Expecting double-digit growth YoY in 3QFY21 – Berger Paints

Update on Indian equity market:
Markets started the week on a higher note as Nifty closed the day 44 points higher at 13,571. Within the index, ONGC (5.9%), LT (4.3%), and CIPLA (4.1%) led the index higher while EICHERMOT (-2.5%), HEROMOTOCO (-2.2%), and M&M (-2.0%) were the highest losers. Nine out of 11 sectoral indices were in the green with MEDIA (2.0%), PSU BANK (1.8%), and METAL (1.4%) leading the pack while AUTO (-1.0%) and REALTY (-0.9%) were the only losers.
Excerpts of an interview with Mr. Abhijeet Roy, Chief Operating Officer, Berger Paints (Berger) published on CNBC-TV18 dated 11th December 2020:
The demand scenario in the month of October and November was robust. The company is witnessing a similar trend in December. He expects the volumes to report double-digit YoY growth in 3QFY21E.
Demand from the auto segment surged ahead of the festive season. The demand has softened in the month of December.
The decorative segment has seen robust demand right from 2QFY21 and continues to do well in the month of December.
To meet the ever-increasing demand for its products, the company is putting up a new plant at Lucknow. The initial plan was to have Rs 2,600-2,700 mn of investment in capacity expansion. The same has been ramped up to beyond Rs 4,500mn looking at the demand scenario.
He said that the costs are going up for some raw materials, specifically for monomers. The margins are expected to be under pressure in 4QFY21E.
He said that the company reported the fastest growth in the industry and as a result, gained market share. With the ever-increasing demand scenario, he is confident of continuing the momentum.
Consensus Estimate: (Source: market screener website)
The closing price of Berger was ₹ 681/- as of 14-Dec-2020. It traded at 102x/ 75x/ 63x the consensus EPS estimate of ₹ 6.7/ 9.1/ 10.8 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 551/- implies a P/E multiple of 51x on FY23E EPS of ₹ 10.8.
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