Berger Paints Q4 profit drops 16%: What should investors do now?

EBITDA increased by 6.4% year-on-year to Rs 368.8 crore, but margin falling 70 bps YoY to 15.1% in Q4FY23.

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Shares of Berger Paints will remain in focus on May 16 a day after the company came out with its March quarter earnings.

Berger Paints has recorded nearly 16 percent year-on-year decline in consolidated profit at Rs 185.7 crore for quarter ended March FY23 impacted by fall in operating margin performance.

Revenue from operations for the quarter at Rs 2,443.6 crore grew by 11.7 percent over a year-ago period.

On the operating front, EBITDA increased by 6.4 percent year-on-year to Rs 368.8 crore, but margin falling 70 bps YoY to 15.1 percent in Q4FY23.

The board has announced dividend of Rs 3.20 per share for FY23.

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Here is what brokerages have to say about stock and the company post March quarter earnings:

Elara Capital

Broking house cut FY24/25 EPS estimates 7.7 percent/6.5 percent to factor in lower-than expected sales. Given a 13 percent run-up in the stock price in the past three months, the firm has downgraded to ‘reduce’ from ‘accumulate’ as deteriorating category dynamics remain an overhang.

The broking house arrived at an unchanged target price of Rs 654 on 45x FY25 P/E as they roll forward to March 2025.

Nirmal Bang

Berger Paints India’s 4QFY23 domestic volume growth came in at 11.1 percent YoY (domestic decorative volume growth at 14.5 percent). On a three-year CAGR basis, overall volume growth is now at 19.4 percent, which is still lagging the growth of market leader, but the gap seems to have narrowed in 4QFY23 versus 3QFY23.

Consolidated revenue grew by 11.7 percent YoY to Rs 24.4 billion (in-line with our estimate). Gross margin at 39.8 percent was up by 90bps YoY (up 510bps QoQ) while EBITDA margin at 15.1 percent was down 70bps YoY (up 210 QoQ).

On the Industrial side, General Industrial (GI) business recorded double-digit growth while the Automotive segment growth was aided by better realization. Protective Coatings and Infrastructure business registered steady growth in 4QFY23. The Powder Coatings business line witnessed a significant decline on account of a downturn in the Fans industry.

Consolidated performance was further impacted by its Polish subsidiary Bolix SA (due to the Russia-Ukraine war) and BJN Nepal (on account of steep inflation and cash crunch).

The broking house assigned a target multiple of 45x (10 percent discount to market leader), leading to a revised target price (TP) of Rs 610 (Rs 650 earlier) and maintained the ‘accumulate’ rating.

Morgan Stanley

Research firm has kept the ‘equal-weight’ rating on the stock with a target price of Rs 611 per share as Q4FY23 missed the estimates.

The market share gain by the decorative segment, and strong recovery in gross margins are the positives.

Morgan Stanley expect the gross margin will be maintained at the current levels of 38-40 percent. And EBITDA margin will improve to 16-17 percent, starting Q1FY24.

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