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Asian Paints vs Berger Paints- Analysis



 Quality of Business

Asian Paints has the highest profit margins when compared to its peers. It is working at 20% net profit as of March21 as compared to 14% of Berger Paints. The contribution to the profit pool is 4 times the Berger paints and 2 times of the top 5 listed companies in this industry.

Return on investment is 24% of Asian paints as compared to 21% of Berger paints.

Revenue has been growing at a CAGR of 8.9% as compared to 9.5% for Berger paints and Operating margin at 20% as compared to 16.5% for Berger paints in the past 3 years.

Asian Paints having a COGS of 78% with decreasing trend every year of 1% as compared to 83% of Berger paints with average being maintained at 83%, no doubt is going to increase profit at the same pace.

Along with this, international business is 4 times that of Berger paints contributing 11% to total sales as compared to 7% for Berger paints.

On the other hand, Berger paints have 20% sales coming from Industrial Coatings while Asian paints have only 2%.

Other Business Segments

Apart from paint sales, Asian paints is also into Home decor providing Luxury paints, baths, kitchen, furnishing, and lighting. This contributes 2% to sales. Though they booked a loss in this segment on March 21 but saw a growth of 94% this year especially in the Kitchen and Bath business in this year.

India's furniture and fixtures business are to reach $40 billion by 2026. Kitchen fitting market growing at a CAGR of 3%.While bath fitting market is expected to grow at a CAGR of 9%.

Alternates to Paints

The wallpaper industry is expected to grow at a CAGR of 28% in the expected period 2021-26, Asian paints offered range Nilaya in this category is fourth-best in the country.

Along with this, both companies offer a range of textures for interior and exterior walls


Quality of Management

Return on Asian Paints Stock for last 3years has been 144%, Berger Paints 140%, Sensex 70%.

Return on Capital Employed for Asian paints has been 35% on average for last 3 years while the cost of raising fund 8%.On the other hand for Berger paints, ROCE has been 28% on average for the last 3 years and the cost of financing is 7%.

Both of these shows management was efficient in utilizing the funds of stakeholders.

Asian Paints

Berger Paints

As seen from the graph above ROE spiked in 2020 but returned to average in 2021.
Likewise, ROCE has been on a downward trend for both companies. This shows both are losing a bit of competitive advantage because of new entrants. Also the increase in raw material cost i.e., oil.

Last year being a pandemic year did see a few of the plants and warehouses shutdowns for Asian Paints. But still, the company managed to file 20 new patents and some new order books for the Kitchen business.
On the other hand, Berger paints launched ipaints DIY kit to paint at home to solve consumer needs.

Growth Prospects

Revenue growth has been similar for both the companies of 7%(2021) and 5%(2020), being the pandemic years the growth in tandum with reduced demand.

Before 2020 Berger paints grew at the rate of 15% in 2 years prior to pandemic years and Asian paints at 13% on average. 

Comparing the growth to the GDP, in 2020 there was a -7% growth, while for two years before the pandemic year the growth averaged 6%.

So growth in both the companies seems to outpace the GDP growth.

                                            Asian Paints

Berger Paints

Both the companies have an increasing trend in margins. But Asian Paints evidently commands better margins.
  

Longitivity

Both the companies had a drawdown in October 2021, after the quarter 2 results. There was inflammatory pressure in the pandemic hit the second quarter

The competitive edge created by Asian paints by foraying into the home decor segment is expected to contribute hugely to the top line in the coming times. The segment recorded a 500 crore turnover as of March 21 with a 94% upside in 21-22, giving a positive outlook.

Market Cap has increased 6 times in the past 10 years for Asian paints and  12 times for Berger paints.

Currently valuing 43 billion $ for Asian paints and 10 billion $ for Berger paints

Asian paints acquired Sleek group back in 2012 to foray into kitchen space. The company doesn't believe in inorganic growth. On the other hand, Berger paint has announced the acquisition of STPL, a construction material company in 2019, before that it acquired Saboo Coatings in 2017. Berger paints got a double-digit growth in revenue after the 2017 acquisition.

So, this shows both the companies have their own way to keep the business growing either through vertical ot horizontal intergation.

 

Price

The PE ratio spiked in Jan 21 to 120 times, then there was a drawdown in March 21 to 79 times. Since then there has been a gradual increase to 99 times currently. Currently Asian paints stock is at industry standard.

Berger paints PE ratio too spiked to 142 times in Jan 21, came down to 107 on March 21. Since then there has been a downward trend to 89 times currently. The share is underpriced as of now.

The EPS too has been on the increasing trend for both the companies.


Summary






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