Berger Paints India Limited: Stock You Want to Invest in?

Berger Paints India Limited is one of the leading paint manufacturers in India, and it has made significant strides both domestically and internationally. With a strong presence across various segments and a robust financial performance, Berger has positioned itself as a key player in the Indian paint industry. This article delves into the company’s growth trajectory, financial performance, management strength, competitive landscape, and future outlook.

Company Background and History

Berger Paints was established in 1923, and over the past century, it has transformed from a small-scale operation into a formidable force in the global paint industry. The company has expanded its operations to 29 manufacturing units globally, including 25 in India, making it one of the most extensive paint production networks in the country.

Apart from India, Berger Paints has manufacturing facilities in Nepal, Poland, and Russia, highlighting its international reach. The company’s total production capacity stands at 1.27 million metric tonnes, enabling it to cater to the diverse needs of its customers across various sectors, including decorative and industrial paints.

Berger Paints has established itself as a leader in the decorative paints sector in India, trailing only Asian Paints. It has also built a strong portfolio in infrastructure coatings, automotive paints, and industrial coatings, making it a well-rounded player in the industry.

Business Segments and Product Portfolio

Berger Paints operates across several segments, each contributing to its overall revenue. The company’s product portfolio is divided into three main categories:

1. Decorative Paints: This segment includes products used for interior and exterior walls, enamel and concrete floor tiles, and various substrates such as metal, wood, glass, and plastic. Berger’s decorative paints are popular for residential, commercial, and infrastructure projects.
2. Industrial Paints: Berger’s industrial segment caters to industries like automotive, agriculture, sports equipment, and road and construction equipment. The company’s offerings in this segment include specialized coatings designed to withstand harsh industrial conditions.
3. Subsidiaries and Specialty Coatings: Berger’s subsidiary, SBL Specialty Coatings Ltd., focuses on niche areas such as pearl, metallic, and clear finishes used in automobiles and other industries.

Recent Developments and Achievements

In FY24, Berger Paints introduced 43 new products, showcasing its commitment to innovation and market expansion. The company has been actively involved in several high-profile projects, such as the Rajpath Refurbishment and Vandhe Bharat projects, as well as investments in major airport and refinery projects. These developments underscore Berger’s leadership position in the Indian market.

The company’s subsidiary, SBL Specialty Coatings Ltd., has also played a pivotal role in diversifying Berger’s offerings and expanding its footprint in specialty coatings for various industries.

Financial Performance Analysis

Revenue Growth

In FY24, Berger Paints achieved a total revenue of ₹11,199 crore, reflecting a Year-on-Year (YoY) growth of 6%. This growth was driven by a balanced increase in both value and volume. The value growth stood at 5.6%, while the volume growth was 11.6%, indicating a healthy demand for Berger’s products.

Despite facing challenges like price reductions due to competitive pressures, Berger managed to maintain its growth trajectory. The Projects business, which constitutes around 8% of decorative paints sales, was impacted by lower traction in premium categories in regions like Kerala and West Bengal. However, the protective coatings business showed stable growth, supporting overall revenue.

EBITDA Growth

The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for FY24 grew by 25% YoY, reaching ₹1,861 crore. This significant increase can be attributed to lower raw material costs and strategic price cuts. To address the decline in raw material prices, Berger implemented two price reductions—one in November 2023 and another in January 2024.

However, in Q1 FY25, EBITDA declined by 6% YoY to ₹522 crore due to increased costs in the emulsion category and higher advertisement expenses. Despite these challenges, Berger took a small price hike of 1% at the portfolio level to offset some cost pressures.

Net Profit and PAT Margin

Berger Paints reported a net profit of ₹1,129 crore in FY24, marking a 29% YoY increase. This surge in profitability was primarily driven by an increase in operating profits and a recovery in joint ventures that had previously reported losses. The effective tax rate for the year was around 25%.

In Q1 FY25, Profit After Tax (PAT) stood at ₹344 crore, a 2% decline YoY due to higher depreciation and amortization expenses.

Return on Capital Employed (ROCE) and Return on Equity (ROE)

The company’s ROCE increased significantly to 30% in FY24, compared to the previous year. This improvement was mainly due to favorable operating profits and efficient capital allocation. ROE also showed considerable improvement, rising to 23.7% in FY24, from 20.46% in the previous year.

Cash Flows and Financial Position

Cash flows from operations increased to ₹1,591 crore in FY24, primarily due to effective working capital management. The company’s working capital cycle stood at only 3 days, reflecting efficient inventory and receivables management.

Cash outflow from investing activities amounted to ₹398 crore, driven by net purchases of property, plant, and equipment, along with new capacity expansions. The planned investments include a significant ₹2,700 crore capacity expansion at the Panagarh plant in West Bengal, expected to be completed by 2025.

Free cash flow per share rose to ₹10.77/share, reflecting strong cash flow generation capabilities. The asset turnover ratio was 1.24x in FY24, with the majority of assets comprising property, plant, and equipment.

Debt and Solvency

The debt-to-equity ratio stood at a low 0.04x as of March 31, 2024, indicating prudent financial management. Long-term borrowings amounted to ₹6 crore, while short-term borrowings were ₹199 crore. The company’s interest coverage ratio improved to 20.9x, reflecting strong operating profit and reduced finance costs.

The current ratio was 1.6x in FY24, with current assets mainly comprising inventories and trade receivables, and current liabilities primarily consisting of trade payables.

Market Potential and Industry Outlook

The Indian paint and coatings industry was valued at $9.56 billion (₹80,000 crore) in FY24, with decorative paints constituting 75% and industrial paints the remaining 25%. The industry is poised for substantial growth, driven by several factors:

1. Urbanization and Real Estate Growth: The increasing urbanization rate, which stands at 36.5%, is expected to rise to 42.5% in the coming years. This growth, coupled with the government’s emphasis on affordable housing, will boost demand for paints and coatings in residential and commercial sectors.
2. Technological Advancements: The industry is witnessing innovation in paint technology, such as self-healing coatings, antimicrobial coatings, and superhydrophobic paints. Berger Paints is investing in these new technologies to cater to evolving customer preferences.
3. Shortening Repainting Cycles: With rising incomes and higher aspiration levels, repainting cycles have reduced from 6.9 years in 2019 to 5.6 years by 2031, driving the demand for paints and coatings.
4. Infrastructure Development: The Indian Government’s focus on enhancing infrastructure has led to increased investment in roads, railways, airports, and urban development projects, providing a significant boost to the industrial paints segment.

Competitive Landscape and Strategic Positioning

The Indian paint sector is characterized by an oligopoly structure, dominated by a few key players like Asian Paints, Kansai Nerolac, Akzo Nobel, and Berger Paints. Berger Paints, the second-largest player in the decorative segment, benefits from its strategic alliance with UK Paints. This partnership not only enhances Berger’s access to technology and resources but also strengthens its position in the industry.

Berger holds a 20% market share in the decorative paints segment. It has established its presence through strong brands, an extensive distribution network, and continuous product innovation. Its emphasis on R&D and strategic capacity expansion positions the company favorably for future growth.

Management and Corporate Governance

Berger Paints’ management team is led by Abhijit Roy, the Managing Director and CEO, who has been with the company since 2012. Under his leadership, Berger has made significant strides in both market expansion and profitability. Kaushik Ghosh, the Vice President and CFO, brings over two decades of experience in finance and internal audit, ensuring strong financial discipline and strategic planning.

The company’s corporate governance practices are aligned with global standards, ensuring transparency and accountability. The Board of Directors comprises experienced professionals who provide strategic guidance and oversight.

Strategic Initiatives and Future Outlook

1. Capacity Expansion: Berger Paints is enhancing capacity at its Sandila plant in Uttar Pradesh, which commenced operations in February 2023. Spanning 37 acres, this facility is the largest manufacturing unit in India for the company, designed to optimize costs and maintain quality. It produces a range of products, including water-based and solvent-based paints, emulsions, and construction chemicals.
2. Plant Upgradation: Berger has upgraded the Rishra plant and the Beepee Coatings plant in Gujarat to reduce reliance on external vendors, ensuring timely production and supply chain efficiency.
3. Waterproofing and Construction Chemicals: The company’s waterproofing and construction chemicals business has seen significant traction. Berger aims to become a leader in this segment by FY25, driven by new product launches like Roof Kool

Berger Paints is well-positioned to capitalize on several growth drivers in the Indian and global paint markets. With its strategic initiatives and a keen focus on research and development, Berger is set to achieve greater market penetration and expand its footprint in new and emerging segments. Below are the key areas of growth and strategic priorities that will drive Berger Paints’ future performance:

Expansion of Production Capacity

Berger Paints has made significant investments in expanding its production capacity to meet the growing demand for its products. The Sandila plant in Uttar Pradesh, which commenced operations in early 2023, is a testament to the company’s commitment to capacity enhancement. This facility spans 37 acres and is the largest manufacturing unit for Berger Paints in India. It is equipped with state-of-the-art technology to produce a wide range of products, including water-based and solvent-based paints, emulsions, and construction chemicals.

The addition of this plant is expected to contribute significantly to Berger’s long-term revenue growth. With increased production capacity, Berger can better serve its existing markets while also exploring new territories. The plant’s focus on cost optimization and quality consistency will further strengthen Berger’s competitive advantage.

In addition to the Sandila plant, Berger is also working on expanding its production capabilities at the Rishra plant in West Bengal and the Beepee Coatings plant in Gujarat. These upgrades aim to reduce dependence on external vendors and streamline production processes, resulting in better operational efficiency and supply chain management.

Entry into New Product Segments

Berger Paints has strategically diversified its product offerings to include high-margin segments like waterproofing and construction chemicals. The company has launched several new products in these categories, such as Roof Kool, Seal Bitu Seal DPC, and Sealant. These products cater to the growing demand for specialized coatings and construction solutions, which are expected to see robust growth in the coming years.

The waterproofing and construction chemicals market in India is projected to grow at a rapid pace due to increasing infrastructure development and the government’s focus on affordable housing. Berger’s entry into this segment aligns with its strategy to tap into high-growth areas and establish itself as a market leader. By FY25, Berger aims to be among the top players in these segments, leveraging its strong brand equity and distribution network.

Focus on R&D and Innovation

Innovation has always been a key driver of growth for Berger Paints. The company’s research and development (R&D) efforts are focused on creating new, value-added products that cater to the evolving needs of customers. Berger’s R&D centers work on developing eco-friendly and technologically advanced products such as self-healing coatings, antimicrobial paints, and superhydrophobic coatings.

These innovations not only enhance Berger’s product portfolio but also strengthen its positioning as a premium paint manufacturer. As consumer preferences shift towards high-quality, durable, and environmentally sustainable products, Berger’s focus on innovation will be a crucial differentiator in the market.

Digital Transformation and Customer Engagement

In an increasingly digital world, Berger Paints has recognized the need to enhance its digital presence and customer engagement. The company has invested in digital tools and platforms to improve customer service, streamline distribution, and strengthen its supply chain. These efforts include the implementation of digital ordering systems, customer relationship management (CRM) software, and digital marketing initiatives.

Berger’s digital transformation initiatives also extend to its dealer network. The company has introduced dealer apps and digital ordering platforms to make it easier for dealers to place orders, track inventory, and access product information. This not only improves operational efficiency but also enhances dealer satisfaction and loyalty.

Strengthening Distribution and Dealer Network

A strong distribution network is one of Berger Paints’ core strengths. The company’s distribution network includes over 64,000 dealers and retailers spread across urban and rural areas. This extensive network enables Berger to reach a diverse customer base and maintain its market leadership in key regions.

To further strengthen its distribution capabilities, Berger is expanding its presence in Tier II and Tier III cities. The company is also focusing on improving dealer engagement through training programs, incentives, and digital tools. By building a robust distribution infrastructure, Berger is ensuring that it can cater to the growing demand for its products across various markets.

Leveraging the Growth of the Real Estate Sector

The real estate sector is a significant driver of demand for paints and coatings. With the Indian government’s push for affordable housing and infrastructure development, the real estate sector is expected to witness strong growth in the coming years. Berger Paints, with its extensive range of decorative and industrial coatings, is well-positioned to benefit from this trend.

Berger’s focus on large-scale projects such as the Rajpath Refurbishment and Vandhe Bharat underscores its ability to cater to high-value real estate and infrastructure projects. The company’s involvement in airport and refinery projects further highlights its expertise in handling complex projects and delivering customized solutions.

Strategic Acquisitions and Partnerships

Berger Paints has a history of strategic acquisitions and partnerships that have helped it expand its product portfolio and market reach. The company’s partnership with UK Paints, for instance, has provided access to new technologies and resources, enabling Berger to enhance its competitive positioning.

Going forward, Berger is likely to explore more acquisition opportunities, particularly in niche segments such as specialty coatings, waterproofing, and industrial chemicals. Strategic acquisitions will not only strengthen Berger’s market position but also provide new growth avenues in related segments.

Enhancing Brand Equity through Marketing Initiatives

Brand equity is a critical factor in the paint industry, where customer loyalty and brand recognition play a significant role in influencing purchasing decisions. Berger Paints has consistently invested in brand-building activities to enhance its visibility and reputation. The company’s marketing campaigns emphasize its commitment to quality, innovation, and customer satisfaction.

Berger’s focus on sustainability and eco-friendly products is also reflected in its marketing messages. The company has launched several campaigns to promote its range of environment-friendly paints, positioning itself as a responsible corporate citizen. These initiatives not only resonate with environmentally conscious consumers but also align with global sustainability trends.

Challenges and Risk Mitigation Strategies

While Berger Paints is well-positioned for growth, it faces several challenges that could impact its performance:

1. Raw Material Price Volatility: The paint industry is highly dependent on raw materials like crude oil and titanium dioxide. Any significant fluctuation in the prices of these commodities can affect profitability. Berger mitigates this risk through strategic sourcing, long-term contracts with suppliers, and timely price adjustments.
2. Competitive Pressures: The Indian paint industry is dominated by a few large players, and competition is intense. Berger needs to continuously innovate and expand its product offerings to maintain its market share. The company’s focus on R&D and new product launches helps it stay ahead of the competition.
3. Regulatory Compliance: The paint industry is subject to stringent environmental regulations. Berger ensures compliance through its robust environmental management systems and investments in eco-friendly technologies.
4. Economic Slowdown: Any slowdown in the Indian economy or a decline in real estate demand can adversely affect Berger’s growth prospects. The company’s diversification into industrial and specialty segments provides a cushion against downturns in the residential and commercial segments.

Future Outlook and Strategic Roadmap

Looking ahead, Berger Paints aims to achieve sustainable growth by focusing on its core strengths—innovation, quality, and customer service. The company’s strategic priorities include:

• Expanding production capacity through new plants and upgrades to existing facilities.
• Increasing market share in high-growth segments like waterproofing and construction chemicals.
• Strengthening its presence in Tier II and Tier III cities.
• Enhancing its digital capabilities and dealer engagement.
• Leveraging strategic acquisitions and partnerships to enter new markets and product categories.

Berger also plans to invest heavily in sustainability initiatives, aligning its operations with global best practices in environmental management. The company’s focus on developing eco-friendly products and reducing its carbon footprint will not only improve its brand image but also meet the evolving expectations of customers and regulators.

Conclusion

Berger Paints India Limited has established itself as a formidable player in the Indian paint industry, driven by its strong management team, robust financial performance, and strategic initiatives. The company’s focus on R&D, product innovation, and market expansion positions it well for future growth.

With the Indian paint industry poised for significant growth, Berger is well-equipped to leverage its strengths and capitalize on emerging opportunities. Its emphasis on sustainability, digital transformation, and strategic capacity expansion will ensure that it remains a leader in the industry.

As Berger Paints continues to evolve and adapt to changing market dynamics, it is poised to deliver long-term value to its shareholders and stakeholders. The company’s commitment to excellence and innovation will drive its growth in the years to come, making it a stock to watch in the Indian market.