Asian Paints vs Berger Paints: Which Paint Stock is Better?

The Indian economy is set to be among the fastest growing economies of this decade. It's inevitable that the country's per capita disposable income will also grow.

This means we will see discretionary spending going up.

The home improvement industry is expected to be one of the biggest beneficiaries of this increased spending. Within the home improvement industry, the paint industry is set to grow by leaps and bounds.

The Indian paint industry is valued at Rs 500 bn.

Interestingly, 75% of the Rs 500 bn market belongs to the decorative segment (rest belongs to the industrial segment). The decorative paint segment comprises of products applied on walls and furniture.

Asian Paints and Berger Paints are the leading manufacturers of decorative paint products in India. They have been focusing on the decorative segment for decades and have dominated the market.

This article aims to compare Asian Paints and Berger Paints on various fronts and give you a sense of which is better.

Let's get started.

Business overview

Asian Paints is the largest paint company in India whereas Berger Paints ranks second.

These companies manufacture paint products for both decorative and industrial use. But the decorative segment is the forte of these companies.

For both companies, the decorative segment constitutes more than 70% of the total revenue.

The suite of paint products offered by both companies is quite similar. Both companies also offer home painting solutions to their customers.

Asian Paints' foray into the home decor business has enabled it to offer more products and services than Berger Paints.

The following table shows products and services offered by Asian Paints and Berger Paints.

Products and Services offered by Asian Paints and Berger Paints

	Products	Services
Asian Paints	- Paints	- Colour consultancy
	Decorative paints	- Home painting
	Industrial Paints	- Interior design
	- Wall based products	- Sanitization services
	Wall coverings
	Wall stickers
	- Adhesives
	- Waterproofing products
	- Bath fittings and sanitaryware
	- Modular kitchen and wardrobe
	- Furniture, Lighting, Sanitizers
Berger Paints	- Paints	- Colour consultancy
	Decorative paints	- Home painting
	Industrial Paints
	- Adhesives
	- Waterproofing products

Source: Annual report

Asian Paints has 26 manufacturing facilities across the world whereas Berger Paints has 20.

Apart from India, Asian Paints has an international presence in 14 countries and offers products through its various brands like Apcolite, SCIB, Causeway Paints, etc.

Berger Paints is present in only four other countries other than India.

Growth continues even in times of crisis

For Asian Paints, revenue has grown at a CAGR of 12 % over the last five years whereas for Berger, the revenue has grown at a CAGR of 11.6 %.

This indicates that Asian Paints has outperformed Berger Paints in terms of revenue growth over the five-year period.

To add to this, Asian Paints is almost 3.5x the revenue of Berger Paints.

This is mainly because Asian Paints has had a head start of 30 years. The company started its operations in 1942.

Right from its early days, it has focused on the decorative paint segment. In fact, Asian paints earns 80% of its total revenue from its decorative arm.

Berger Paints entered the segment only in the early 1970's. Before this shift, it manufactured paints for marine and rail applications.

It was the ex-employees of Asian Paints who were responsible for this shift to the decorative segment. Indeed, these employees turned the fate of Berger Paints.

Asian Paints vs Berger Paints Revenue Growth (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue(in Rs m )
Asian Paints	167,568	195,829	205,678	220,158	294,813
Berger Paints	50,952	61,219	64,343	68,691	88,264
Revenue Growth (%)
Asian Paints		17%	5%	7%	34%
Berger Paints		20%	5%	7%	28%

Source: Equitymaster

Stable margins aided by investment in technology

The five-year average operating margin of Asian Paints stands at 19.6 % compared to Berger Paints average of 16.3 %.

Clearly, Asian Paints has emerged as a leader in cost management.

However, both companies understand the importance of technology which has increased the efficiency of their manufacturing processes.

Both Asian Paints and Berger Paints have initiated Research & Development (R&D) projects to develop alternative raw materials and cost-efficient paint formulations.

In the financial year 2022 , Asian Paints spent Rs 925 m on R&D whereas Berger Paints spent Rs 188 m in financial year 2021.

Asian Paints vs Berger Paints Operating Profit Margins (2017-2022)

Operating Profit Margin (OPM)(%)	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Asian Paints	19.5%	19.4%	20.5%	22.4%	16.1%
Berger Paints	15.9%	15.4%	16.7%	17.4%	15.9%

Source: Equitymaster

Net profit and margin

Asian Paints' net profit has grown at a CAGR of 8.3 % over the last five years. On the other hand, Berger's net profits have grown at a CAGR of 12.5 % in the same period. Berger Paints is clearly leading in terms of net profit growth.

Asian Paints vs Berger Paints Net Profit (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
PAT(in Rs m )
Asian Paints	20,517	21,673	27,235	31,782	30,532
Berger Paints	4,602	4,948	6,644	7,253	8,291
PAT Growth (%)
Asian Paints		6%	26%	17%	-4%
Berger Paints		8%	34%	9%	14%

Source: Equitymaster

However, in terms of net margin Asian Paints has the upper hand. Its five-year average is 12.5% against 9.6% of Berger Paints. In the financial year 2022, both companies saw their net margin contract due to inflationary pressures.

Asian Paints vs Berger Paints PAT Margins (2017-2022)

PAT margin(%)	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Asian Paints	12.5%	11.2%	13.5%	14.6%	10.5%
Berger Paints	9.1%	8.2%	10.4%	10.6%	9.5%

Source: Equitymaster

Strong distribution network

Dealers are an indispensable part of the paint business. They are the nerves of the supply chain. Asian Paints and Berger Paints go beyond their call of duty to help their dealers.

In fact, top executives at these companies have admitted that their dealers and family members are alike.

Asian Paints brokered its first dealership at Sangli, Maharashtra, and since then, the number of dealers affiliated with Asian Paints has increased multifold. Today there are over 70,000 dealers affiliated with Asian Paints.

Berger Paints, too, very judiciously has built its rapport with the dealers under its network. Berger Paints has over 25,000 under its distribution network.

Phenomenal returns for investors

Return on Equity (ROE) communicates how much money a company has generated on shareholder's funds.

For Asian Paints, the five-year average ROE stands at 24.2 %. This means if the company deploys Rs 100, then it can generate a return of Rs 24.2 .

On the other hand, the five-year average ROE of Berger Paints is 21.8 %.

The ROE of Asian Paints is higher than that of Berger Paints, which indicates it is generating higher returns for shareholders when compared to Berger Paints.

Asian Paints vs Berger Paints ROE (2017-2022)

Return on Equity (RoE)(%)	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Asian Paints	24.4%	22.9%	26.9%	24.8%	22.1%
Berger Paints	21%	20.3%	25%	21.5%	21.1%

Source: Equitymaster

Dividend

A company distributes its accrued profits to its shareholders in the form of dividend.

Shareholders of Asian Paints have received an average dividend of Rs 13.6 over the last five years compared to shareholders of Berger Paints who received an average dividend of Rs 2.3 in the same period.

The five-year average dividend payout of Asian Paints is 48 .7% which is higher than Berger's five-year average of 36.3%.

Asian Paints vs Berger Paints Dividend data (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Divdend per share
Asian Paints	8.7	10.5	12	17.8	19.15
Berger Paints	1.8	1.9	2.2	2.8	3.1
Dividend Payout Ratio(%)
Asian Paints	40.7%	46.5%	42.3%	53.9%	60.2%
Berger Paints	38%	37.3%	32.2%	37.5%	36.3%

Source: Equitymaster

Valuations

The price to earnings ratio (P/E) and price to book value (P/BV) are valuation ratios that help in determining whether the company's share price is overvalued or undervalued.

The P/E ratio indicates how much an investor is willing to pay for one rupee of earnings. A high P/E ratio indicates the shares are trading at a premium.

The P/BV ratio measures the market valuation of a company to its book value. A high P/BV ratio indicates the share is overvalued.

Following table shows the valuation ratios of Asian Paints and Berger Paints.

Asian paints vs Berger paints Valuation Ratios (2021-2022)

	P/BV	5-year average P/BV	Average P/E Ratio	5 year average PE
Asian Paints	21.1	15.8	95.4	65.9
Berger Paints	14.7	14.5	69.3	66.4

Source: Equitymaster

For the financial year 2022 , the P/BV and P/E ratios of Asian Paints stood at 21.1 and 95.4 , respectively. The five-year average of the same ratios is 15.8 and 65.9 .

In the case of Berger Paints, the P/BV and P/E ratio stood at 14.7 and 69.3 respectively while the five-year average is 14.5 and 66.4 .

Both seem to trade at rich valuations but when seen relatively, Asian Paints is trading at a higher PE and P/BV multiple than Berger Paints.

This indicates Asian Paints shares are trading at a premium when compared to Berger Paints

Future prospects

Despite being the largest paint industry in the world, India's per capita consumption of paints is much lower than the global average.

In the financial year 2019, India's per capita consumption of paints stood at 4.1 kg against the global average of 13-15 kg.

The market for Indian paints and coatings is expected to expand at a CAGR of 8.6% during the forecast period of 2019-2024. Thus, there is immense headroom for the domestic market to grow in the long term.

Both companies have said the next wave of demand would come from tier 2, 3, and 4 cities.

Therefore, these companies have been positioning themselves accordingly to grab the maximum market share. They have launched "value for money" products keeping in mind the factor of affordability.

Also, there has been a shift of value from product to service.

Today, the cost of labour in painting a home is approximately at 65% of the total project cost. It's estimated that it would go up to 90%. Asian Paints and Berger Paints aim to tap this value through their home painting solutions.

In fact, Asian paints went a step ahead to foray into the home decor business through which it offers furniture, lighting, bathroom fittings, etc.

The company has also launched "beautiful homes" an end-to-end solution from customised interior design to execution.

The prospects of both companies look bright...

Inflation concerns still linger...

An important point to add here is paint companies have been suffering pressure of steep cost inflation and competition in recent quarters.

Over the last few quarters, the sector has been feeling the pinch in its operating margins. That is because high crude prices have resulted in a sharp increase in raw material prices (55-60% of costs). Several price hikes earlier this year have also not entirely offset this.

Crude prices affect the decorative paints business more than any other. That is because it is a raw material-intensive industry with more than 300 materials needed to manufacturer paints, most of which are petroleum based.

As the crude oil price is moving northwards, the cost of production (of several items like titanium dioxide) is galloping.

To manage inflation, both companies have undertaken price increases of 1-2% every quarter. Despite price increases, the profit margins in the last fiscal are slightly lower than the previous fiscal year.

To counter this problem and avert the impact of price hikes on volume, Asian Paints has added 15,000 touchpoints in tier 3 and 4 cities in the financial year 2022.

So Asian Paints may be able to tide over the cost inflation problem with its supply chain expertise. The question is - whether other paint companies will do so too?

The prospect of big profits in the Indian paint sector is so alluring that two business houses with deep pockets, Jindals and Birlas, have announced their intention to enter the sector. While JSW is already in the business for the last two years, Birlas, through Grasim, will be setting up their first paint unit in Haryana.

Also, the existing players like Indigo Paints, which was recently listed, are using their innovative strategy to gain market share.

Which is better?

Asian Paints has outperformed Berger Paints in almost all the metrics.

It is leading in terms of revenue growth, profit margins, return to shareholders, and dividends.

However, with respect to net profit growth Berger Paints is slightly ahead of Asian paints.

Even in terms of valuations, Berger Paints' shares appear to be cheaper when compared to Asian Paints' shares.

But Asian Paints seem to have a competitive edge over its peers due to its keen understanding of consumption patterns and a massive and efficient supply chain.

Given its size and might, Asian Paints is well positioned to gain from an increase in discretionary spending.

On the other hand, the underwhelming performance of its new businesses could reduce its ROE in the short term.

Berger's narrow focus on products and services revolving around paints could help it grow faster than any other company but even then, it has a lot of ground to cover.

Before you go ahead and pick a multibagger stock for next 10 years for your investment portfolio, check the fundamentals and valuations of both the companies thoroughly.

Remember to invest only in fundamentally strong stocks as they have a high potential to become multibagger stocks in the future.

Still confused which is better?

Use our feature-rich comparison tool which draws a detailed comparison between any two companies. This tool also includes a graphical analysis making it easy for you to see trends!

Asian Paints vs Berger Paints

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For a detailed analysis, check out Asian Paints financial factsheet and Berger Paints financial factsheet.

You can also check out the latest quarterly results for Asian Paints and Berger Paints.

Since stocks from the paint sector interest you, check out Equitymaster's powerful stock screener to find the top paint companies in India.

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...