in adjacencies. Further, it has gained share with much better margin defense (FY2025E Ebitda margin is 150 bps below FY2021 peak versus 450 bps decline for Asian Paints/Kansai Nerolac),” said a Kotak Institutional Equities report dated 12 February.
On the flipside, factors that drove volumes along with muted growth in high-value enamels, hampered value growth. Berger anticipates mid-single-digit value growth in Q4FY25, factoring in price cuts and mix impact, but expects the volume-value gap to narrow going ahead. On a standalone basis, Ebitda margin stood at 16.2%, aligning with Berger’s projected range of 15-17%. Despite concerns over competition and volatile raw-material prices, Berger expects standalone Ebitda margin to be in this range.
Earnings downgrades
Even so, a threat to the sector’s earnings outlook lingers with the entry of new companies such as Grasim Industries Ltd, Pidilite Industries Ltd and JSW Paints. This has prompted earnings downgrades for Berger despite the positives in Q3FY25. “We downgrade our earnings per share estimates by 4-5% for FY26-27 considering the demand slowdown and gradual recovery. Berger could face a risk as Grasim (Birla Opus) begins operations at its new factory in East India,” IIFL Securities Ltd said.
Also read: SAIL gets a reprieve from domestic demand in Q3 amid lower realization
According to Berger’s management, Birla Opus has likely reached a market share of 3-3.5% and paint companies have been affected to that extent, but Berger has initiated multiple cost-saving initiatives to reduce the impact of the increased competitive pressure.
Apart from that, a potential revival of the Dulux brand under a new owner, following Akzo Nobel’s exit, could hurt incumbents including Berger Paints in the premium paints segment.
Against this backdrop, the lacklustre performance of Berger Paints stock is not surprising. Its shares have declined by 14% over the past year, which is less than Asian Paints’ 25% fall. However, valuations are still far from comforting. The stock trades at 44 times estimated FY26 earnings, showed Bloomberg data.
Also read: Can Ashok Leyland’s stellar run on margin continue in Q4?
