Berger Paints: Recommendation Review

We had recommended Berger Paints India (BPIL) DSIJ Vol 27, Issue No. 25 (dated December 2, 2012), when it was trading at a price of Rs 141 apiece. Since our recommendation, the stock price has appreciated by 18.44 per cent to Rs 167 per share.

The reasons for our recommendation included the potential seen in the Indian paint industry, growth in the high margin water-based paints business, the capacity expansion to be undertaken by BPIL and BPIL’s plan to expand in South India. Moreover, in the last five years, the company has seen revenue growth in the range of 13-27 per cent on a YoY basis. The stock was also trading at a PE multiple that was relatively lower as compared to that of its peers, which made it an attractive buy.

Although the stock still remains a fair pick with bright long-term prospects, it has yielded returns of 18.44 per cent in all of 46 trading sessions, which translates into an annualised return of 101.82 per cent. In view of these factors, this is the right time for investors to book partial profits. So far, paint companies have posted better than expected results in Q3FY13 and we expect the same out of Berger Paints. Having said this, prospects for growth still exist in the stock, and we believe there is long-term upside potential in the scrip.