Consumer: Berger Paints – Top BUY in Consumer
Following 11 days YoY improvement in its working capital cycle in FY16, Berger's management suggests that the firm is likely to deliver further reduction in inventory days and increase in creditor days given initiatives implemented around supply chain efficiencies and vendor management. This is in addition to the significant changes implemented by its CEO Abhijit Roy over the past three years around: (a) aggressive marketing campaigns for the 'Silk' and 'Express Painting' service; (b) process-oriented approach for hiring, retention and incentivisation of the sales team; (c) manufacturing process efficiencies; and (d) improving the quality of hires at the management trainee level. Through these initiatives, we expect Berger to gain ~500bps market share from Kansai and Akzo Nobel over FY15-FY25 and EBITDA margin to expand by 150bps over FY16-FY20. We expect 19%/26% revenue/EPS CAGR over FY16-FY20, with RoCEs rising from 21% in FY16 to 31% in FY20E. Our fair value of Rs324 implies 37x FY18E P/E. (Rakshit Ranjan, CFA, +91 22 3043 3201)
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