Berger Paints Q3FY19 review: Volume drives topline, but crude prices hurt margins

Highlights:

- Q3 volume growth was strong at nearly 14-15 percent
- Festive demand aided topline growth
- Management expects margins to recover in Q4
- Competitive intensity to increase going forward

- Valuations offer little upside from current levels

India’s second-largest decorative paints company reported better-than-expected Q3FY19 topline. Volume growth was in high teens, at par with its larger peer Asian Paints. Operating margins, however, contracted as high crude oil prices expanded the cost base. The company appears to be on a secular growth path as it continues to grow faster than the industry, gaining market share from smaller and unorganised players.

Key Q3 positives

- Topline growth of 21 percent was driven by strong volume growth. The decorative volume growth estimates for the quarter stood at nearly 14 percent as strong consumer demand during the festive season along with a favourable base (timing of Diwali) aided the sales growth in October-December period.

- Operating profit margins recovered sequentially with successive price hikes partially alleviating the crude-oil and currency-related pressures. However, high-cost inventory kept margins under pressure on YoY basis.

- Apart from strong demand in the decorative business, there was decent traction in industrials, Nepal decorative business, and Saboo Coatings.

- The management expects a recovery in Q4 margins from softening crude prices and rupee stabilisation against the dollar.

Source: https://www.moneycontrol.com/news/business/moneycontrol-research/berger-paints-q3fy19-review-volume-drives-topline-but-crude-prices-hurt-margins-3491201.html

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