Berger Paints (India) Ltd is a formidable No.2 in the paints sector. Still, rising competition, especially with Grasim Industries eyeing the No.2 spot in the coming years, means there is a looming threat to Berger’s position.
Berger Paints (India) Ltd is a formidable No.2 in the paints sector. Still, rising competition, especially with Grasim Industries eyeing the No.2 spot in the coming years, means there is a looming threat to Berger’s position.
“Everyone will get bruised, but who will get battered is yet to be seen,” says Manoj Menon, head of research, ICICI Securities, commenting on the emerging competitive landscape. Of course, the strategy of new entrants would decide the level of impact. For instance, if Grasim focuses on the south, then companies that have key markets in the south would get hit, according to Menon. India’s paint industry, led by Asian Paints, has high barriers for newcomers, but financially strong entrants such as Grasim, Pidilite Industries and JSW Paints can potentially disrupt the market over time.
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“Everyone will get bruised, but who will get battered is yet to be seen,” says Manoj Menon, head of research, ICICI Securities, commenting on the emerging competitive landscape. Of course, the strategy of new entrants would decide the level of impact. For instance, if Grasim focuses on the south, then companies that have key markets in the south would get hit, according to Menon. India’s paint industry, led by Asian Paints, has high barriers for newcomers, but financially strong entrants such as Grasim, Pidilite Industries and JSW Paints can potentially disrupt the market over time.
In this backdrop, it helps that Berger has seen market share gains in the past few years. In the June quarter (Q1FY24), Berger’s market share had stood at 20.2%, up from 19.3% in FY23. “We had the highest gain in market share in the industry in quarter one,” said Berger’s management in the earnings call. The company’s expansion efforts are likely aiding market share. After all, distribution strength goes a long way in determining success in the paints industry. The company added more than 8,000 and 1,500 retail touchpoints in FY23 and Q1FY24, respectively.
Moreover, in the past four quarters, Berger has beaten Asian Paints Ltd on revenue growth (See chart alongside). Investors seem to have taken note. Berger’s shares recently turned ex-bonus and closed at ₹560.25 apiece on Wednesday. In the past one year, Berger’s shares have gained around 9% versus the 5% drop in Asian Paints. According to Kotak Institutional Equities’ FY25 earnings per share estimates, shares of Berger and Asian Paints are currently trading at around 49.1x and 53.6x, respectively. Berger’s pricey valuations suggest a good portion of the optimism is factored into the price currently.
In the near term, if crude oil prices stay high, it could drive up costs and hurt the sector’s profitability outlook. In a competitive landscape where companies are often pushed to give out rebates and discounts, this is bad news.
For FY24, Berger sees gross margin in the range of 38-40%. The Street is expecting Berger to report gross margin at the higher end of the band considering its healthy Q1 gross margin and benign raw material at that point, said Kotak’s analysts in a report on 26 September. However, elevated crude oil price is a potent risk to the Street’s 17% FY24 Ebitda margin forecasts, it added.
