Shares of Berger Paints India surged following strong Q4 earnings that demonstrated the company's recovery momentum. According to reports from Business Standard, the company's standalone volume grew 11.8% year-on-year in the March quarter, aided by channel stocking prior to price hikes and improvement in underlying demand. Value growth came in at 6.7%, with the value-volume growth gap narrowing to 5% from the previous 7-8% range over the last two quarters.
A key positive development is the easing competitive intensity in the market. As reported by Business Standard, Berger indicated that competitive intensity from Birla Opus is reducing as the company has implemented price hikes higher than peers, narrowing the pricing gap by 3-4%. The company has also reduced rebates and dealer margins, which were previously higher, and recorded lower sales growth momentum versus initial periods of operations.
For the March quarter, gross margin expanded by 150 basis points, though this was partly offset by a 30-basis-point rise in staff cost and a 20-basis-point increase in other expenses. According to Business Standard, operating profit margin improved by 100 basis points to 16.8% on the back of improving product mix and pricing actions. The company believes gross margins would be impacted by 100-150 basis points due to higher raw material prices, but this is likely to be neutralised at the operating level by operating efficiencies and cost savings.
Brokerages remain bullish on Berger Paints prospects, with Equirus Securities expecting value growth to outpace volumes in FY27 after price hikes are implemented. As reported by Business Standard, Systematix Research believes the company remains in a sweet spot of decorative growth, benefiting from Tier-3 and Tier-4 markets and rural areas where Berger has strong presence. The company could also gain from recovery in key markets such as West Bengal, which accounts for over 10% of revenue, aided by higher capital expenditure and industrial activity.
According to ICICI Securities, FY27 is likely to be the turnaround year for Berger Paints after a weak FY24-26, driven by price hikes in the low teens, revival in volume growth, and price hikes by Birla Opus that are more than peers'. Nomura Research believes FY27 should witness double-digit sales growth on the back of sustained volume growth and stable competitive intensity. The company has reiterated its operating profit margin guidance at 15-17% for the coming period.
