India’s Second-Biggest Paintmaker Sees Rural Revival as Savior

Berger Paints, India’s second largest paintmaker, is banking on Rural India to recoup some of its lockdown-related losses.

Pradipta Mukherjee

30 Jun 2020, 06:19 PM IST

India’s Second-Biggest Paintmaker Sees Rural Revival as Savior

A customer looks at paint samples at a store in New York, U.S. (Photographer: Victor J. Blue/Bloomberg)

(Bloomberg) -- Berger Paints India Ltd. sees demand rebounding in Indian villages that have been relatively protected from the coronavirus outbreak, allowing the country’s second-biggest paintmaker to recoup some of its lockdown-related losses.

The company, based in Kolkata, expects rural demand to revive in June while that in cities will take at least another two months, Chief Executive Officer Abhijit Roy said by phone. Berger Paints typically counts April, September and October as its key months for sales, the first of which was a “washout” because of India’s shelter-at-home rules.

“For the full year, we will be able to recover largely because rural income has been good this time, agricultural prices have been firming up quite a lot, so there seems to be in general more prosperity there,” Roy said. “Possibly that is why the improvement of demand is visible in the hinterland and if this continues it will be the savior for most consumer companies in India.”

Berger Paints joins firms including Mahindra & Mahindra Ltd. and Hero MotoCorp Ltd. in betting on prospects in the hinterland. Its shares and those of larger rival Asian Paints Ltd. have outperformed the broader S&P BSE Consumer Discretionary Goods and Services Index over the past year.

Berger Paints expects a drop in revenue and profit for the April-June quarter, compared with the same period last year. April accounts for 35% of the period’s sales.

Financial Details:
January-March net income fell about 7% on a 8% drop in sales Softening raw material costs cushioned margins, and the company also benefited from India’s corporate tax cuts announced last year Stock has 3 buy recommendations, seven holds and 14 sells, according to data compiled by Bloomberg. Berger Paint’s 12-month price target is 441.36 rupees, compared with 502.20 rupees on Monday

Although management indicates a quicker recovery led by strong demand in smaller towns and has expanded dealer network by about 12%, visibility is still low, according to Ashit Desai at Emkay Financial Services Ltd. He recommends selling the stock, based on his forecast for a 7% fall in sales for the year started April 1.

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Bloomberg Economics forecasts that rural India will recover quicker than urban areas, albeit still weaker than previous years. Tractor sales, considered to be an indicator of demand, contracted 79% year-on-year in April and were down 55% in May.