Berger Paints (I) Limited — Q3 FY25 earnings call

Call held 11 Feb 2025

Management summary

Berger Paints reported a Q3 FY25 with robust 7.4% volume growth in its decorative segment, contributing to a consolidated sales growth of 3.2%. Despite a volume-value gap driven by price reductions and a shift towards lower-value products, the company maintained its operating margin at 16.2%, within the guided range. Berger also improved its net cash position and continued to gain market share amidst increasing competition, with management expressing optimism for Q4 performance.

Highlights

  • High single-digit volume growth of 7.4% in the decorative segment for Q3 FY25.

  • Protective business demonstrated strong performance in the quarter.

  • Company continued to gain market share in Q3, now exceeding 20%.

  • Operating margin of 16.2% remained within the guided range (15-17%) and improved sequentially.

  • Net cash position significantly improved to ₹377 crores at the end of Q3 FY25, up from ₹242 crores in Q2 FY25.

Concerns

  • Volume-value gap in Q3 due to a 4-5% product price decrease and stronger sales of lower-value, high-volume products.

  • Gross margin contracted marginally year-on-year due to product price reductions undertaken in the last financial year.

  • Operating margin was lower on a year-on-year basis for Q3 FY25.

  • Geopolitics and currency depreciation are identified as likely risks for future quarters.

Key financials

2 periods

Headline

  • Volume Growth (Decorative)
    7.4%
    YoY +7.4%
  • Net Cash Position (Dec 2024)
    ₹377 Cr

Q3 FY25

  • Value Growth
    40%
    YoY +0.4%
  • Gross Margin
    39.8%
  • EBITDA Margin
    16.2%
  • Consolidated Sales Growth
    3.2%
    YoY +3.2%

What they filed

Q1 FY27: revenue up 12.7%, net profit up 25.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,431 2,585 2,347 2,863 2,458 +1%2,595 +0%2,504 +7%3,227 +13%
EBITDA383 417 390 499 311 −19%417 +0%459 +18%562 +13%
Net profit229 306 237 294 176 −23%298 −3%327 +38%369 +26%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Decorative Segment
    7.4% Volume Growth
  • Protective Business
    strong qualitative Performance
  • Construction Chemical/Waterproofing
    strong double digit qualitative Growth
  • Industrial Business
    strong qualitative Performancemuted qualitative Automotive/General Industrial/Powder Coatings Growth

Capital allocation

high confidence
  • Liquidity Cash ₹377 Cr Net cash position improved to ₹377 crores at the end of Q3 FY25, up from ₹242 crores in Q2 FY25.
    Abhijit Roy: company improved its net cash position at the end of the quarter. Abhijit Roy: December 24. Abhijit Roy: From September 24. Level. It improved from 2 42 crores to 377 crores

Guidance & targets

Margin

  • Operating Margin Margin · ongoing · High confidence 15-17%
    Abhijit Roy: is at 16.2%. It's been hovering in that range. Only we have always guided that it will be possibly be in the 15 to 17% range.

    — Abhijit Roy

Volume

  • Q4 Volume Growth Volume · Q4 FY25 · Medium confidence double digit figure
    Abhijit Roy: You know we are at 7.4 or something in volume. I expect that we will possibly go up more towards the double digit figure in terms of volume, growth, and in value growth.

    — Abhijit Roy

  • Q4 Value Growth Volume · Q4 FY25 · Medium confidence bit single digit growth
    Abhijit Roy: I expect that we will possibly go up more towards the double digit figure in terms of volume, growth, and in value growth. As I said, there will be a difference here of 2 and a half, 3%. So we expect bit single digit growth in terms of value. Growth.

    — Abhijit Roy

Volume-Value Gap

  • Sustained Volume-Value Gap Volume-Value Gap · next few quarters · High confidence 2-2.5%
    Abhijit Roy: and 4 to 5% is due to the price decrease, which was there that 4 to 5% will go away, the 2 to 2 and a half percent will remain so in terms of volume value differential. You can expect a 2 and a half percent to sustain in the next few quarters.

    — Abhijit Roy

What to watch in Q4 FY25

Q4 Volume Growth

next quarter
Current 7.4% (Q3 Decorative)
Target Double-digit growth

Why it matters

To assess the effectiveness of strategic initiatives and overall demand recovery.

Abhijit Roy: You know we are at 7.4 or something in volume. I expect that we will possibly go up more towards the double digit figure in terms of volume, growth, and in value growth.

Risks & concerns

  • Competition from new entrant (Birla Opus)

    high

    New entrant has gained an estimated 3.5% market share YTD, impacting existing players, and is expected to continue impacting Berger's growth rate by 2-3%.

    Both acknowledged

  • Geopolitics and currency depreciation

    medium

    Identified as likely risks, though management downplays immediate impact on margins due to limited import dependency and price adjustments.

    Management acknowledged

  • Market slowdown

    medium

    Viewed as a temporary issue, with expectations for improvement from April onwards following budget announcements.

    Management downplayed

  • Impact of product price decreases

    medium

    A 4-5% price drop in earlier quarters created a volume-value gap, but this impact is expected to wane from mid-January.

    Management downplayed

Q&A highlights

6 direct
Impact of new entrant (Birla Opus) on market share and strategy Direct
Abhijit Roy: It's our estimate is that you know, Virulla has got about on a Ytd basis about 3.5% of the market, right? You know, which is. if you consider 5 main players which consider, you know, which produce the result. and take also Birla in that which is the 6th player. Then in that 6 players they have about 3.5%

Analyst questions the impact of a significant new competitor; management quantifies their estimated market share and acknowledges impact, but states Berger's impact is less.

Asked by Aniruddha Joshi

Berger's interest in acquiring AkzoNobel's decorative business Direct
Abhijit Roy: Get into these things you know, as of now, I would just say that it doesn't have a strategic fit. You know, the value benefit equation doesn't fit in with our requirements. so we are not, therefore, a serious contender in this race as of now. This is all that I can tell you.

Management clarifies its stance on a major potential M&A event in the industry, indicating no strategic fit for Berger.

Asked by Ajay Thakur

Reasons for Berger's divergent strong volume growth compared to peers Direct
Abhijit Roy: in our case, you know, I think the divergence is coming out of 2 factors. Primarily, distribution expansion which is happening at a very good pace, you know, I would say, and in fact, we would like to accelerate that further. and the second is the urban initiative that we have undertaken.

Management attributes outperformance to specific strategic initiatives, providing insight into their growth drivers.

Asked by Mihir P Shah

Gross margin profile given mix deterioration and price drop Direct
Abhijit Roy: Part of it is price decrease. But you are rightly saying that you know what about the balance? The balance is not because the mix is deteriorated as such. But the fact is that you know tile adhesive as a category did not exist 2 year back. But that volume is large, and it is coming, and it's a good, profitable item. So we continue to sell that

Management clarifies the reasons for the volume-value gap, distinguishing between price impact and product mix shift towards high-volume, lower-value categories.

Asked by Mihir P Shah

Outlook for Q4 FY25 sales and industry growth trends Partial
Abhijit Roy: You know we are at 7.4 or something in volume. I expect that we will possibly go up more towards the double digit figure in terms of volume, growth, and in value growth. As I said, there will be a difference here of 2 and a half, 3%. So we expect bit single digit growth in terms of value. Growth.

Management provides specific directional guidance for Q4 volume and value growth, indicating optimism for their own performance but less so for the overall industry.

Asked by Mihir P Shah

Sustainability of cost savings in other expenses Direct
Abhijit Roy: So there are many areas, you know, where we had opportunities to save, and I think we still have opportunities to save. These are costs which are, you know, of the nature which are non essential. I would say

Management indicates ongoing efforts to control non-essential costs, suggesting potential for sustained margin support.

Asked by Karthik Chellappa

Details on urban initiatives and exclusive dealer network strategy Direct
Abhijit Roy: So in Urban, you know. Basically, we need to get foothold in the marketplace. If if most of you are based out of Mumbai. You will see that you know very few Borja dealers are visible on the ground, you know. So the 1st task is to get, you know, dealers to stock and sell our products... and then we work with them, you know, to ensure that the sales happen so other details I will not be able to share with you, but you know we we are quite hopeful that this will work very well for us.

Management outlines the strategic rationale and execution focus for its urban expansion and dealer network, highlighting key growth levers.

Asked by Amit Purohit

2 min read 6 chapters

Detailed narrative

Q3 FY25 Performance Highlights

Berger Paints reported a high single-digit volume growth of 7.4% in its decorative segment for Q3 FY25, contributing to a consolidated total sales growth of 3.2%. Despite this, value growth for the quarter was a modest 0.4%. The company's gross margin stood at 39.8% and EBITDA margin at 16.2%, both within the guided range of 15-17%, though operating margin was lower year-on-year.

Analysis of Volume-Value Gap

The observed volume-value gap is primarily attributed to two factors: a 4-5% product price decrease undertaken in earlier quarters and a stronger sales mix towards high-volume, lower-value products such as tile adhesives and texture coatings. Management clarified that this gap is not due to mix deterioration but rather a shift in product categories. The 4-5% price decrease impact is expected to wane from mid-January, but a 2-2.5% volume-value differential is anticipated to persist for the next few quarters.

Competitive Landscape and New Entrant

The company acknowledges the impact of a new entrant (Birla Opus), estimating their market share at approximately 3.5% YTD among the top six players. While this competition affects all existing players, Berger believes its impact is slightly less. Management also confirmed they are not pursuing the acquisition of AkzoNobel's decorative business, deeming it not a strategic fit.

Strategic Growth Drivers: Distribution & Urban Initiatives

Berger's strong volume growth, outperforming peers, is attributed to aggressive distribution expansion and successful urban initiatives. The strategy involves gaining a foothold in key urban markets, ensuring dealer stocking, and driving sales from these counters. The company added over 2,000 retail touchpoints and installed around 1,800 color bank printing machines, with urban initiatives progressing well.

Outlook for Q4 FY25 and Margin Stability

Management expects sequential improvement in Q4 FY25, projecting double-digit volume growth and single-digit value growth. They are confident in maintaining operating margins within the 15-17% band, citing limited impact from currency depreciation due to low import dependency (25-30% of RMC) and balancing price adjustments. The temporary market slowdown is also expected to ease from April onwards.

Improved Net Cash Position

The company significantly improved its net cash position, which increased to ₹377 crores at the end of December 2024, up from ₹242 crores in September 2024. This enhanced liquidity provides financial flexibility for future operations and growth initiatives.

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