Even a ₹1 profit from Berger Paints will be better than expectations but that’s hardly a solace

• Low crude oil prices and demand in the smaller cities may cushion Berger’s earnings, but the problems won’t end there.
• Analysts expect Berger’s revenue to fall at least 52% and profit to be wiped out between April and June 2020 compared to the same time last year.
• Berger Paints owns a little over 12% of the paint market share in India.

Analysts expect that Berger will swing to a loss between April and June 2020 compared to the same time last year. Berger could beat market estimates like Asian Paints and investors seem to expect that as both stocks have rallied about 5% since July 24 when the market leader revealed its numbers.


However, there is one factor that may affect Berger a little differently than its bigger peer.

Berger Paints, which owns a little over 12% of the paint market share in India, has less exposure to metros cities — and that may help lessen the pain. The coronavirus pandemic has impacted the metro cities the most. As a result, sales in tier-I cities like Mumbai, Chennai, Delhi are a tad slower than others, the company noted.

Some of those hopes are already priced in.

To lessen the impact of COVID-19 hit on business, Berger forayed into the home and personal hygiene business and dubbed it as BreatheEasy. The paints major started producing hand sanitisers, multi-purpose sanitisers and home hygiene chemical products commercially after its peer’s Asian paints and JSW Paints did the same.

With BreatheEasy, Berger was able to convince its investors, and the share price jumped nearly 12% since the beginning of the first quarter till date.

However, this wasn’t enough to convince the brokerages, Emkay Global has given a ‘Sell’ recommendation with a target price of ₹430. According to the brokerage house, after no sales in April, Berger may have seen a recovery in May-June led by strong demand in smaller towns, but the demand visibility is still low.

For paint manufacturers, the first quarter is usually brimming with business. With the arrival of the traditional wedding season, people go all out of the decorative paints segment. However, that was not the case this year. This time around, many of the manufacturing units of Berger were shut due to the pandemic. And even post easing of the lockdown, people refrained from allowing painters into their houses.

According to the IDBI Capital report, the company imports nearly 10% from China. And, on the back of the India-China simmering tensions, the imports from China went under massive scrutiny resulting in delayed deliveries.

While access to smaller towns is an advantage that Berger has, Asian Paints had technology cutting down the cost. “Asian Paints is basically a technologist franchise. It probably is the world's best SAP implementation and enormously sophisticated big data, and SAP integration gives Asian Paints a working capital cycle of 8 days. In comparison to the second largest paint company Akzo Nobel, whose Indian operation takes 100 days to translate raw chemicals to cash in the banks. Asian Paints is more around technology,” Saurabh Mukherjea, founder of Marcellus Investment Managers told Business Insider.

The high real estate prices may also take a toll on the demand. With COVID-19 hitting consumers’ pockets, buying a new house is out of the question for many. Also, many analysts think home renovation is not going to be on people’s minds anytime soon.

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