Berger Paint’s topline delivery (8 per cent YoY; three-year CAGR: 14 per cent ₹2,190 crore in Q4) missed expectations (HSIE: ₹2,360 crore). FY19-22 CAGR (standalone) has lagged that of Asian Paints (12 per cent vs Asian Paint’s 15 per cent).
However, Berger paints has managed to better balance growth and margin as we reckon the focus on lower ASP products has been less intense vs Asian Paints over FY19-22. Standalone volume growth remained flat/grew 19 per cent y-o-y in Q4/FY22. FY22 price hikes are yet to catch up with inflation but are inching closer. Long-term risk of growth potential being split post Grasim’s entry looms large.
Our thesis of valuation multiples converging between Asian Paints and Berger Paints, owing to the inconsequential variance in medium to long term performance between the two, has played out.
While our EPS estimate cuts (8 per cent each) factor in lower GM, the long-term risk of incremental growth being split with a deep-pocketed player looms large. Ergo, we downgrade the stock to Reduce, with a DCF-based TP of ₹600/share (earlier ₹700/share), implying 49x FY24 P/E. (earlier: Add).