Equity Analysis /
Bangladesh

Berger Paints Bangladesh: A narrative tracing Bangladesh’s growth story

  • We reiterate BUY rating with a target price of BDT 2,153 (ETR 28.4%).

  • 25% product price hike and commodity price reversal offers potential to boost profitability.

  • The new project also offer tax benefits up to 10 years from operation.

Shopnil Paul
Shopnil Paul

Research Associate

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IDLC Securities
29 December 2022
Published byIDLC Securities

Our Recommendation: BUY

We reiterate BUY rating with a target price of BDT 2,153 (ETR 28.4%). Our target price implies 26.7x FY24f P/E, 3.6x FY24f EV/Sales.

About the Company

Holding c50% market share in Bangladesh, Berger Paints Bangladesh Limited (DSE: BERGERPBL) is the largest Paints manufacturer in the country. The company has one 100% owned subsidiary named J&N (Bangladesh) Ltd. which manufactures metal containers and two joint ventures (associates) involved in production of coil coating and construction chemicals.

Growth History and Expansion Plan

Aided by rising income level of citizens and booming construction activities, Berger maintained c13% CAGR in revenue and c15% CAGR in NPAT in the last decade. As a part of their expansion plan to capitalize on the next level growth, Berger is building a manufacturing unit at Bangabandhu Sheikh Mujib Shilpa Nagar at an estimated cost of BDT 4.8bn. The unit is expected to come into operation from April, 2025 and will provide tax exemption benefit for the next 10 years.

Reasons to Buy

  • Strong & resilient economic growth to facilitate construction growth

  • Low per capita paint consumption to offer room for growth

  • Berger with 50%+ market share–retains pricing power

  • New expansion project to cater to future growth

  • Strong leadership & prudent management takes timely decision during critical period

  • 25% product price hike and commodity price reversal offers potential to boost profitability

  • 5.0% offload of free-float shares in the stock market has the potential to reduce effective tax rate by 250 bps. The new project also offer tax benefits up to 10 years from operation

Risks to Our Recommendation

  • Prolonged war may keep commodity prices high, putting pressure on Berger’s margin

  • High inflationary pressure may dampen construction activities

  • Low forex reserve and austerity measures by govt. may make raw material sourcing difficult.