Gladiator Stocks – Berger Paints: ICICI Direct

Trading Calls - Equity F&O

According to ICICI Direct, Buy Berger Paints in the range of Rs 730.00–745.00 for target price of Rs 830.00 with stop loss of Rs 675.00. Time Frame: Six months.

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March 24, 2021 / 04:29 PM IST

ICICI Direct’s research report on Berger Paints


Buy Berger Paints in the range of Rs 730.00–745.00 for target price of Rs 830.00 with stop loss of Rs 675.00. Time Frame: Six months.

Technical View

The share price of Berger paint has undergone healthy retracement over past three months and formed a higher base at lower band of rising channel. Thereby offering fresh entry opportunity with favourable risk reward to ride next leg of up move. We expect the stock to form a higher base in the vicinity of 10 week’s EMA and gradually head towards Rs 830 levels in coming months as it is life highs recorded on January 2021. The up move since March 2021 has taken a shape of an upward sloping channel, indicating elevated buying demand which has emerged in the vicinity of 10 weeks EMA. In the current scenario as well stock has formed a higher base in the vicinity of 10 weeks EMA. Thereby offering fresh entry opportunity. Key point to highlight is that, over past three months stock has retraced 61% of preceding two months up move (618-823). Shallow price retracement signifies robust price structure.

Fundamental View

Berger Paints is the second largest paint companies in India with presence both in decorative and industrial paint. The decorative paints contributes 80% to the annual topline. With ~ 6 lakhs metric tonnes of annual manufacturing capacity, Berger has presence across all categories of Premium, Budget and Economy products. Berger paints commands 17% market share in the organized decorative market paints category. In the last five years, BPIL has invested heavily in capex, brand building (average 5% of sales in the last five years) and product innovation with a strong balance sheet position. With strong R&D expenditure and launch of innovative products Berger paints has improved its gross margin profile by 350 bps over the last 10 years. Berger witnessed a strong performance revenue earning CAGR of 11%, 16% in the last six years, supported by strong EBITDA margin expansion of 425 bps. We believe, despite pandemic related challenges, the long term growth story of decorative paint remains intact with key growth drivers such as shortening repainting cycle, rising aspirations and urbanisation level suggests a structural growth story. We believe the paint industry will grow at 12-13% CAGR in FY20-23E led by decorative paints. We also believe top players would outperform industry growth by 100 bps supported by market share gains from the unorganised pie, which is holding ~30% of total market share.

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