Proposal on

Berger Paints India Ltd

Prepared by:
Dhaval Baria (14048)
Priya Dhameliya (14068)
Div : B
2014-2016

G.H.PATEL PG INSTITUTE OF BUSINESS MANAGEMENT

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TABLE OF CONTENTS
INTRODUCTION ........................................................................................................................... 2
OBJECTIVES ................................................................................................................................. 5
LITERATURE REVIEW ............................................................................................................... 5
IMPORTANCE OF STUDY ......................................................................................................... 12
LIMITATIONS & SCOPE OF STUDY ....................................................................................... 14
BIBLIOGRAPHY AND REFERENCE ........................................................................................ 14

INTRODUCTION
Berger Paints India Ltd. (BPIL) is one of the Indias foremost paint companies, currently
ranked as second largest on the basis of consolidated sales turnover in Indian paint industry. It
enjoys about 19 percent share of the over Rs. 21,000 crore of the Indian paint industry.
The company has registered smart numbers for the quarter ending March 2012. Revenues from
operations stood at Rs. 746.50 crore as against Rs. 592.50 crore in the corresponding quarter
of the last year representing an increase of about 26%. Improved sales performance by
subsidiaries and joint ventures boosted revenue for the quarter together with strong domestic
performance. Operating profit too surged 29.45% in Q4 FY 12 at Rs.73.40 crore from Rs.56.70
crore in the like quarter last year. A comparatively sharp net profit growth of about 32% to
Rs.44.60 crores was clocked for the Q4 FY 12 compared to Rs.33.90 crore of same quarter
previous year. The increase in net profit is due to improved performance in the emulsion
business and growing presence in the western part of the country. EPS stood at Rs.1.29
compared to Rs.0.98 in the same quarter last year.
Material cost to sales (%) jumped at 64.3% in quarter ended March 2012 as compared to 62.2%
in the corresponding quarter last year. This increase is attributable to consistent rise in raw
material prices and impact of depreciating rupee on imported raw materials. Further, there is
sustained increase in advertisement and sales promotion spends in decorative business.
Valuation
With stronger market share, wide distribution network, huge capacity expansion on stream,
better product mix and higher A&SP spends; Berger Paints India Ltd. growth prospects look
promising.
We believe BPIL is trading at an attractive valuation at 22.9 x and 19.79 x of FY 13 EPS of
Rs. 6.29 and FY 14 EPS of Rs. 7.28. We initiate a BUY on the stock with a target price of
Rs. 190 (appreciation of about 32%) with the medium to long term investment horizon.
Business Details
Established in 1 7th December, 1923, the company then known as Ha d fields (India)
Limited; was a small paint company based in Kolkata having its only manufacturing
facility at Howrah, West Bengal to produce ready mixed stiff paints, varnishes and
distempers. Post-independence, towards the end of 1947, British Paints (Holdings) Limited,
U.K acquired Hadfield's (India) Limited and thus British Paints (India) Limited was
incorporated. From a production capacity of 150 tonnes and sales turnover of around Rs. 25
lakhs in 1947, the company has come a long way to become at one point of time; a part of the
worldwide BERGER group in 1983 and thereby acquiring its present name Berger Paints India
Limited to having subsequently gone through further ups & downs as well as ownership
changes to gain its present status wherein the majority stake is with Delhi based Dhingra
brothers and business revenue more than Rs 2400 crs.
Today Berger Paints India limited, having solely used and developed the name and trademark
BERGER and all its variants in India, is a household name in paint. It is the third largest paint
manufacturer and second largest manufacturer in decorative paints. With Head Office in
Kolkata the company manufactures and markets a range of decorative & industrial paint
products under various product brands and has it operations spread throughout the length &
breath of the country; with seven manufacturing facilities in India and more than 85 depots,
several regional & area offices, besides four facilities overseas. It has a workforce of over 2500

employees and a countrywide distribution network of 15000 plus dealers. The company's
manufacturing facilities are located in West Bengal, Uttar Pradesh, Pondicherry, Goa, and
Jammu and Kashmir. The company has its presence mainly in the Tier II and Tier III cities.

Its subsidiaries are Beepee Coatings, Berger Jenson & Nicholson (Nepal), Berger Paints
(Cyprus) and Berger Paints Overseas. It also acquired 100% stake of Motor and Industrial
paints business of ICI India. The company has a joint venture with Nippon Bee Chemical
for manufacturing of coatings for plastic substrates used in automobiles and mobile
phones. It has wide range of colour bank with over 5000 shades. Lewis Berger Colour Bank
offers computerised paint technology through its outlets which mixes different shades to
create desired paint. It has a network of 2 500 such counters.
Strong Industry growth
The industry size for paints is estimated at over Rs. 21,000 crores wherein the organized sector
accounts for 70% while the remaining is with the unorganized sector comprising of around two
thousand small scale paint units. The paint market is dominated by decorative paints, which
accounts for nearly 70% of the total demand. The balance 30% belongs to industrial paints comprising automotive and industrial, protective, powder, coil and marine coatings. As per the
data published by the Central Statistical Organisation (CSO), paints production fell in four
months and remained subdued in six months for 2011-12. Paints industrys aggregate
production for 2011-12 rose by a mere 0.5 percent. However, the industrys sales rose by a
sharp 29.6 per cent during the year.

CMIE expects the production to grow by 13.3 per cent in 2012-13. The production is further
expected to increase by 15 percent in 2013-14 to around 19.6 lakh tonnes. Sales volumes are
likely to remain higher than the production volumes as some companies undertake trading along
with manufacturing. The sales volumes are expected to grow by 14-15 percent per annum during
2012-14 period and are likely to cross 20 lakh tonnes by March 20 14.
This healthy rise in volumes will be owing to an expected increase in the demand for both
decorative and industrial paints. Of the total demand for paints, 70 per cent comes from
the decorative segment. Of this, demand for refurbishment (repainting of existing houses)
accounts for around 65 per cent. Taking into account the rising consumer demand and diversified
needs, the paint companies are coming out with new variants of paints. Also, the companies are
spending more on advertisement to tap these consumers. These initiatives are expected to
increase the demand from refurbishment.
Additionally, the number of projects scheduled for completion in the real estate segment is
increasing. Projects worth around Rs. 67,000 crore are expected to be completed in the real estate
sector in 2 012-14 as compared to Rs. 31,500 crore invested during 2010-12. This will lead to an
increase in the demand for fresh painting as well.
Demand for industrial paints is derived mainly from the automobile sector. The demand
remained subdued in the previous year but the automobile production is expected to gain pace in
the coming two years. Volumes for passenger cars are likely to increase by 1 1-14 percent during
2012-14. Commercial vehicles production is expected to grow by around 8-13 percent per
annum during this period. This will increase the demand for industrial paints. Further, the
demand for protective coatings, high performance coatings and other industrial coatings from
various user industries is also expected to rise aiding the growth for industrial paints.
The paints industry is set for huge capacity expansion during the year 201 2-13. Around 6.5 lakh
tonnes capacity is expected to be added during the year. The overall cost for this expansion is
estimated to be Rs. 1,700 crore spread over eight projects. Further in 2013-14, five projects with
investment of Rs. 1,253 crore are slated for completion. This will increase the industrys capacity
by 3.7 lakh tonnes.
The industrys sales rose by a robust 2 9.6 per cent in the year 2011-12. This growth is a
combination of higher volumes as well as improved realisations. Raw material expense remained
on the higher side owing to the increase in the prices of crude oil and titanium dioxide during the
year. This faster 32 percent rise in the raw material costs as compared to sales resulted into an
150 basis points contraction in the operating profit from core operations. The operating
margin stood at 13.5 per cent. The PAT margin shrunk by 80 basis points to 9.6 per cent during
the year.

CMIE expects the industrys sales to grow by a healthy 22.1 per cent in the year 2012-13. This
growth will be a result of both higher volumes and improved realisations. Volumes are expected
to increase by 14-1 5 per cent and the realizations are likely to rise by around 6-7 per
cent during the year. Realisations are expected to rise as the paint companies have taken price
hikes to pass on the rising input costs. Raw material-to-sales ratio is expected to expand by 70
basis points. This will be on account of rising input prices and depreciation of rupee against the
USD as around 25 percent of the industrys raw materials are imported. Thus, the industrys
profit margins are likely to contract by 30-40 basis points. The core operating profit margin is
expected to be at 1 3.2 per cent and the net margin at 9.2 per cent during the year.
Strong Capacity expansion plans
BPIL has large capacity expansion plans and is well on track to complete those projects. The
60000 MT Brownfield capacity expansion in Decorative paints at Rishra, West Bengal is
progressing well, with first phase of 22000 MT already completed. Its Tamil Nadu Paints
project is scheduled for completion in June 2012. The 600 00 MT brown field expansions at
Goa is also progressing well, with first phase of 21600 MT capacity already added. Greenfield
project at Hindupur in AP with an investment of Rs. 200 crore would add new capacity of
320000 MT in decorative paints. All necessary approvals are in place and the commercial
production is expected to start in FY 13. The company plans to double then production
capacity from the present 2.5 million tonnes by 2013. The company expects the Russian
operations to breakeven in FY 13 instead of the projections of FY 12 earlier. Companys
construction chemical business is poised to grow well in coming years and is expected to reach
the sales target of Rs. 100 crore in next three year time.
Excellent financial performance
On a consolidated basis, Berger Paints India has registered excellent numbers for the year ended
March 2012. Revenues from operations shot up by 26% at Rs. 2947.70 crore; helped by price
hikes and volume growth. In Decorative segment value sales growth was witnessed due to five
price increases during the year. In Decorative business front, the company hiked the prices by
about 1 .5 % in March 2012 and by 2.5% in April 2012 and by about 3% on May 2012. Operating
profit jumped about 21% from Rs. 250.30 crore to Rs. 303.50 crore. Margins are little cooled
on account of sharp increase in raw material prices like solvents, rutile, vegetable oils and other
petroleum-based products. BPILs share in the emulsion business has improved significantly
and the company is hopeful that the trend will continue in FY 13 also. PAT improved by 20%
to Rs. 180 crore from Rs. 150 crore of last year. Operating profit margin stood at 10.30% and
NPM at 6.11%. EPS for the financial year ended March 2012 stood at Rs. 5.20.

OBJECTIVES
To study the market potential of the company.
To study impact of company in Indian economy.

LITERATURE REVIEW
INDUSTRY ANALYSIS PAINTS
Paint Industry can be divided into 2 segments - Decorative paints and Industrial paints.
Decorative paints segment which includes Interior and Exterior Wall Finishes, Enamels, Wood
Finishes and Ancillary products accounts for nearly 70% of the industry sales, while the

Industrial paints segment, which comprises Automotive and Industrial, Protective, Powder,
Coil and Marine Coatings accounts for the remaining 30% of the industry sales.
Realty and Housing sector drive the demand for Decorative paints which constitute the majority
demand in the paint industry. Hence they are the main drivers for the Paints industry. Industrial
growth, especially in sectors like Infrastructure, Construction, Automobiles, Consumer
durables and industries which require paint, etc. contribute to the demand for Industrial paints.
The demand for Decorative paints in rural areas has grown remarkably over the years. Higher
disposable incomes, desire for a better standard of living etc have changed their spending habits
and contributed to this robust demand for Decorative paints. Many households are shifting
from lime wash or unpainted walls to entry level paint products. Moreover, the time frame for
repainting has gradually shrunk from 5 6 yrs to 3.5 4 yrs. Indias per capita consumption
of paints per annum at 0.5 kg is among the lowest in the world as compared to the global
average of 10-13 kgs. This gives plenty of room for the Paints industry to expand in future.
Over the years, the Indian Paints industry has witnessed a gradual shift towards the organized
players who command nearly 65 % of the market share. Berger Paints, Asian Paints, Kansai
Nerolac, Akzo Nobel and Shalimar Paints are the major players in the organized segment. The
remaining share is held by the unorganized sector which comprises of around 2000 small scale
paint units. Customers are now moving towards the organized players as they have become
more conscious towards brands and quality of products. The size of the Indian Paints industry
is estimated at roughly Rs. 24,000 crores.
Over the last few years Paint manufacturers have introduced various paint products with valueadded features like weather protection, various types of textures, eco-friendly production, low
Volatile Organic Content (VOC) etc. These products often fetch a better premium over regular
paints and provide the manufacturers with higher margins. The number of eco-friendly paint
products available in the market has risen steadily. Consumers are attracted towards ecofriendly paint products as they are not harmful to both human beings as well as the
environment.

PAINT INDUSTRY - FUTURE OUTLOOK, OPPORTUNITIES & GROWTH

DRIVERS
Higher disposable incomes to drive demand for Decorative Paints
The average Indian consumer, backed by higher incomes & purchasing power has become
more conscious about aesthetics and quality of living. This is also helped by the spread of
audio-visual media, internet and communication facilities and will translate into a robust

demand for decorative paints. Moreover, housing construction, urbanization and affordable
housing have helped boost sales in the decorative segment.
Faster growth in rural areas
The demand for paints in rural towns has witnessed a faster growth as compared to urban areas.
Rising disposables incomes and a preference for a higher standard of living have changed the
spending habits in rural areas. Consumers have slowly shifted from lime wash or unpainted
homes to entry level paint products. However rural towns still have a huge untapped potential.
Robust growth in Real Estate Sector to drive demand for decorative paints
The demand for real estate is expected to grow at a Compound Annual Growth Rate (CAGR)
of 19% between 2010 and 2014. Out of this, Tier 1 metropolitan cities are projected to account
for about 40%. Apart from housing, demand for space from sectors like education, healthcare
etc is also slated to rise. This will translate into a robust demand for paints in future.
Economic recovery in Industrial & Infrastructural sector
Economic growth in sectors like construction, automobile, manufacturing which require
industrial paints drive the demand for Industrial paints. These sectors are dependent on overall
economic growth of the nation. Strong industrial activity backed by government spending can
drive the demand for industrial paints.
INVESTMENT RATIONALE
Robust financial performance Bergers consolidated net sales have grown at a decent
CAGR of 17.54 % in the last five years. Continuous focus on expanding geographical coverage
through a large dealer network and on newer and more innovative products for its customers
boosted its top line.

Stable operating margins

Operating profit margins maintained by occasional price hike in its paint products, has offset
the rise in price of its key raw materials. Over the last five years, operating profit margins have
ranged between 10 12 %. Going forward we expect continuous improvement in its product
mix which will help them to maintain its growth momentum.
2nd largest player with a strong distribution network
Berger is an established player in the Indian Paints industry. It owns strong and established
paint brands. By virtue of its revenue, it is the 2nd largest player, after Asian Paints. This gives
Berger a significant advantage in the Paints market.

Continuous focus on expanding its domestic geographic reach

Berger is continuously focusing on roping in new dealers, innovating new products and
improving the products bouquet for each dealer to enhance its geographical reach in India. The
Company has expanded its total dealer network to more than 15000 (FY 2012), with
approximately 700 dealer addition every year.
Foray into Construction Chemicals segment
Berger recently forayed into the Construction Chemicals space after launching a new range of
construction chemicals and new roof paint under its banner - Home Shield. It plans to develop
this new segment significantly and targets sales to the tune of Rs 25 crore during FY 2012-13
and Rs 100 crore in next three years.
Product innovation to match changing consumer needs and dynamic business
environment
Berger innovates in terms of new products and offerings with varied uses through constant
technological advancement & upgradation to be able to tap every consumer segment. Some of
its recent additions are Emulsion and Enamel in Breathe Easy category, niche products in
roofing and ceiling compounds or paints, wood coatings area. In the industrial and protective
coatings segment, it has made technological advances to offer better products with varied uses.
Growth in Premium products in Decorative Paints segment
Berger is focusing on developing its premium emulsion category which has witnessed
significant growth in the last few years. Moreover through product innovation, it is trying to
capture opportunities for technically superior premium products in the Decorative Paints
segment. This demand is fuelled by higher purchasing power, increased urbanization and rising
construction activity in the housing segment.

Risks and Concerns

Sharp increase in prices of key raw materials - Raw Materials and packaging costs form a major
component of the manufacturing cost. Rise in price of key raw materials like Rutile due to
inflation and shortage of its availability push up the manufacturing cost and exerts pressure on
Bergers profit margins. Moreover prices of some raw materials are also linked to crude oil and
witness price fluctuation similar to crude oil. Moreover depreciation of Indian Rupee against
the US Dollar also aggravates the problems. Berger passes this rise to its customers through
occasional price hikes of its products.

Slackening of demand due to pace of economic growth and seasonality

Demand for Industrial Paint depends upon economic growth. A weaker growth in industries like
automobile, manufacturing, infrastructure directly impacts demand for industrial paint. Demand
for Decorative paints which accounts for nearly 80% of Bergers total sales depends upon
Housing and Real Estate sector. However demand for Decorative paint rises during festive
months and is seasonal in nature. Moreover a lower than normal monsoon also affects the
demand for paints.
FINANCIAL PERFORMANCE

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Bergers consolidated net sales have grown from Rs 1396.93 Cr in FY 2008 to Rs 2328.12 Cr
in FY 2011. Good product mix and technologically upgraded varieties of paints and a
continuous expansion of dealer network boosted its top line. Berger is generating healthy
Operating Cash Flows from its business, which will help in future as it expands its operations.
These were to the tune of Rs 127.39 Cr in the FY 2011. Bergers Profit after Tax has also risen
from Rs 93.03 Cr in FY 2008 to Rs 150.09 Cr in FY 2011 due to rich product mix. Over the
last 4 years, Berger has generated a consistent Return on Net Worth to the tune of 20 to 26 %.
Bergers Quarterly EPS in the 3rd Quarter ended 31st December 2011 remained flat on a
Quarter on Quarter basis at Rs 1.42. Rising price of raw materials due to factors like inflation,
high crude oil prices, lack to availability etc. resulted in lowering Bergers margins, but Berger
has managed to pass on some hikes to its consumers. As the Company shifts to water based
paints from solvent based paints margins are expected to remain stable and improve in future.

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Valuation:
At the current price levels, Berger is trading at a TTM PE of 22 times. Berger is continuously
expanding operations and improving margins with a better product mix. Considering its market
position, its strong distribution network, Berger is expected to perform well in future. Going
forward in FY 2012-13 we have taken a conservative 14.5% growth in PAT. At a conservative
estimate Bergers EPS is expected to touch Rs 5.59 in FY13. Valued at current TTM PE
multiple of 22, the estimated future price will be Rs. 123, giving a potential upside of 14.4%
over a period of one year.

IMPORTANCE OF STUDY
The paint industry is expected to grow at 12-13% annually over the next five years from Rs
280 bn in FY 13 to around Rs 500 bn by FY 18. FY 14 was a challenging year for the industry
as a whole due to subdued demand across key sectors and rising inflation.
The unorganised sector controls around 35% of the paint market, with the organised sector
accounting for the balance. In the unorganised segment, there are about 2,000 units having
small and medium sized paint manufacturing plants. Top organised players include Asian
Paints, Kansai Nerolac, Berger Paints and ICI.
Demand for paints comes from two broad categories:
Decoratives: Major segments in decoratives include exterior wall paints, interior wall paints,
wood finishes and enamel and ancillary products such as primers, putties etc. Decorative paints
account for over 77% of the overall paint market in India. Asian Paints is the market leader in
this segment. Demand for decorative paints arises from household painting, architectural and
other display purposes. Demand in the festive season (September-December) is significant, as
compared to other periods. This segment is price sensitive and is a higher margin business as
compared to industrial segment.
Industrial: Three main segments of the industrial sector include automotive coatings, powder
coatings and protective coatings. Kansai Nerolac is the market leader in this segment. User
industries for industrial paints include automobiles engineering and consumer durables. The
industrial paints segment is far more technology intensive than the decorative segment.
The paints sector is raw material intensive, with over 300 raw materials (50% petro-based
derivatives) involved in the manufacturing process. Since most of the raw materials are
petroleum based, the industry benefits from softening crude prices.
Key factors
Supply: Supply exceeds demand in both the decorative as well as the industrial paints
segments. Industry is fragmented.
Demand: Demand for decorative paints depends on the housing sector and good monsoons.
Industrial paint demand is linked to user industries like auto, engineering and consumer
durables.
Barriers to entry: Brand, distribution network, working capital efficiency and technology
play a crucial role.
Bargaining power of suppliers: Price increase constrained with the presence of the
unorganised sector for the decorative segment. Sophisticated buyers of industrial paints also

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limit the bargaining power of suppliers. It is therefore that margins are better in the decorative
segment.
Bargaining power of customers: High due to availability of wide choice.
Competition: In both categories, companies in the organised sector focus on brand building.
Higher pricing through product differentiation is also followed as a competitive strategy.
Financial Year '14
FY14 was tough for the Indian paint sector. Hopes of a revival in demand after a good monsoon
and during the festive season were dashed by high inflation. The demand for paint, being a
discretionary expenditure, is typically hurt during periods of rising inflation. However, to their
surprise, paint makers have found that while demand remained tepid in cities, consumption was
rising in rural areas. The increasing reach of media in villages has also helped paint makers,
making easier for them to advertise their products in these regions. Companies have also
discovered that demand for premium paints is high even in remote locations.
Performance on the margins was impacted by the rising prices of crude oil and titanium dioxide
which increased the overall expenditure, thereby impacting profitability growth. However,
companies are undertaking a gradual and calibrated price increase in order to shield margins.
Nonetheless, as a complete pass on of raw material price increase is not possible in the
industrial segment, the blended margins continue to suffer.
However, a good monsoon this year is expected to boost demand in the rural areas. A good
harvest and festival season demand can boost volumes in the second half of FY 15.
All the key players are in an expansion phase. Asian Paints plant in Khandala, Maharashtra
has recently got comissioned. Kansai Nerolacs capacity expansion plans at Jainpur and Bawal
has culminated. Berger Paints has also undertaken capacity expansion for its plants located in
Andhra Pradesh (AP). Further, expansion of water based plant at Rishra and Goa is also on
track. As per estimates, paint capacities are expected to go up by 50-70% in the coming 3 to 5
years.
Prospects
The market for paints in India is expected to grow at 1.5 times to 2 times GDP in the next five
years. With GDP growth expected to be between 5-6% levels, the top three players are likely
to clock above industry growth rates in the future, considering they have a strong brand and
good reach.
The market size of the paint industry in India is estimated at around Rs 290 bn. Industry players
expect close to 12% growth in business volume and 10-12% rise in sales in FY15.
Decorative paints segment is expected to witness higher growth going forward. The fiscal
incentives given by the government to the housing sector have immensely benefited the
housing sector. This will benefit key players in the long term.
Although the demand for industrial paints is lukewarm it is expected to increase going forward.
This is on account of increasing investments in infrastructure. Domestic and global auto majors
have long term plans for the Indian market, which augur well for automotive paint
manufacturers like Kansai Nerolac and Asian-PPG. Increased industrial paint demand,
especially powder coatings and high performance coatings will also propel top line growth of
paint majors in the medium term.

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If the new capacities do not get utilized well, companies may face margin pressures in the near
term.

LIMITATIONS & SCOPE OF STUDY

Limitations
Only 65 contractors and 35 interior decorators have been visited, which comprises a
very small sample.
Survey area was confined to south Kolkata and parts of south 24 paraganas.
Survey was totally confined within small level contractors and interior decorators, but
a huge sale which is contributed by the real estates, builders etc are not investigated.
Time span was limited to 2 months.
Questions were mostly open ended.
Future Scopes
This study can be used by the company to convert more contractors into dedicated
berger paints customers.
Analyse the requirements of the interior decorators and devise strategies of market
penetration.
Make a quantitative research and analysis of the effectiveness of the advertisements of
Berger Paints.

BIBLIOGRAPHY AND REFERENCE

Bibliography
1. Marketing Management: A South Asian Perspective by Philip Kotler, Abraham Koshy,
Kevin Lane Keller, Mithileswar Jha
2. Marketing Research: An Applied Orientation by Naresh K. Malhotra, Satyabhushan Dash
3. Advertising and Promotion by Keyoor Purani, George E Belch, Michael A Belch
Reference
1. http://en.wikipedia.org/
2.
http://stockshastra.moneyworks4me.com/paints-indian-paint-industry-analysis-andresearch-report-2011/
3. http://www.scribd.com/
4. http://www.slideshare.net/

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