RESULT UPDATE

BERGER PAINTS Lockdown mars volume; margin expansion intact

India Equity Research| Consumer Goods

COMPANYNAME Berger Paints' (Berger) Q4FY20 consolidated revenue and EBITDA dip of EDELWEISS 4D RATINGS

8.0% and 7.6% YoY, respectively, came in line, while PAT dip of 6.5% YoY Absolute Rating BUY belied estimates. We estimate domestic volumes to have declined in low Rating Relative to Sector Performer to mid-single digits ( continued to do relatively better--grew Risk Rating Relative to Sector Low in low-single digit). COVID-19-induced lockdown in March end dented the Sector Relative to Market Underweight company’s standalone sales—down 13.2% YoY. While benign raw material cost led to 365bps YoY gross margin expansion, lack of operating leverage restricted EBITDA margin expansion to mere 5bps YoY as staff MARKET DATA (R: BRGR.BO, B: BRGR IN) cost/other expenses rose 17.5%/0.6% YoY. As things normalise, we CMP : INR 511 Target Price : INR 575 expect Berger to regain volumes and its premiumisation story to sustain. 52-week range (INR) : 597 / 300 With cooling off of raw material prices, we expect margin expansion to Share in issue (mn) : 971.2 continue. Maintain ‘BUY’ with target price of INR575. M cap (INR bn/USD mn) : 496 / 6,168

Avg. Daily Vol.BSE/NSE(‘000) : 1,563.7 Lockdown mars revenue growth; soft crude spurs margin

Impacted by lockdown, standalone net sales dipped 13.2% YoY; Berger fared worse SHARE HOLDING PATTERN (%) than AP’s standalone value dip of 8.4% YoY. Demand for paint products is gradually Current Q3FY20 Q2FY20 reviving as rural India is less affected than urban. Automotive business continued to Promoters * 75.0 75.0 75.0 suffer on account of persistent slowdown in the sector. Soft crude price led to Berger’s MF's, FI's & BK’s 2.8 2.8 3.3 standalone gross margin expanding 379bps YoY; however, lack of operating leverage FII's 11.8 12.0 10.2 led to standalone EBITDA margin expansion of mere 26bps YoY. The company’s wholly Others 10.4 10.2 11.6 owned subsidiaries Bolix S.A, BJN Nepal and SBL Specialty Coatings (erstwhile Saboo * Promoters pledged shares : NIL (% of share in issue) Coatings) posted good performance.

PRICE PERFORMANCE (%) Q4FY20 conference call: Key takeaways EW FMCG Stock Nifty The company has not taken price cuts but discussions are underway. The company is Index encouraged by growth rate in June. It expects to reach pre-COVID-19 level soon. There 1 month (15.4) (1.5) (4.9) is intense price competition in lower-end products. Value and volume difference 3 months (22.1) (21.4) (7.3) should continue going ahead also. 12 months 45.2 (23.3) (10.7)

Outlook and valuation: Positive; maintain ‘BUY’ We expect Berger to resume double-digit volume growth trajectory once things normalise aided by market share gains from unorganised segment (~30%), distribution expansion, among others. We maintain ‘BUY/SP’ with TP of INR575. At CMP, the stock is trading at 57.4x FY22E EPS. Abneesh Roy +91 22 6620 3141 Financials (INR mn) [email protected]

Year to March Q4FY20 Q4FY19 % change Q3FY20 % change FY20 FY21E FY22E Alok Shah

Net Sales 13,548 14,721 (8.0) 16,959 (20.1) 63,658 63,258 71,492 +91 22 6620 3040

EBITDA 2,084 2,257 (7.6) 2,963 (29.7) 10,610 11,279 13,199 [email protected]

Adjusted Profit 1,032 1,104 (6.5) 1,819 (43.3) 6,644 7,100 8,594 Tushar Sundrani Dilu. EPS (INR) 1.1 1.1 (6.5) 1.9 (43.3) 6.8 7.3 8.9 +91 22 6620 3004 Dilu.P/E (x) 75.2 69.5 57.4 [email protected]

EV/EBITDA (x) 46.6 43.1 36.6 ROAE (%) 25.6 24.8 25.9 June 26, 2020 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL , Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

Consumer Goods

Table 1: Trends at a glance Berger Paints Asian Paints Standalone Sales growth Gross EBITDA EBITDA growth Sales growth Gross EBITDA EBITDA growth Sales growth Volume growth comparison (% YoY) margin margin (% YoY) Volume (% YoY) margin margin (% YoY) Volume APNT - BRGR APNT - BRGR Q4FY17 7.7 41.6 15.5 3.2 10.0 9.4 44.5 19.2 3.4 10.0 1.7 - Q1FY18 11.0 39.9 15.4 (5.3) 5.0 7.3 43.8 18.6 (18.2) 2.0 (3.7) (3.0) Q2FY18 11.3 42.3 16.0 16.8 9.0 16.1 42.2 20.0 14.1 8.0 4.8 (1.0) Q3FY18 13.6 41.3 16.9 23.2 8.0 10.7 43.5 22.8 21.9 6.0 (2.9) (2.0) Q4FY18 17.6 40.5 15.8 20.3 13.0 13.7 44.7 20.8 22.9 11.0 (3.9) (2.0) Q1FY19 19.4 38.9 15.7 22.2 15.0 15.7 44.6 22.3 38.2 12.5 (3.7) (2.5) Q2FY19 15.6 37.7 13.6 0.8 15.0 8.7 40.8 18.6 1.0 11.0 (6.9) (4.0) Q3FY19 21.0 36.8 14.4 6.0 17.0 26.4 42.1 21.7 20.5 22.0 5.4 5.0 Q4FY19 13.2 39.2 15.0 7.4 10.5 12.2 43.0 18.2 (2.0) 10.5 (1.0) - Q1FY20 15.5 40.2 18.1 25.6 12.0 18.2 44.8 24.9 25.2 16.0 2.7 4.0 Q2FY20 7.5 40.1 15.4 21.2 13.0 9.3 43.4 20.4 12.4 14.0 1.8 1.0 Q3FY20 2.9 40.6 17.4 24.2 10.0 2.7 44.0 24.0 13.4 11.0 (0.2) 1.0 Q4FY20 (13.2) 42.9 16.3 (11.7) ~(4.0) (8.4) 47.0 20.0 (5.4) ~1.0 4.8 5.0 Source: Company, Edelweiss research

Q4FY20 conference call: Key takeaways COVID-19 impact and demand scenario  Sales growth was impacted by the nation-wide lockdown.  Entry-level products have grown faster than premium products.  Not considered price cuts, but discussions underway.  Encouraged by growth rate in June. Expects to reach pre-COVID-19 level soon.  Seeing pent-up demand playing out. Cannot deduce how much is permanent impact of postponement.  Some metros are taking longer to return to normal. Tier 3 and 4 towns were less impacted by the pandemic and hence recovery therein is faster.Chennai, , Ahmedabad and have been slow. NE was much less affected than rest of the country. Hoping 90-95% of the country returns to normal soon.  Intense price competition in lower-end products. Value and volume difference should continue going ahead also.  Lower-end products have relatively lower margins.  Berger’s share of revenues in metro cities is lower than competition.  Designated motto for xPress painting. Now talking about safety very clearly. The company charges very marginal cost for providing PPE kits etc., to ensure there is safety when painters enters customers home.  xPress painting constitutes moderate percentage of overall revenue. This is nevertheless the highest growing segment for the company. This also acts as a positive publicity and demand driver. This is available in 25-26 cities. From an industry standpoint also it is a miniscule number.  Automotive continues to remain soft. But encouraged to see corrosion resistant division. This division is seeing recovery hand in hand with deco business.  Berger is as aggressive on lower end as is the market leader. But will not comment on reasons behind sales difference between Berger and the market leader.  Cannot challenge market leader by doing the same thing – making same product, using same distribution process, same innovation, etc. So what’s required is differentiated

2 Edelweiss Securities Limited Berger Paints

products, attributes in the products, the way business is done, channel, add value faster to all stakeholders. Perhaps in the last decade, company has been able to innovate faster than competition. The company will need to be leaner, reduce WC days, lower wastages, etc.

Subsidiaries performance  Berger’s wholly owned subsidiaries Bolix S.A, BJN Nepal and SBL Specialty Coatings (erstwhile Saboo Coatings) had a good quarter in terms of performance.  Poland was less affected than other countries. Berger is into insulation business in Poland and was not subject to lockdown there.  Also saw improved performance in UK business. Has expanded operations in UK now. UK is emerging as an external insulation business.  Nepal mirrors the fortune of India. FY21 will be a bit challenging for Nepal as well.  Annual contribution of STP will be INR1.5-1.7bn on a steady-state basis.  New acquired businesses will improve overall margins for Berger. At the time of acquisition, margins could be little lower, but with brand and distribution prowess, it will help improve overall profitability.  Profits of BJN Nepal and Bolix contributed to consolidated profits.

Raw material pricing and margin  Seen sharp reduction in prices of monomers, turpentine and other solvents. There is, however, INR depreciation issue also. But that said, seeing fairly stable raw material situation in Q1 since most of the corrections have taken place.  Does not expect raw material from China to be affected immediately. Even if it does, overall cost basket should not increase materially.  Imports from China would be 10% of overall raw material. It can be substitutable, just cost may go up a bit.  Did not cut ad spends in Q4FY20.  Trying to offset diesel price increase with other inputs to reduce cost. Other cost reduction areas are AMCs, travelling, conferences, etc.  Price cuts for 9mFY20 would be little over 2%. No price cuts in Q4FY20.

Balance sheet and capex  Will take sometime to filter out old inventory and new cost to come in.  Pune plant capex done, but operationalisation has been delayed.  Looking at INR2.0-2.5bn capex for FY21.  INR1bn dividend from Nepal and other subsidiaries.

Distribution  Dealer count up 10-12%.  e-Commerce unlikely to enter paints category.

3 Edelweiss Securities Limited Consumer Goods

Chart 1: Standalone sales growth (% YoY) 35.0

25.0

15.0 (%) 5.0

(5.0)

(15.0)

Q4FY17 Q1FY18 Q3FY18 Q4FY18 Q1FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q4FY20 Q2FY18 Q2FY19 Q3FY20 Berger Paints Asian Paints

Chart 2: Gross margin (standalone) gap with leader 50.0

45.0

40.0 (%) 35.0

30.0

25.0

Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q2FY19 Q3FY19 Q1FY20 Q2FY20 Q4FY20 Q1FY19 Q4FY19 Q3FY20 Berger Paints Asian Paints

Chart 3: EBITDA margin (standalone) 28.0

24.0

20.0 (%) 16.0

12.0

8.0

Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q4FY17 Q2FY20 Q3FY20 Q4FY20 Berger Paints Asian Paints

Source: Company, Edelweiss research

4 Edelweiss Securities Limited Berger Paints

Outlook and valuation: Positive; maintain ‘BUY’ Once things normalise, the paint industry’s growth is likely to continue to accelerate with strong thrust by the government on infrastructure development, Housing For All, development of 100 new Smart Cities and reversal of the interest rate cycle. We believe Berger is well poised to reap benefits of the impending recovery, riding its strong market share, pricing power, brand strength and widespread dealer network.

Further, the paint industry has been one of the prime beneficiaries of GST implementation in terms of market share gains from the unorganised segment. Berger will also significantly benefit from recovery in rural demand following better monsoon and increased rural stimulus (considering higher rural salience).

Low per capita paint consumption in India (one-fourth China’s) and reduction in repainting cycle (five years now from seven a decade ago) render Berger a strong play on the paint sector’s growth and comparable to leader, AP.

We expect Berger to return on its strong growth run on the back of sharp distribution expansion and product launches. With cooling off of raw material prices, we expect margin expansion to continue.

Overall, we expect Berger to be back on its double-digit volume growth trajectory once things normalise aided by gains from unorganised segment (~30%), distribution expansion, among others. We maintain ‘BUY/SO’ with TP of INR575. At CMP, the stock is trading at 57.4x FY22E EPS.

Chart 4: P/E band 600

70x 500 65x 60x 55x 400 50x 45x (INR) 300 40x

200

100

Jun-18 Jun-16 Jun-17 Jun-19 Jun-20

Dec-16 Dec-17 Dec-18 Dec-19

Source: Edelweiss research

5 Edelweiss Securities Limited Consumer Goods

Financial snapshot (INR mn) Year to March Q4FY20 Q4FY19 % change Q3FY20 % change FY20 FY21E FY22E Net revenues 13,548 14,721 (8.0) 16,959 (20.1) 63,658 63,258 71,492 Raw material costs 7,639 8,838 (13.6) 10,039 (23.9) 37,258 36,700 41,292 Employee expenses 1,237 1,053 17.5 1,047 18.2 4,525 4,543 4,887 Other expenses 2,589 2,574 0.6 2,910 (11.1) 11,265 10,736 12,114 Total expenditure 11,464 12,464 (8.0) 13,996 (18.1) 53,048 51,979 58,293 EBITDA 2,084 2,257 (7.6) 2,963 (29.7) 10,610 11,279 13,199 Depreciation 493 461 7.0 483 2.2 1,910 2,084 2,159 EBIT 1,591 1,796 (11.4) 2,480 (35.8) 8,700 9,195 11,039 Interest 141 137 2.7 127 11.2 470 465 500 Other income 167 165 1.1 143 16.8 685 800 950 Add: Prior period items Add: Exceptional items Profit before tax 1,617 1,823 (11.3) 2,496 (35.2) 8,915 9,530 11,489 Provision for taxes 560 716 (21.7) 637 (12.1) 2,271 2,430 2,895 Minority interest Associate profit share (25) (4) NA (40) NA Profit- Discontinued Ops Reported net profit 1,032 1,104 (6.5) 1,819 (43.3) 6,644 7,100 8,594 Adjusted Profit 1,032 1,104 (6.5) 1,819 (43.3) 6,644 7,100 8,594 Diluted shares (mn) 971 971 971 971 971 971 Adjusted Diluted EPS 1.1 1.1 (6.5) 1.9 (43.3) 6.8 7.3 8.9

As % of net revenues COGS 56.4 60.0 59.2 58.5 58.0 57.8 Employee cost 9.1 7.2 6.2 7.1 7.2 6.8 Other expenses 19.1 17.5 17.2 17.7 17.0 16.9 EBITDA 15.4 15.3 17.5 16.7 17.8 18.5 EBIT 11.7 12.2 14.6 13.7 14.5 15.4 PBT 11.9 12.4 14.7 14.0 15.1 16.1 Adjusted net profit 7.6 7.5 10.7 10.4 11.2 12.0 Tax rate 34.7 39.2 25.5 25.5 25.5 25.2

6 Edelweiss Securities Limited Berger Paints

Company Description Berger Paints is India’s second-largest paints company headquartered in . Domestic decorative paints form ~80% of domestic revenue. In powder coatings, Kansai is the leader, followed by Berger at No. 2. In protective coatings, Berger is the leader. In automotive and GI space, Berger is No. 3 after Kansai and APL. The company has international operations in Russia, Nepal and Bolix SA of Poland. It also has a tie up with Becker of Sweden. In 2013, the company acquired the decorative business of Sherwin Williams. It has also tied up with Nippon to strengthen its presence in the automotives segment.

Investment Theme The paints industry is expected to post robust volume growth led by strong repainting demand and from construction. Growth in the repainting segment, accounting for about approx. 80% of decorative demand, is on account of good demand in rural and small towns. Further, anticipated growth in construction activity over the next five years creates opportunity for fresh painting. Berger is expected to post robust growth with focus on premiumisation, brand equity and increasing distribution muscle. Sustained slowdown in the real estate sector and auto segments can act as barrier.

Key Risks Slowdown: A slowdown in the economy is the biggest risk for the paint industry, as about 80-85% of demand for decorative paints arises from repainting, which in turn, depends heavily on the country’s economic conditions.

Raw material prices: Rise in crude oil prices and INR depreciation could hurt Berger’s margin as crude derivatives account for majority of its input costs.

Industrial slowdown: High competition in the industrial business, particularly from foreign players like PPG, Nippon Paints, Akzo Nobel and BASF, impacts pricing power of the business.

7 Edelweiss Securities Limited Consumer Goods

Financial Statements Key Assumptions Income statement (INR mn) Year to March FY19 FY20 FY21E FY22E Year to March FY19 FY20 FY21E FY22E Macro Net revenue 60,619 63,658 63,258 71,492 GDP(Y-o-Y %) 7.1 4.8 (4.0) 7.0 Materials costs 36,996 37,258 36,700 41,292 Inflation (Avg) 3.7 4.3 3.5 4.0 Freight, Octroi and Delivery 3,834 3,706 3,683 4,097 Repo rate (exit rate) 6.3 4.4 3.0 4.0 Power and fuel 591 569 507 642 USD/INR (Avg) 70.0 70.7 75.0 73.0 Employee costs 4,085 4,525 4,543 4,887 Company Ad. & sales costs 2,018 2,500 2,318 2,740 Sales assumptions Other Expenses 4,279 4,490 4,228 4,636 Volume growth-standalone 13.5 8.0 4.0 12.5 EBITDA 8,816 10,610 11,279 13,199 Price change-standalone 0.5 (4.8) (5.0) 1.5 Depreciation 1,378 1,910 2,084 2,159 Subsidiary sales growth 23.6 23.4 2.5 5.0 EBIT 7,438 8,700 9,195 11,039 Cost assumptions Less: Interest Expense 323 470 465 500 COGS as % of sales (Con) 61.0 58.5 58.0 57.8 Add: Other income 600.29 685.2 800.00 950.00 COGS as % of sales (std) 61.9 59.2 59.0 58.6 Profit Before Tax 7,715 8,915 9,530 11,489 Staff cost (% of sales) 6.7 7.1 7.2 6.8 Less: Provision for Tax 2,732 2,271 2,430 2,895 Std Staff cost (% sales) 5.7 5.8 6.1 5.8 Associate profit share (9) (83) - - Con A&P (% of sales) 3.3 3.9 3.7 3.8 Reported Profit 4,975 6,561 7,100 8,594 Dom A&P (% of sales) 4.6 3.8 3.5 3.7 Adjusted Profit 4,975 6,561 7,100 8,594 Financial assumptions 3.1 3.1 3.1 3.1 Shares o /s (mn) 971 971 971 971 Tax rate (Consol) 35.4 25.5 25.5 25.2 Adjusted Basic EPS 5.1 6.8 7.3 8.9 Capex (INR mn) 1,940 3,250 3,000 3,000 Diluted shares o/s (mn) 971 971 971 971 Debtor days 41 40 42 42 Adjusted Diluted EPS 5.1 6.8 7.3 8.9 Inventory days 111 123 112 112 Adjusted Cash EPS 6.5 8.7 9.5 11.1 Payable days 96 101 93 93 Dividend per share (DPS) 1.9 1.7 1.8 2.2 Cash conversion cycle 55 62 61 61 Dividend Payout Ratio(%) 44.7 25.0 25.0 25.0 Dep. (% gross block) 8.3 10.3 9.3 8.5 Tax rate (%) 35.4 25.5 25.5 25.2 Dividend payout 44.7 25.0 25.0 25.0

Common size metrics Year to March FY19 FY20 FY21E FY22E Materials costs 61.0 58.5 58.0 57.8 Staff costs 6.7 7.1 7.2 6.8 Ad. & sales costs 3.3 3.9 3.7 3.8 Freight and Forwarding 6 6 6 6 Other expenses 7.1 7.1 6.7 6.5 Depreciation 2.3 3.0 3.3 3.0 Interest Expense 0.5 0.7 0.7 0.7 EBITDA margins 14.5 16.7 17.8 18.5 EBIT margins 12.3 13.7 14.5 15.4 Net Profit margins 8.2 10.3 11.2 12.0

Growth ratios (%) Year to March FY19 FY20 FY21E FY22E Revenues 17.3 5.0 (0.6) 13.0 EBITDA 9.2 20.4 6.3 17.0 PBT 9.6 15.5 6.9 20.6 Adjusted Profit 7.9 31.9 8.2 21.0 EPS 7.9 31.9 8.2 21.0

8 Edelweiss Securities Limited Berger Paints

Balance sheet (INR mn) Cash flow metrics As on 31st March FY19 FY20 FY21E FY22E Year to March FY19 FY20 FY21E FY22E Share capital 971 971 971 971 Operating cash flow 5,617 7,246 8,927 9,117 Reserves & Surplus 23,756 25,630 29,748 34,733 Financing cash flow (1,791) (4,794) (3,647) (4,310) Shareholders' funds 24,727 26,601 30,719 35,704 Investing cash flow (4,091) (2,234) (1,415) (2,050) Minority Interest 35 71 71 71 Net cash Flow (265) 219 3,865 2,757 Long term borrowings 2,389 2,434 2,434 2,434 Capex (1,940) (3,250) (3,000) (3,000) Short term borrowings 2,450 2,925 2,725 2,525 Dividend paid (2,224) (2,756) (2,982) (3,610) Total Borrowings 4,839 5,359 5,159 4,959

Long Term Liabilities 229 2,293 2,293 2,293 Profitability and efficiency ratios Def. Tax Liability (net) 871 483 483 483 Year to March FY19 FY20 FY21E FY22E Sources of funds 30,701 34,806 38,724 43,509 ROAE (%) 21.3 25.6 24.8 25.9 Gross Block 17,655 20,905 23,905 26,905 ROACE (%) 28.8 30.5 29.4 31.3 Net Block 11,029 16,366 13,188 14,029 Inventory Days 111 123 112 112 Capital work in progress 1,699 1,785 1,000 1,000 Debtors Days 41 40 42 42 Intangible Assets 2,693 2,790 2,790 2,790 Payable Days 96 101 93 93 Total Fixed Assets 15,420 20,941 16,978 17,818 Cash Conversion Cycle 55 62 61 61 Non current investments 1,441 1,358 1,358 1,358 Current Ratio 2.1 1.9 2.6 2.7 Cash and Equivalents 4,893 3,993 11,952 14,710 Gross Debt/EBITDA 0.5 0.5 0.5 0.4 Inventories 12,335 12,785 11,261 12,670 Gross Debt/Equity 0.2 0.2 0.2 0.1 Sundry Debtors 6,715 7,141 7,279 8,226 Adjusted Debt/Equity 0.2 0.2 0.2 0.1 Loans & Advances 249 290 290 290 Net Debt/Equity - 0.1 (0.2) (0.3) Other Current Assets 2,566 2,487 2,487 2,487 Interest Coverage Ratio 23.0 18.5 19.8 22.1 Current Assets (ex cash) 21,865 22,703 21,318 23,675

Trade payable 9,990 10,658 9,351 10,521 Operating ratios Other Current Liab 2,929 3,531 3,531 3,531 Year to March FY19 FY20 FY21E FY22E Total Current Liab 12,919 14,189 12,882 14,052 Total Asset Turnover 2.1 1.9 1.7 1.7 Net Curr Assets-ex cash 8,947 8,515 8,436 9,623 Fixed Asset Turnover 1.1 1.0 0.9 1.1 Uses of funds 30,701 34,806 38,724 43,509 Equity Turnover 2.6 2.5 2.2 2.2 BVPS (INR) 25.5 27.4 31.6 36.8

Valuation parameters

Free cash flow (INR mn) Year to March FY19 FY20 FY21E FY22E Year to March FY19 FY20 FY21E FY22E Adj. Diluted EPS (INR) 5.1 6.8 7.3 8.9 Reported Profit 4,975 6,561 7,100 8,594 Y-o-Y growth (%) 7.9 31.9 8.2 21.0 Add: Depreciation 1,378 1,910 2,084 2,159 Adjusted Cash EPS (INR) 6.5 8.7 9.5 11.1 Interest (Net of Tax) 209 351 346 374 Diluted P/E (x) 99.7 75.6 69.9 57.7 Others (194) (4,071) (681) (824) P/B (x) 20.1 18.6 16.1 13.9 Gross cash flow 6,367 4,751 8,849 10,304 EV / Sales (x) 8.2 7.8 7.7 6.8 Less: Changes in WC 750 (2,495) (78) 1,187 EV / EBITDA (x) 56.3 46.9 43.4 36.8 Operating cash flow 5,617 7,246 8,927 9,117 Dividend Yield (%) 0.4 0.3 0.4 0.4

Less: Capex (1,940) (3,250) (3,000) (3,000) Free Cash Flow 3,677 3,996 5,927 6,117

9 Edelweiss Securities Limited Consumer Goods

Peer comparison valuation Diluted P/E (X) EV / EBITDA (X) ROAE (%) Name FY21E FY22E FY21E FY22E FY21E FY22E Berger Paints 69.9 57.7 43.4 36.8 24.8 25.9 Asian Paints 60.3 52.9 37.2 32.6 22.8 22.6 61.3 54.9 42.8 38.7 33.5 22.1 70.5 54.5 49.0 38.2 20.3 22.9 63.9 49.4 34.6 28.6 17.5 18.9 Median 63.9 54.5 42.8 36.8 22.8 22.6 AVERAGE 65.2 53.9 41.4 35.0 23.8 22.5 Source: Edelweiss research

10 Edelweiss Securities Limited Berger Paints

Additional Data Directors Data Mr. Kuldip Singh Dhingra Non-Executive Chairman Mr. Gurbachan Singh Dhingra Non-Executive Vice Chairman Mr. Abhijit Roy M.D & CEO Mrs. Rishma Kaur Additional Director Mr. Kanwardip Singh Dhingra Additional Director Mr. Gopal Krishna Pillai Non Executive Independent Director Mr. Dhirendra Swarup Non Executive Independent Director Mr. Pulak Chandan Prasad Non Executive Independent Director Mr. Naresh Gujral Non Executive Independent Director Mr. Kamal Ranjan Das Non Executive Independent Director

Auditors - S.R. Batliboi & Co. *as per last annual report

Top 10 holdings Perc. Holding Perc. Holding Nalanda India Fund 4.02 Wang Investment Finance 3.09 Vanguard Group 0.87 Wasatch Advisors 0.79 Span India 0.72 Uti Asset Management 0.63 Investor Education & Protection Fund 0.61 Dimensional Fund Advisors 0.56 Capital Group Cos 0.45 Axis Asset Management 0.41 *as per last available data

Bulk Deals Data Acquired / Seller B/S Qty Traded Price

No Data Available

*in last one year

Insider Trades Reporting Data Acquired / Seller B/S Qty Traded

No Data Available

*in last one year

11 Edelweiss Securities Limited RATING & INTERPRETATION

Company Absolute Relative Relative Company Absolute Relative Relative reco reco risk reco reco Risk Asian Paints BUY SO M Bajaj Consumer Care HOLD SP H Berger Paints BUY SP L BUY SO L Colgate HOLD SP M BUY SO M BUY SP H Future Consumer HOLD SP M GlaxoSmithKline Consumer Healthcare BUY SP M Godrej Consumer BUY SP H Hindustan Unilever BUY SO L ITC HOLD SU M HOLD SP M Nestle Ltd BUY SP L Pidilite Industries BUY SP M United Spirits REDUCE SU H

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return

12 Edelweiss Securities Limited Berger Paints

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91-22) 4009 4400, Email: [email protected]

Aditya Narain

Head of Research [email protected]

Coverage group(s) of stocks by primary analyst(s): Consumer Goods Asian Paints, Bajaj Consumer Care, Berger Paints, Britannia Industries, Colgate, Dabur, Future Consumer, Godrej Consumer, Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd, Pidilite Industries, GlaxoSmithKline Consumer Healthcare, United Spirits

Recent Research

Date Company Title Price (INR) Recos

25 -Jun-20 Hindustan Inclusive agenda: It’s Fair no 2,173 Buy Unilever more to be Lovely; EdelFlash 23-Jun-20 Asian Paints Corona stings volume; soft 1,684 Buy input prices spur margin; Result Update 19-Jun-20 Bajaj Volume, dividend dip 152 Hold Consumer concerning; Result Update Care’s

Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period * 1stocks under review Hold appreciate up to 15% over a 12-month period > 50bn Between 10bn and 50 bn < 10bn 743 Reduce depreciate more than 5% over a 12-month period Market Cap (INR) 156 62 11 594

One year price chart 446 650

(INR) 297 560

149 470

- (INR) 380

14

14 14

14 14

14

14

14

14

14

14

14

-

- -

-

-

-

-

- -

- - -

290

Jul

Jan

Jun

Oct

Apr

Sep Feb

Dec

Aug Nov

Mar May

200

19

19

19

20

19

20

19 20 20

19 20 20

19

-

- -

-

-

-

- - -

-

- -

-

Jul

Jan

Jun Jun

Oct

Apr

Sep Feb

Dec

Aug Nov

Mar May Berger Paints

13 Edelweiss Securities Limited

Consumer Goods

DISCLAIMER Edelweiss Securities Limited (“ESL” or “Research Entity”) is regulated by the Securities and Exchange Board of India (“SEBI”) and is licensed to carry on the business of broking, depository services and related activities. The business of ESL and its Associates (list available on www.edelweissfin.com) are organized around five broad business groups – Credit including Housing and SME Finance, Commodities, Financial Markets, Asset Management and Life Insurance.

This Report has been prepared by Edelweiss Securities Limited in the capacity of a Research Analyst having SEBI Registration No.INH200000121 and distributed as per SEBI (Research Analysts) Regulations 2014. This report does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 includes Financial Instruments and Currency Derivatives. The information contained herein is from publicly available data or other sources believed to be reliable. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in Securities referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors.

This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ESL and associates / group companies to any registration or licensing requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons in whose possession this report comes, should observe, any such restrictions. The information given in this report is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. ESL reserves the right to make modifications and alterations to this statement as may be required from time to time. ESL or any of its associates / group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. ESL is committed to providing independent and transparent recommendation to its clients. Neither ESL nor any of its associates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Past performance is not necessarily a guide to future performance .The disclosures of interest statements incorporated in this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The information provided in these reports remains, unless otherwise stated, the copyright of ESL. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of ESL and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.

ESL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the ESL to present the data. In no event shall ESL be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by the ESL through this report.

We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers simultaneously, not all customers may receive this report at the same time. We will not treat recipients as customers by virtue of their receiving this report.

ESL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the Securities, mentioned herein or (b) be engaged in any other transaction involving such Securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. ESL may have proprietary long/short position in the above mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with ESL.

14 Edelweiss Securities Limited

Berger Paints

ESL or its associates may have received compensation from the subject company in the past 12 months. ESL or its associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. ESL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or ESL’s associates may have financial interest in the subject company. ESL and/or its Group Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk. Research analyst has served as an officer, director or employee of subject Company: No ESL has financial interest in the subject companies: No ESL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report. Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No Subject company may have been client during twelve months preceding the date of distribution of the research report. There were no instances of non-compliance by ESL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to their charges of non registration as a broker dealer. A graph of daily closing prices of the securities is also available at www.nseindia.com Analyst Certification: The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Additional Disclaimers

Disclaimer for U.S. Persons This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker- dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a- 6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker-dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc.

15 Edelweiss Securities Limited

Consumer Goods

Disclaimer for U.K. Persons The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA").

In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”).

This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person.

Disclaimer for Canadian Persons This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research analysts' business or relationship with a subject company or trading of securities by a research analyst. This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31-103 ("NI 31-103")) who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person. ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31-103 available to certain international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv) there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada.

Disclaimer for Singapore Persons In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No. 201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"), sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for private investors.

Disclaimer for Hong Kong persons This report is distributed in Hong Kong by Edelweiss Securities (Hong Kong) Private Limited (ESHK), a licensed corporation (BOM -874) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to Section 116(1) of the Securities and Futures Ordinance “SFO”. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The report also does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of any individual recipients. The Indian Analyst(s) who compile this report is/are not located in Hong Kong and is/are not licensed to carry on regulated activities in Hong Kong and does not / do not hold themselves out as being able to do so.

Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved

Access the entire repository of Edelweiss Research on www.edelresearch.com

16 Edelweiss Securities Limited