Berger Paints India Limited (509480) Earnings Call Transcript & Summary

Hi, good evening, everyone. This is Nitin Gupta from Emkay Global. I would like to welcome all to Berger Paints India's Q1 FY '26 Result Conference Call. I thank Berger Paints management for allowing us to host. We have with us today, Mr. Abhijit Roy, Managing Director and CEO; Mr. Kaushik Ghosh, CFO; Mr. Sujyoti Mukherjee, Vice President, Finance and Accounts; Mr. Sayantan Sarkar, GM, Finance and Accounts. I shall now hand over the call to management for the opening remarks, post which we will proceed with Q&A session. Over to you, sir.

Thank you, Nitin, and good afternoon to all of you. Let's begin the presentation with a quick look at the quarter 1 results. We continue to gain market share above 20% within the listed companies' space. Mid-single-digit volume growth was registered in quarter 1. Growth was moderated by heavier-than-expected monsoon towards the end of May and June. PBDIT margins improved both sequentially and year-on-year in spite of heavy competitive pressures. Automotive segment delivered stronger volume and value growth versus overall performance and strong revenue growth in international operations. We have been consistently outperforming the industry, resulting in market share gain. This is a 5-quarter industry growth as per the results published. These are stand-alone results of various companies added together in the listed space. As you can see, the growth rate has been -- while the industry has been minus 0.9%, minus 3.3%, minus 4%, then it went up to minus 1.2%. And this time, for the first time, it is positive at 0.3% for the existing listed players in the industry, that 5 players which are there. And if you look at our performance against that, we have been at 2.4%, minus 0.4%, plus 0.4%, plus 4.4% and then again at 2% this time. So consistently above the industry level. As a result of that, we have been gaining markets share in spite of intensifying competition, 18.9% to 19.3% to 19.5%, then on to 20.3% and 21.2%. This is the market share as per the stand-alone results, which have been declared by the companies over the years and in this quarter. However, if you add Birla and assume that they would have gained about 5.5% to 6% share, then too, our market share stands slightly above 20%, and we remain at that level. In fact, we have been gaining market share even with their presence continuously. Now if you look at the top line growth, which we registered this quarter, stand-alone basis, 5.6% volume growth and 2% value growth. The Decorative segment delivered mid-single-digit volume growth. The volume-value gap narrowed, driven by improved mix and waning impact of price -- prior price corrections. Strong traction in Roof Kool & Seal, Home Shield range of products and wood coatings. Protective and Automotive Coatings maintained positive volume momentum. GI and Powder Coatings performance remained subdued. If you look at the gross margins, it's been very stable. And across quarters, in spite of increased competition, it's been hovering in that range of 39% to 41%. This quarter too, it was 40.1% against year-on-year, if you compare against quarter 1 of last year, which was at 39.3%, it's an improvement. There is a slight dip from fourth quarter of last year from 41.2% to 40.1%. This dip is explained by adverse mix impact. Due to excessive rains, there was a little bit of a less sale of exterior emulsions and also the luxury interior emulsion sales was down a bit compared to fourth quarter of last year. And therefore, a slight dip there that you see. However, against quarter 1 of last year, there is an improvement from 39.3% to 40.1%. On the operating profit side, however, it's all positive. In fact, it has been steadily gaining ground from quarter 2 of last year, if you look at it from 15.8%, it moved up to 16.2%, then further to 16.6%. And in this quarter, it has gone up to 17.4%, which is an improvement over quarter 1 of last year, which was at 17.2% and also against quarter 4 of last year, which was at 16.6%. So margin resilience is driven by stable gross margins and operating leverage from fixed costs, which we have been able to control and reduce and improved utilization at the Sandila plant. Last time, if you recall, we had initiated the Sandila plant, and we were burdened with extra load of that plant. And we had mentioned that we will improve on this as the things go forward. And so that has helped us to improve our overall profitability, operating profit ratio. In terms of results, if you look at it, 2% is the sales growth rate, PBDIT stand-alone -- PBDIT growth rate, 3.3% profit. PBIT at 5.1%. PBT before exceptional item is 5.3%. There is an exceptional item of INR 36.8 crore. This is an unfortunate fire incident which happened in our warehouse near Kolkata in Barasat. There was one other warehouse nearby, which got fire. From there, the fire spread to another warehouse, which was adjacent to us, which was a Hitachi warehouse. The ACs burst into flames and the flame left into our warehouse and our warehouse got gutted completely. Of course, it's fully insured, and therefore, insurance process is on. So that's an exceptional item of INR 36 crores, which is why you see a negative there in terms of PBT impact. But otherwise, without that exceptional item, we would have registered a growth impact of around 5-point-something percentage. As far as the 3-year, 4-year, 5-year results are concerned, you can see the CAGR 3-year which is 10%, 4.8% and 10.2% in terms of volume, value and net sales and PBDIT. If you take 4-year, volume growth is 16.8% CAGR, net sales value growth, 15.3%. And in terms of PBDIT growth, it is 22.6%. And 5-year CAGR, 26.3%, 28.2% and 34.5%. On a consolidated basis as well, it is a similar trend line for 3-year, 4-year and 5-year, quite robust 4- and 5-year figures. It's just that the last 3 years, especially the last 2 years, as you are aware, there have been price drops as a result, plus there has been a slowdown and the intensification of competition, which has squeezed the volume-value growth a little bit, but still at a reasonable level. At 3-year levels also, we are in a stand-alone basis, 10%, 4.8% and 10.2%. Strong performance sustained led by Anti Dustt, Long Life and Seal-O-Prime. Construction chemicals and waterproofing delivered robust volume-value growth with stable margins. Roof Kool & Seal further picked up momentum. Wood coatings posted robust volume and value growth. Store footprint expanded by over 300 during the quarter, taking the total count to 1,300-plus stores as on date, underscoring continued retail network growth. Tinting machine installations over 2,500 plus for the quarter. So we are well on course to add 10,000-plus more machines for the year. We introduced a product called Kolor Plus in this quarter. It's an interior premium emulsion, matte finish. We had Easy Clean, which is a clear leader in that segment. But that' a little bit of shine, which is there on the wall. People wanted a matte finish as well. And this is a new product category, which we have introduced called Kolor Plus, doing reasonably well so far. The momentum is picking up across -- we have launched it initially in the South, and now we will be expanding it across the country. Walls that Wow, European technology, washable, color guard with 6 years of warranty, premium emulsion in the matte finish category. We, of course, continue to advertise. The new ad has been released called Nothing Shines Like Silk for Silk Glamor with Kareena there. Easy Clean continues to do well in the market, across markets. Of course, we also introduced another new product called Luxol Metallics. This is a solvent-based metallic range, silver, gold, copper, which is picking up in this country, and we thought that this segment was missing, and we introduced it in this quarter. It is a lustrous metallic sheen, PU enriched with 4 years of warranty. We had introduced, if you recall, I had spoken about Anti Dustt Kool, which is -- earlier, we had introduced this. We had introduced last quarter Roof Kool & Seal last year. It did quite well the whole of last year. This year, it continues to do even better. And we introduced a new product this year called Tank Kool for the water tanks on the rooftop. All of these 3 products for the summer months, it is a very useful range of products, Anti Dustt Kool for the body, Roof Kool & Seal for the roof and Tank Kool for the tank. And we advertised across newspapers this entire Kool series. As you can see, the house wearing a jacket that you need not worry about the summer heat. Even in the summer heat, the temperature goes down by 8 to 10 degrees centigrade, making you feel much more comfortable. In terms of consolidated sales, top line value growth at 3.6%. Operating profit is impacted due to margin pressures in Bolix's U.K. operations essentially because of the project -- one of the projects where the cost due to time delay went ahead of revenue, and therefore, there was some pressure on the profit there. Joint ventures delivered strong performance in both revenue and profitability. Consolidated results. As you see it, 3.6% value growth, 1.1% operating profit growth. And then, of course, the 2 exceptions. One is the Bolix cost overrun, and the second one is the exceptional item, the fire, which pulls down the profit in the PBT and PAT range. BJN Nepal outperformed within the group, delivering strong revenue growth and margin expansion. Wholly-owned subsidiary, Bolix, reported a stable quarter in revenue. However, muted margins in U.K. operations, as I mentioned, impacted overall Bolix group profitability. STP and SBL Coatings saw a flattish growth, weighing on overall profitability due to scale challenges. Berger Rock continued to post solid performance. This is our auto refinish joint venture with ROCK PAINT of Japan in both revenue and profitability growth. The joint venture, BNPA, which is Berger Nippon Paint Automotive Coatings, which is focused on the automotive 4-wheeler car and passenger car and SUV business delivered robust growth in revenue and profits, driven by higher OEM sales in the Automotive segment, along with some good business in some of the new accounts like Kia, et cetera. Berger Becker joint venture also witnessed a strong turnaround post fire-related losses, aided by improved product mix and margin recovery. How does the business outlook look like for the rest of '26? Gradual improvement in demand indicators observed with early momentum in urban markets. Well progressing monsoon and easing inflation may support rural sentiment under a supportive policy environment. Market competitiveness to stay elevated, continued thrust on innovation and brand distinctiveness to navigate short-term challenges. Potential pickup in government infra spending in the latter half of the year could aid growth momentum and broaden economic activity. Currency volatility, ongoing tariff wars and evolving geopolitical tensions remain key risk factors. Thank you, and I'm stopping here and opening up for questions.

Thanks, Abhijit. So we will now start with the Q&A session. I hand over to my colleague, Bhavik Shanklesha to moderate the Q&A session. Over to you, Bhavik.

[Operator Instructions] The first question is from the line of Mihir Shah.

This is Mihir Shah from Nomura. Firstly, congrats on better than peers' volume growth number and continued share gains. Sir, firstly, on volume growth, I wanted to check the -- while you've done better, but we were expecting a little bit of improvement versus the number that we have seen of 5.5%. We were expecting maybe closer to high single-digit volume growth. So on this front, basically, can one expect this growth that has not come to be deferred in the coming quarters? And should we expect a better volume growth in the coming quarters? Any signs or indication that you're seeing of this to continue to improve apart from the sales that we lost this time around?

So typically, Mihir, sales do come back because the monsoon is unpredictive. It's difficult to guess in India when it will come and how long it will prevail. So it started a bit early this time towards end of May, which was a surprise across many markets, and it was quite intense in some parts of the country. So May and June, as a result of that -- normally in paint, it gets postponed. July also was quite heavy. So -- but once it abates, we have always seen that the sales tend to come back. So we would expect that the sales will come back once the monsoon abates.

So fair to say -- any indication from your side would be helpful. Fair to say a high single-digit can be expected in coming quarters because of this deferment plus any further improvement that you're seeing in the market that is giving you confidence that there's the volume -- low volume phase that we have seen is kind of -- now kind of behind?

So if you ask me, my expectation is that once the rain stops, it should go up. But if you are asking me whether I'm seeing any indication immediately, so far, we haven't seen anything which indicates that substantial improvement in volume growth momentum will be there. However, once the rain stops, it is expected that the volume momentum should pick up.

Got it. That's very clear. Second question is on competitive intensity. It seems other players have highlighted that the dealers lost to competition are now coming back. I wanted to know your thoughts on how this is shaping up for you. And any other trend that you are seeing in the marketplace with respect to competition, et cetera?

So frankly speaking, competition, as I had already always maintained, there will be some share loss, which is likely to happen for all the players, which we have seen happening in the recent past, right? Because any new player who comes in will gain some share and that will be at the cost of the existing players. Otherwise, we would have got that share. So from that perspective, there has been some loss. As I said also last time that for the past few months, we feel that it has become -- it's not increasing in terms of intensity. It has stabilized at those levels. So I won't say that dealers are coming back, but the initial euphoria is over completely. That's gone. That initially the curiosity, the enthusiasm that was there something new, something great is happening, that is completely gone now. Now is the time when people start realizing that it is not very easy to get additional margin. So what was happening was there was a competitor which was discounting heavily. And then the dealers were selling at a price which was similar to ours in the marketplace initially. And therefore, they were pocketing that differential in their pocket. But once with the network expansion happening heavily and interdealer competition increasing, that margin of profit has reduced considerably. And as a result of that, there is a little bit of a loss of interest from the dealers. And hence, people might be feeling that some of these dealers might be coming back to the legacy companies with whom they have been dealing in the past. Because once they see that there is no great margin and the movement of the product is nothing great so far, then they feel that why should we be pushing this so aggressively. So that's a normal behavior expected out of any newcomer who enters, initially gets in and then stabilizes at some point, and that's what is happening now.

Got it. Always very helpful. Lastly, if I can just push in one more on margins. You continue to maintain the margin guidance band that we highlighted. I assume that there's no change out there, right?

No, not at all. You have seen that we have, in fact, always said that we will be operating in the 15% to 17% range. We have been more or less towards the -- more towards the 17%. In fact, in the stand-alone, we are ahead of 17%, but we are around that point only.

Next question is from the line of Avi Mehta.

This is Avi Mehta here from Macquarie. Sir, I had 2 questions. You've clearly indicated about the margin comfort. But I just wanted to also check would -- given this demand environment, would we still want to say that we would [ gun ] for a low double-digit volume growth in the next year? Or the demand environment, how do you see that? If you could give us some clarity on that expectation, that would be useful. And second, sir, I wanted to check, yes, I do understand the stabilization of competitive trends but would love to hear your thoughts on how do you see this intensity behaving now that there has been another merger between Akzo and JSW.

Right. So as far as volume trend you have seen, we have been hovering around this 5%, 6% to 7%, 8% range. The whole of last year, we were at around -- on average around 8%. And last quarter, quarter 4 of last year also, we were around that same point of 8% to 9% in terms of volume. This quarter has been a little bit lower than that at about 5.5%. We expect that once the rains are over to go back to that 7%, 8%, 9% range initially and maybe even better as the year progresses. So this is something which we feel that should happen. Now as far as competitive intensity is concerned, I have explained about the first player, which is who entered initially. And the second, which you mentioned, JSW plus Akzo, that's still not formalized sort of. They have to, first of all, merge or do something or if it is stand-alone, if they operate just like they are doing today, I see no great changes happening in the competitive intensity. Yes, there is some change which is likely to happen like the change in ownership. There might be some amount of advertisement, which will go up, some spending increase possibly. But overall, I don't see any major tangible change. Both these players have been existing in the Indian market for a long time, one which is almost equal to us in a number of years and the other, which has been there for 5, 6, 7 years now. So I don't see any significant change in competitive intensity emanating from this change that has happened.

Very clear, sir, very clear. And sir, if I may just follow this up from a growth perspective, what you're expecting. Sir, are you -- I mean, how do we see the demand trends? I wanted to get your thoughts. It's been now 3 years where growth has been weak. We are still expecting that the relationship with GDP will come back. But what do you think went wrong that this situation has arisen in the first place? What would be your thoughts on that, sir?

So nothing went wrong. In fact, it's a mistaken notion that there has been a great demand shrinkage. In fact, till '22, '23, we had a very good year, in fact. '23, '24 was reasonably okay. So you can say it's not 3-year phenomenon. It's sort of '24,'25 has been an issue and '23, '24 second half was an issue. So it's about 1.5 years where the growth has been lesser. And a large part of that reason is that the volume growth has been there, but the value growth has not been there because there was a price drop of almost 5%, 6%, right? So when you have last -- whole of last year. We are fighting against this price drop of 5%, 6%. Then a new player had come in. New player had come in and it had taken 3.5%. So if you have 5%, 6% of price drop and 3.5% going to the new player, so that accounts for 8.5%. In spite of that, we did register a growth of about 4.5% last year. So if you add back this 8.5% to the 4.5%, it would have been 13% growth. So that's why I'm saying it is not that the growth rate had come down. It's just that the price drop impacted significantly last year and the intensification of the competition who took away about 3.5% overall impacted everyone to that extent, some maybe 5%, some maybe 3%. But overall, there was an impact for every player. Obviously, because when the consumers are going to another brand, that brand otherwise would have -- that consumer demand would have come to us otherwise. So that much of share loss has happened for everyone, right? So overall industry, if you look at even this quarter, it has grown the industry, the legacy players has grown by approximately around, say, 0.5%. And Birla would be sitting at around 5.5-odd percentage to 6%, right? So overall, the industry's growth is 6%, 6.5%, which is not very bad in terms of the value sales. The overall consumer demand itself has been lesser compared for all categories. It is not only paint, any type of consumer category, there has been a bit of a slowdown there. So instead of 6.5%, it would probably would have been under normal circumstances 8.5%, 9%, 10%, maybe. So that slowdown of 3%, 4% is there in the consumer sentiment because of inflation, because of other issues, which is progressively improving. So that is why we are hopeful that in the second half, there will be a good improvement overall that you see from the current levels.

Next question is from the line of Tejash Shah.

This is Tejash from Avendus Spark. Sir, you broadly touched upon competitive intensity, and you have been very fairly consistent and honest on this.

Can you be a bit louder, I can't hear you.

Sir, am I audible? Hello?

Yes, now you are.

No, I said that you broadly touched upon competitive intensity, and you have been fairly consistent in that. Just wanted to understand, is there any more nuanced dimension to it in terms of premium economy or mass? Is it like varies a lot in terms of the segment of the market?

So frankly speaking, not so much. It is there more towards the economy, the primers and lesser towards luxury or premium luxury category. So mostly, the commodity type where the first -- expected as well that where lesser branding strength is required. That is the place where one tends to have some sort of erosion initially. So that's where it is getting impacted first. And probably most companies would be reacting in that space also and ensuring that, that is taken care of. So from the perspective of otherwise, there is no other major mix change we would have seen -- observed any particular peculiarity in the way it has been impacted by the competitive intensity.

Perfect, sir. And sir, any regional nuances worth highlighting? And also, are they -- or the competitive density has become much more aggressive or equal in project business versus the rest?

I can't hear you properly, Tejash.

No, I was asking, is there any regional nuances worth highlighting? And also any different or any comments to make on project business versus the rest on the same parameter?

No, not really. Project business, nothing which is worth mentioning. And even in the regional nuances, nothing which is extraordinary. It's more or less similar in nature across most regions. Possibly in the South, there has been slightly higher intensity of competition than the rest.

Okay. And sir, last one, if I may. Given that most of the paint companies flagged weak demand in June, July due to early onset of monsoon, how would you assess the current inventory levels in the trade channel? And why am I asking this is that do you foresee some pressure on margins, let's say, because there's a lot of stocking up which would have happened because of early monsoon this year?

So Tejash, normally in the paint business, when we are selling, we have to collect also otherwise, sales get stuck immediately, right? So that is why the sales figure on the growth has been less. So the channel inventory is fine. I don't see that getting impacted in any significant way. Unless they pay -- the channel inventory clears, then they pay and then we again sell, the cycle doesn't move. So there is no great impact there as far as the channel inventory is concerned. And therefore, it is normal business at this point of the year. Normally, it rains. It's a monsoon month, it is expected to rain. And every year, we go through the same situation. So I don't see any major change there.

Next question is from the line of Abneesh Roy.

So firstly, congrats on continued faster growth. One is on Bolix, any time lines you see in terms of recovery? It's a mature market where multiple factors are in play in terms of low growth, geopolitical tensions keep happening. What will be the long-term strategy in a Bolix kind of a business given the developed market where it is?

So actually, Abneesh, this Bolix business, as we see it, it's in a -- it's on a good wicket as of now, largely because it is in a domain, which is basically meant for energy saving. As you know, this is an insulation business, and in Europe and U.K., the governments are promoting this in order to save energy. With the geopolitical situation being as is and with Russian oil not being there for them, which has become expensive for them, gas and other energy costs, they want to save on the energy cost. So it's a category which is actually growing. We had a little bit of an issue in the U.K. operations with 2 of our projects which are there, where there was a delay. Actually, this delay has been going on for some time now because of other regulatory issues which cropped are there, which is getting tackled, but unusual -- unnecessary losses because of the time delay, which happened for us. But it was not within our control because the regulatory changes happened suddenly, and we had to change our entire strategy for these projects. But this is just a temporary phenomenon. It will go away. And overall, the business is very healthy, and it is looking quite promising now.

Sure. My second question is back on the Indian decor market. So the market leader has been highlighting 1 or 2 things in the last 2 quarters. One is, of course, a regionalized product strategy, with FMCG companies like Unilever, Nestlé have been doing -- winning in many India kind of a concept. So wherein for a few states, you have a specific product packaging targeting that. Similarly, one more thing that they have been doing last maybe 2, 3 quarters is 4-year warranty. Have you also responded with a similar kind of strategy? And does this help in overall market dynamics?

So Abneesh, India, as you know, has different tastes across different regions. And therefore, product mixes are different in different locations. It is tailored in that direction. We don't have the type of container design or specific to a region that you are talking about. I don't think that is required as well so much. Yes, it aligns well with the consumers possibly. But more importantly, the type of products that sell in particular regions are what is of greater importance and tailoring our products and the pricing for that region becomes very critical, therefore. We always do that. It is an important way of -- and even the advertisements, the way you communicate, everything changes from different states and different regions in India. It's not a single country where you can advertise one thing and communicate. So everything, the product, the pricing, the promotion, all the [ piece ] are, except for the distribution strategy, which is quite similar across regions. Everything else tends to change depending on where you are within the country. So that has to be done. If you really want to do well, if you're an all India player, you will have to keep doing this.

Understood. One more question on the India competition decor. To be fair, you have been the most standard transparent and frankly, commenting on competition on national media interview, I think it's a commendable thing. And you said a few months back that new player last 3, 4 months, it's a stagnant sales. Now we are seeing other players, legacy players also talk more confidently. My specific question here is, you said initial euphoria among dealers is completely gone. Specific question here is how is the initial euphoria in the painter and influencer now versus the first 6 months? Here also, has it kind of evaporated? And 10% extra grammage by the new player, we got in another call today that maybe in some areas, it is reversing. Now these are early data points, what are you picking up on the 10% extra grammage.

So the 10% extra grammage, there has been reduction there. I am told that earlier, it was across all pack sizes. Now it's there primarily in the 20-liter pack sizes. The 1- and 4-liter possibly has been withdrawn in many markets. That's the news which is coming back to us. So there is some rationalization obviously happening in that space. Possibly, this has been -- as I had always said that this has been tried in the past by a few other companies. It initially gives some result, but then it -- then becomes quite useless in terms of added advantage in the marketplace and sometimes can be at the detriment in terms of sales growth. So therefore, I think possibly it will get slowly phased out. It's an initial entry strategy as was indicated by them. And I think it will get gradually phased out. So this is my viewpoint. Things have to be seen whether this is true or whether this will sustain, one has to see that. As far as the painter/influencer area is concerned, there, so far, I don't see any ebbing that -- neither was there any great enthusiasm nor is there an ebb in that. It is still hard work in that segment. For any new entrant or even for existing players, we have to really work hard in this particular area.

And last follow-up question, sir, and I'll end there. This 5.5% market share, say, for the new player, is it largely in the lower end because you who have been there for decades and have done a commendable job, still you are under-indexed in the mid and premium versus, say, the market leader versus the brand which got sold. So in that context, obviously, entry barriers in mid and premium are far, fare higher. So would you say that this 5.5% market share is heavily over-indexed at the lower end?

Most likely, Abneesh, I don't have access to the sales data. But I would guess that, that is most likely to happen largely because, as you rightly said, in the luxury -- premium/luxury segment, brand plays a far bigger role there. And it is difficult to change a customer in this particular area. However, at the lower end or at the mid lower end, it is relatively possible with the effort of the influencers to change customer preferences. And therefore, more possibility of the sales getting overly indexed at the initial stage in these category of products.

Next question is from the line of Karthik Chellappa.