Berger to Acquire Sherwin Williams’ Decorative Paint Business

Berger Paints announced the acquisition of the architectural (decorative) paint business of Sherwin Williams by its wholly owned subsidiary Brushworks for an undisclosed amount. This acquisition has been funded through internal accruals and is likely to further strengthen the overall standing of Berger Paints.

Sherwin Williams entered the Indian market five years ago with the acquisition of the business of Nitco Paints. However, the company was unable to strongly establish itself in the domestic market. It is thus selling its decorative paint business to Berger. This division accounted for 85% of Sherwin Williams’ total business. It will, however, continue to maintain its presence in the industrial segment.

The acquisition would benefit Berger in several ways. For starters, it would increase Berger’s presence in the southern part of India since Sherwin Williams has a strong dealer network in that area. It would also help the overall market share grow from a tad above 20% to 24% for Berger Paints. Moreover, this acquisition synchronises well with Berger’s strategy and expansion in the decorative segment.

The current expansion plans of Berger Paints include setting up a water-based paint plant at Hindupur (Andhra Pradesh) and expansion of its Rishra (West Bengal) and Goa plants. These investments in capacity are towards increasing manufacturing of water-based paint, emulsions and resins. Since the acquisition of Sherwin Williams’ business would also involve control over its manufacturing facility, it would get along well with Berger Paint’s current strategic moves.

We have been optimistic about the prospects of Berger Paints. We had recommended it in Dalal Street Investment Journal Volume 27, Issue No. 25 (dated November 19 – December 2, 2012) at a price of Rs 141 per share. We had advised investors to book partial profits at a price of Rs 157.20 and full profits when it was trading at Rs 196.15. Although we think there is more upside potential to this scrip in the long term, we recommended investors to book profits. For those who wish to gain further from this scrip, buying at dips would be a good strategy.