Berger Paints: Q1 show misses shine

Shares of Berger Paints rallied 4.5% to Rs 565 on NSE as investors preferred overlooking the subdued fiscal first quarter performance, that bears overhang of high priced crude oil inventory, and search opportunities in future earnings prospect.
The paint maker is expected to benefit from lower raw-material costs once the stock of higher-priced crude inventory is exhausted. From the second quarter onwards, gross margins will also be aided by renegotiations of raw material procurement contracts with suppliers.

On Friday, Berger Paint reported a 91% decline in consolidated net profit to Rs 15.09 crore for the April-June quarter, hit by the Covid-19 crisis.
The company had posted a net profit of Rs 176.41 crore during the April-June period of the preceding fiscal.
Revenue from operations dropped 46% to Rs 930.76 crore during the quarter under review, as against Rs 1,716.53 crore earlier.

Total expenses stood at Rs 901.42 crore, down 38.5%, from Rs 1,467.48 crore in Q1 FY20.
Berger’s consolidated gross margins expanded by only 11 basis points (bps) on a on-year basis to 41%. The paint makers gross margin expansion was slowest compared to its rivals. Asian Paints’ gross margins expanded by more than 100 bps and Kansai’s by over 300 bps during the quarter.

Clearly, the high price inventory took its toll on Berger’s margin. Another factor that impacted Berger’s gross margins compared to peers was its product mix, which had a higher share of value-for-money products.
As for the decorative paints’ volume growth, Berger’s volumes are estimated to have declined 39% on year. Asian Paints’ estimated volumes decline was 38% on year. Given its higher exposure to the industrial paints sector, Kansai Nerolac’s volumes saw the steepest fall of 55% on year.

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