Continuing with our journey of spotting good stocks to invest which can potentially give good returns, we take a look at Berger Paints. Berger Paints presently has 20% market share and well placed in its business segment.
Berger Paints has presence in the decorative and industrial segment and second amongst the top three companies in this sector. .
The paint industry as a whole produces decorative and industrial paints in the ratio of 70:30. As India’s GDP is poised to resume its growth leading to growth in economic activity, it will lead to more urbanisation which will have a positive effect on the decorative and inudstrial paints segment as consumption will be the guiding force of the companies in this sector.
Enterprise valuation of the company is also attractive. Currently the valuation stands at USD 1 billion. With the growth in the industry the EV also will grow in the coming years.
Let’s see some financial parameters of the company which will help us understand better :
| 2012 | 2011 | 2010 | 2009 | 2008 | CAGR% | |
| Sales (in Cr) | 2662 | 2100 | 1688 | 1513 | 1346 | 18.59 |
| Profit (in Cr) | 177 | 148 | 120 | 88 | 92 | 17.77 |
| OPM% | 10.42 | 10.33 | 10.70 | 8.76 | 9.65 | |
| ROCE% | 23.54 | 23.33 | 23.67 | 22.26 | 23.22 | |
| ROE% | 15 | 22.70 | 21.58 | 25.43 | 32.40 | |
| Debt/Equity | 0.20 | 0.11 | 0.04 | 0.19 | 0.35 | |
| Shareholder Equity(in Cr) | 775 | 652 | 556 | 350 | 284 |
The CMP at the time of the post was Rs.171.60
As we can see the shareholder equity has consistently increased over the years and the debt/equity ratio has come down over the years. The sales and profit CAGR also are impressive.
The paint industry has a special characteristic. It is an industry with a high-entry barriers.
According to report by Indian Paint Association the Indian paint industry is set to grow in the next 3 to 4 years. All the present players of the industry have to play catch-up to meet the expected future demand. Which means increasing their capex investment by existing companies. It will be extremely difficult for any new entrant to build-up the capacity required for the size & scale of the business and hence will be far removed from the competition.
In our opinion it is a good stock to invest in and better to plan for a long term holding in Berger Paints.
