Berger Paints (I) Q1 FY27 earnings call

Berger Paints delivered a robust Q1 FY27, with consolidated revenue growing 12% year-on-year. The company reported an overall volume growth of 8.4%. Consolidated PBDIT saw a growth of 12.6%, leading to a 40 basis points expansion in the consolidated PBDIT margin. Net profit (PAT) for the consolidated entity increased by 28.6% year-on-year, reflecting strong operational performance.

The decorative business was a significant growth driver, achieving 13.5% value growth and nearly 20% operating profit growth. This was supported by strong performance in HomeShield, wood coatings, exterior emulsions, and the newly launched Color Plus interior emulsion. While protective GI and powder coatings divisions experienced relatively lower growth due to delayed price increases, construction chemicals and waterproofing delivered robust volume and value growth, with roof pool and seal products gaining momentum.

The company continued to expand its store footprint, reaching over 1,900 stores as of the quarter-end, with urban stores alone accounting for over 900. Tinting machine installations crossed 2,100 for the quarter, with an aspiration to reach 10,000 machines for the year, primarily focusing on under-indexed markets. Management noted a gain in market share in Q1, particularly in the eastern part of India, despite competitive pressures.

Berger Paints' cash surplus significantly increased from ₹992 crores to ₹1424 crores by the end of June FY27, indicating strong liquidity. A substantial portion of this cash will be allocated towards capital expenditure, with an estimated ₹600-800 crores planned for FY27. This capex is primarily for two new factories, one in Panagar and another in Orisa near Johanshwar, with the Panagar project expected to commence by the fiscal year-end.

For FY27, the company anticipates sustaining double-digit revenue growth, benefiting from the full impact of price increases in Q2. Operating margins are expected to remain within the guided range of 15-17%. Management projects Q2 revenue growth to be slightly ahead of Q1, with volume growth around 7.5-8% and a price increase impact of 7.5-8.5%. Q2 operating profit is expected to be decent, and Q3 is projected to show good top-line and operating profit growth.

The competitive environment remains intense, though challenger brands have aligned their dealer price lists with the industry. While rebating for larger dealers has increased and 10% free material continues, overall intensity is noted to be reduced but still elevated. Raw material prices, particularly crude oil, remain dynamic and volatile. Management indicated that any potential price cuts post-Diwali would be contingent on a substantial and sustained decline in raw material costs.

Consolidated revenue growth was slightly moderated by the performance of wholly-owned subsidiaries, Bullix and STP, which experienced muted growth due to seasonal factors and plant disturbances, respectively. However, management expects these subsidiaries to return to normalcy in Q2. Regionally, growth was higher in the South and North, while the East was muted due to floods in the Northeast and a transition period following a change in government in West Bengal, impacting project business.