Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper programme of Berger Paints India Limited (Berger Paints). The ratings continue to factor the well-established market position in the domestic paint industry and healthy financial risk profile. The company is the second largest domestic player in the decorative paint segment and the largest player in the non-auto industrial paint segment. These rating strengths are partially offset by moderate segmental diversity in revenue, vulnerability in raw material cost and limited pricing flexibility due to intense competition in the decorative segment.

 

Operating income for fiscal 2024 grew by 6% on year to Rs 11,220 crores driven by growth in both decorative and industrial segment enabling a double-digit volume growth. The decorative segment continued to contribute around 80% of the total sales while the balance was contributed by the industrial segment. Revenues during first quarter of fiscal 2025 saw a modest on year growth of ~2% despite volume growth of ~12%, due to the impact of price cuts taken in the last fiscal (~5% in Q3 & Q4 of fiscal 2024), an unfavorable product mix, labor shortage due to general elections, and heat waves. Revenue growth over the medium term to be supported by an increase in housing initiatives, launch of new products and painting campaigns and up-trading towards higher value products. Operating margin witnessed expansion in fiscal 2024 to 16.8% from 14.3% the previous fiscal largely on account of softening of raw material prices. RM prices accounted for 61% of total revenues in FY24 and around 55-60% of RM prices is linked to crude derivatives. Going forward, operating margins will remain healthy at about 15-16% levels over medium term despite of elevated sales promotion and advertising expenses with increasing competition intensity but supported by improved product mix, healthy capacity utilizations, and recent price hikes undertaken.

 

The company’s financial risk profile continues to remain strong, marked by the high net worth of over Rs. 5,000 crores and sizeable liquid surplus of more than Rs 500 crores as on March 31, 2024. The debt protection metrics, which are already strong, are expected to improve in the medium term with low reliance on working capital debt. CRISIL Ratings expects the company to sustain its strong financial risk profile over the medium term.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Berger Paints, its subsidiaries, and joint ventures (JVs), as these entities are in the same business.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established position in the domestic paint industry: The Berger group has strong brands (Silk, Luxol, Weathercoat, Rangoli, Illusions and Jadoo), an extensive distribution network- (over 55,000 dealers) and a wide product portfolio, encompassing enamels, exterior emulsions, distempers, primers and cement paints. It is present across all segments, including decorative and general industrial, auto, protective and powder coating. It is also the second-largest player in the domestic decorative paints industry, and the market leader in the protective coating segment, with a small presence in the auto and powder coating segments. Sales have been increasing through the years led by increased penetration into newer cities and towns, rapid urbanization, and low per capita consumption of paints relative to global averages. The strong brand, extensive distribution network and wide product portfolio with innovative product launches is expected to support the company with the expected increase in competitive intensity.

 

• Strong financial risk profile: High networth of over Rs 5,000 crore as on March 31, 2024, along with low debt, kept gearing low at 0.02 time. Liquidity was adequate, supported by cash and marketable securities of over Rs 500 crore as on same date. Return on capital employed (RoCE) improved and was healthy at 31.4% in fiscal 2024. Capital structure is expected to remain strong in the absence of any debt laden capex over the medium term. Strong cash accrual and continued focus on pruning the working capital cycle should help maintain the strong financial risk profile.

 

Weaknesses:

• Limited, yet growing, presence in the non-decorative segment: Around 80% of revenue comes from the decorative segment, while the non-decorative segment accounted for the balance (including protective, powder and general industrial and auto coatings). Concentration in revenue constrains the ability to fully leverage demand in these segments. The conglomerates looking to disrupt the decorative paints market is another monitorable.

 

• Vulnerability to volatility in raw material prices and limited pricing flexibility: Despite the oligopolistic nature of the organized paint industry, players face competition from regional players, especially in mass-market products. Consequently, while paint manufacturers have adequate flexibility to pass on the increase in cost, their ability to increase the margin is restricted. Hence, the operating margin was in the range of 14-17% for the past five fiscals.

Liquidity: Superior

Expected cash accrual of over Rs 1000 crore per annum coupled with liquid surplus of over Rs. 500 crores will provide cover for capex spend and incremental working capital requirements. The fund-based limit of Rs 1300 crore was utilized at 4% in the last six months ended July 2024, which provides further comfort.

 

ESG Profile:

CRISIL Ratings believes BPIL’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.

 

The paint (chemical) sector has a significant impact on the environment owing to high water consumption, waste generation and Green House Gas (GHG) emission. The sector’s social impact is characterized by health hazards leading to higher focus on employee safety and well-being and the impact on local community given the nature of its operation.

 

BPIL has continuously focused on mitigating its environmental and social risks.

 

Key ESG highlights

 

• The share of renewable energy has increased from 39% in 2023 to 47% in 2024.
• The Total water consumption/Revenue from operations reduced from 4.27KL/Mln.INR in 2023 to 4.14KL/Mln.INR in 2024.
• Gender diversity at BPIL has increased from 1.88% in 2023 to 2.59% in 2024.
• Berger Paint’s governance profile is marked by 55% of its board comprising independent directors, split in chairman and CEO position and presence of robust internal control systems and processes. It also has extensive disclosures

 

There is a growing importance of ESG among investors and lenders. The commitment of BPIL to ESG principles will play a key role in enhancing stakeholder confidence and access to capital markets.

Outlook: Stable

The business risk profile of Berger Paints will remain healthy over the medium term, driven by its established market position, sustained revenue growth and broadly stable operating margin. The financial risk profile will remain strong, aided by healthy cash accrual and improvement in networth, led by steady accretion to reserve and moderate reliance on external debt.

Rating sensitivity factors

Downward factors

• Sustained decline in revenues by over 15% in the medium term or steep increase in input prices affecting profitability, resulting in decline in operating margin to below 12%.
• Increased competitive intensity also leading to sharp decline in market share in the domestic paints industry.
• Large, debt-funded acquisition or capex that may impact financial risk profile.

About the Company

Berger Paints, incorporated in 1923, is one of the oldest paint companies in India. It manufactures paints and varnishes, and is present in all product segments, including decorative, general industrial, automotive, protective, and powder coatings. Its prominent brands include Silk, Luxol, Weathercoat, Rangoli, Illusions, and Jadoo. It is the market leader in protective paints and has a marginal presence in the automotive and powder coating segments. Berger Paints is the 2nd largest paint company in India and among the 15 largest paint companies in the world revenue wise. The company has 29 manufacturing plants (including subsidiaries) worldwide out of which 25 are across India: Goa, Puducherry, Uttar Pradesh (Surajpur factory at Greater Noida, Sandila and Sikandrabad), Rishra, Jammu and West Bengal (Howrah). The company recently commissioned its large greenfield unit at Sandila, UP. It is listed on the Bombay Stock Exchange and the National Stock Exchange; its promoters own 74.99% of its equity shares. The operating income for Q1FY25 was 3,091 crores with an operating margin of 16.9%.

Key Financial Indicators

Particulars	Unit	2024	2023
Revenue	Rs crore	11220	10594
Profit after tax (PAT)	Rs crore	1170	860
PAT margin	%	10.4	8.1
Adjusted debt / adjusted networth	Times	0.04	0.22
Interest coverage	Times	25.04	15.34

 

Any other information: Not applicable

Annexure – List of entities consolidated

Names of entities consolidated	Extent of consolidation	Rationale for consolidation
Beepee Coatings Pvt Ltd	100%	Subsidiary
SBL Specialty Coatings Pvt Ltd (formerly known as Saboo Coatings Pvt Ltd)	100%	Subsidiary
Berger Jenson & Nicholson (Nepal) Pvt Ltd	100%	Subsidiary
Berger Paints (Cyprus) Ltd consolidated with Berger Paints Overseas Ltd	100%	Subsidiary
Lusako Trading Ltd consolidated with Bolix SA and group*	100%	Subsidiary
Berger Rock Paints Private Limited	100%	Subsidiary
Berger Becker Coatings Pvt Ltd	48.98%	Joint venture
Berger Nippon Paints Coatings Indian Ltd	49%	Joint venture
STP Ltd	100%	Subsidiary

*Group includes Build-Trade Sp zoo, Soltherm External Insulations Ltd and Soltherm Isolation Thermique Exterieure SAS