Berger Paints India Ltd Research ReportQ4

Berger Paints reported strong domestic volume growth in the first two months of Q4FY20. However, domestic revenue (~ 87% of consolidated sales) declined ~13% YoY in Q4FY20 (higher than industry leader) mainly due to ~45% lower volume offtake in March 2020 owing to lockdown. Lower realisation was largely due to a change in product mix. However, the company has not initiated any price cut despite recent decline in raw material prices. However, the management guided that future price cuts on selected product categories cannot be ruled out given the softness in input prices. Unlike industry leader, Berger Paints has low revenue exposure in metros. Hence, it is better positioned to cater to pent up demand in tier II, tier III cities post easing of lockdown. While the product mix is likely to stay skewed towards low end product categories, the revival in maintenance related works would help drive volume growth in the medium term. Gross margin is likely to stay elevated due to a sharp fall in monomers and solvent based product prices. With minute D/E (of 0.2x), strict working capital management led to strong cash flow from operation (up ~60% YoY) in FY20. We maintain our positive stance on the stock given its strong balance sheet position.