Berger Paints: Recommendation Review

The paint industry has a limited set of players. Among them, only a couple have really managed to make a mark on the markets. We had recommended one such company, Berger Paints, in DSIJ Vol. 27, Issue No. 25 (dated December 2, 2012) at a price of Rs 141 per share. Since our recommendation, its price has appreciated by 39.11 per cent in all of 73 trading sessions. This makes the annualised returns on Berger Paints a whopping 137.15 per cent.

A healthy product mix (more dependent on decorative than industrial segments), greenfield and brownfield expansion projects, growth of water- ased paints, robust past performance, maintenance of operational efficiency and cheaper valuations as compared to those of the market leader Asian Paints were some of the reasons on which we had based our recommendation. Also, macro factors like low per capita paint consumption and low penetration made for a good case of huge potential.

Post our recommendation, Berger Paints announced its results for the quarter ending December 2012. In Q3FY13, its revenues grew by 17.64 per cent to Rs 920.3 crore on a yearly basis. At the same time, its net profit shot up by 56.45 per cent to Rs 76.8 crore.

All the above factors have resulted in a tremendous appreciation in the stock price. Although we think there is more upside for this scrip in the long term, investors are recommended to book profits in it at the current levels. It would be a good idea to take your money off the table now and revisit the stock once the euphoria about it simmers down a little.