Berger Paints trade in a range post Q2; HSBC sees potential upside of over 18%

Shares of Berger Paints in early trade on Friday (November 3) fell over 1 per cent to hit the day’s low of Rs 542.15 even as the paints company posted 33 per cent year-on-year (YoY) growth in its consolidated net profit at Rs 292 crore in the September quarter. The figure stood at Rs 219.51 crore in the corresponding quarter last year.

The revenue from operations at the midcap paints company also logged a 3% YoY increase to Rs 2767 crore versus Rs 2670.9 crore in the same quarter of the previous fiscal year.

After the result announcement during market hours on Thursday, the stock of Berger Paints ended almost flat with a negative bias at Rs 548.95 apiece.

EBITDA or earnings before interest tax depreciation and amortisation at the paint manufacturer for the reporting period stood at Rs 473.65 crore, up 30.4 percent YoY.

Last, at the time of writing the copy, at around 9:37 am, scrip traded 0.74 per cent lower at Rs 544.75.

Operating profit at the standalone level showed strong growth at 26.7% for the quarter, the company’s investor presentation highlighted. Also, the company’s India operation recorded improved growth with market share above 20% at the end of H1FY24 as compared to 19.3% at the end of FY23.

Here’s what global brokerages recommend on Berger Paints post Q2

Global brokerage Morgan Stanley has downgraded the stock to ‘Underweight’ from the previous ‘Equal Weight’ rating. Also, at the same time, it has slashed the target price to Rs 479 from the earlier Rs 546. As per the brokerage, the paints company missed Q2 estimates by 5-6 per cent. While demand for decorative paints, in general, remained weak, the company generated double-digit volume growth & gained market share during the review quarter, noted the brokerage. Management is confident about maintaining double-digit growth and similar EBITDA margins in 3Q, it added.

Macquarie retained its ‘underperform’ rating on the stock with a target of Rs 505, implying 8 per cent downside from the previous close. 

In contrast, HSBC is bullish on Berger Paints and has recommended a buy rating with a raised target price of Rs 650, implying potential gains of over 18 per cent. For HSBC, the paint manufacturer’s 11 per cent volume growth in the decorative segment is impressive in a tough quarter, nonetheless, an inferior mix impacted value growth. The gross margin at the company improved on soft raw material prices. Berger continues to focus on aggressive distribution expansion & innovation to drive growth, noted the brokerage.