Why Berger Paints Share Price is Falling

Editor's note: The performance of paint stocks in 2023 has been more than satisfactory.

This, despite that fact that competition is set to increase after Grasim's foray into the paints sector.

The sector started to see some green shoots earlier this year, all thanks to surge in rural demand. Paint companies were expecting the demand to recover even more in the coming quarters.

Meanwhile, easing input cost pressures have also aided select paint companies' quarterly earnings.

Performance of Paint Stocks in 2023

Company Name	Current Price	Price as on 30 Dec '22	Change (%)
Akzo Nobel India Ltd.	2,511.7	2,219.6	13.20%
Asian Paints Ltd.	3,323.3	3,091.8	7.50%
Berger Paints India Ltd.	611.7	484.5	26.20%
Indigo Paints Ltd.	1,540.3	1,303.8	18.10%
Kansai Nerolac Paints Ltd.	324.5	292.8	10.80%
Shalimar Paints Ltd.	158.1	129.8	21.80%

Data Source: Equitymaster

Amid all this, shares of Berger Paints have come under spotlight due to its recent bonus issue.

Share of one of the oldest paint companies in India fell over 7% to Rs 617 on 25 September 2023 as it turned ex-bonus and volumes dropped significantly.

The stock fell pertaining to bonus adjustment and there's no negative material impact as to why the counter witnessed selling pressure. In fact, Berger Paints had scaled its 52-week high of Rs 679 last week on September 22.

In 2022 however, shares of the paint company were under intense pressure for various reasons. And we covered a detailed editorial back in October 2022 explaining what the future holds for decade-old paint company.

Read on...

Why Berger Paints Share Price is Falling in 2022

Performance of paint stocks in 2022 has remained subdued. Most paint companies have seen a fall in their share price in 2022 due to various reasons.

For the past 2-3 quarters now, paint companies are battling with cost inflation pressures. They have taken an aggressive approach by going on a price hiking spree to protect margins.

Performance of paint stocks in 2022 has remained subdued. Most paint companies have seen a fall in their share price in 2022 due to various reasons.

For the past 2-3 quarters now, paint companies are battling with cost inflation pressures. They have taken an aggressive approach by going on a price hiking spree to protect margins.

Paint Stocks in 2022

Company	CMP (Rs)	Change in 2022 (%)
Akzo Nobel India Ltd.	2,117	3%
Asian Paints Ltd.	3,092	-9%
Berger Paints India Ltd.	586	-24%
Indigo Paints Ltd.	1,419	-33%
Kansai Nerolac Paints Ltd.	479	-19%
Shalimar Paints Ltd.	160	38%

Source: Equitymaster

Among the biggies, Berger Paints share price has seen a substantial fall in 2022. Berger is India's second-largest paint manufacturer by market share.

In 2022 so far, shares of the company are down 25%. In the past one month, the stock has seen a correction of around 9%.

What could be the probable reasons for the fall?

Let's find out...

#1 Crude oil prices

Since pandemic, crude oil price have seen big movements on both sides, with crude futures touching negative prices and then touching record high in a few months. This year too, crude prices have remained volatile.

Crude oil is an essential component in manufacturing paints. Rising crude oil prices have increased the cost of titanium dioxide, a major input in the making of paints. Prices of titanium dioxide have come down from recent peaks.

Increased input costs have a direct impact on a paint company's margins.

On a year to date basis, crude oil prices are in the positive while in the week gone by, crude prices gained around 2%. So, rising crude could be one possible reason.

However, it must be noted that oil price has retreated recently.

#2 Intensifying Competition

This year, Aditya Birla group company Grasim advanced the implementation of a 1.33 bn litre paint capacity. The plant's commissioning will begin in stages in the fourth quarter of 2023-24.

The project cost has been increased to Rs 100 bn by 2024-25 from the previously stated Rs 50 bn by 2023-24.

It's believed that Grasim's aggressive foray into the paints sector will erode paint companies' market share. The market dynamics of the decorative paints sector may shift with the entry of Grasim.

Not just Grasim but a few other companies too have announced their entry or expansion plans in the paint sector. For instance, JK Cement, JSW group, and Astral have all expedited their investments in the sector.

#3 Asian Paints' Results Dampen Sentiment

Now, the two reasons we listed above have affected paint companies. But if we were to analyse reasons as to why Berger Paints has come under pressure recently, it could be due to weak quarterly performance from Asian Paints.

This week, Asian Paints reported a 31.3% year-on-year (YoY) rise in consolidated net profit on a 19% YoY growth in revenues. Both, net profit and revenue were lower than street estimates. Sequentially, net profit declined 22%.

Soft results from Asian Paints has made investors worried about margin pressure for other paint companies.

Below par performance from the biggest paint company has to have some effect on other paint companies too. The same way weak results from India's largest IT company TCS in the first quarter, dented sentiment for other IT companies.

Also, market experts are of the view that paint companies will see an impact in volumes due to a large base and price hikes taken during the quarter.

Management Commentary

In September 2022, the company's MD and CEO Abhijit Roy had said revenues for Berger Paints may cross Rs 100 bn mark this year. Last year, Berger clocked revenues of Rs 88.3 bn.

He added that margins are expected to be good in quarter three and quarter four if everything remains normal. Roy also said every 3-4 years, Berger Paints would be investing Rs 7-8 bn in new capacity.

While competition has increased, Berger Paints has kept itself ahead by launching a slew of products, and renewed focus on expanding distribution.

Berger is also building capacity. In Uttar Pradesh, the company is investing about Rs 10 bn in a large production facility, which is expected to go for commercial production in November 2022. In West Bengal, it's in the process of setting up a factory.

How Berger Paints has performed recently

On Friday this week, Berger Paints fell over 5% to touch a low of Rs 583.7.

In 2022 so far, Berger Paints is down 25% while its monthly performance shows a 9% decline.

Berger Paints has a 52-week high quote of Rs 813 touched on 15 November 2021 and a 52-week low quote of Rs 544 touched on 26 May 2022.

About Berger Paints

Berger Paints is the second largest paint company in India. It offers a variety of innovative painting solutions decorative or industrial.

The company is headquartered in Kolkata and services the market through a distribution network comprising of about 110 stock points and more than 25,000 dealers.

They are having their manufacturing facilities in West Bengal, Uttar Pradesh, Pondicherry, Goa, and Jammu & Kashmir.

The company also has an international presence in 4 countries viz. Nepal, Bangladesh, Poland, and Russia.

For more details about the company, you can have a look at Berger Paints factsheet and quarterly results on our website.

You can also compare Berger Paints with its peers.

Berger Paints vs Asian Paints

Berger Paints vs Akzo Nobel

Berger Paints vs Kansai Nerolac

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...