Volume demand for paint products in India is expected to grow at around 11% YoY in FY13 v/s 14% CAGR over FY04-FY12. Benefits to raw material costs from depreciation in crude oil prices are likely to be offset by the negative impact of INR depreciation. With increasing consumer involvement in decorative paints and given steady acceleration of growth in premium products, we expect Asian Paints to continue to win market share from peers given its focused management team and efficient supply chain. Berger is likely to remain a distant second as it attempts to cover lost ground in the premium decorative products market.
Asian Paints: Led by a high quality management team, Asian Paints has achieved expansion across a wide range of SKUs and across urban/semi-urban/rural India through supply chain efficiencies and through scale related benefits around marketing spend. We expect operating margin expansion over FY13-FY17 of 100bps from scale efficiencies and 100bps from increased share of water-based, high-margin, premium products in the overall portfolio. Also, as the firm continues to invest in: a) further streamlining parts of its supply chain to overcome inefficiencies related to inter-depot and inter-RDC (regional distribution center) transfers; and b) expanding the network of ‘colour ideas’ stores to grab a larger pie of the premium segment; we expect Asian Paints to gain 0.5% market share each year from its peers over FY12-FY17. 12 Months Stock Target is Rs 4200
Berger Paints: From being predominantly a mid-tier and economy segment focused company in decorative products, Berger appears to be shifting its focus towards investing in supply chain management and increasing its marketing spend to help enhance its positioning in the premium product category. It is offsetting the incremental expense through a reduction in cash discounts to dealers. 12 Months Stock Target is Rs 140.
