Berger Paints misses Q3 estimates on long monsoon, shorter festive season

Berger Paints India Ltd, India's second-largest paintmaker, missed analyst estimates as an unusually prolonged monsoon in October and a shorter festive season weighed on its December-quarter earnings.

The company also ended up losing market share amid intensifying competition in the sector, its management said during an investor call on Thursday.

The Kolkata-headquartered company’s third-quarter net profit attributable to the owners fell about 8% quarter-on-quarter to ₹271.16 crore, according to the company’s exchange filings. The profit fell short of the ₹285.83 crore estimate of 14 analysts polled by Bloomberg.

“We have lost a little bit of market share. In fact, the market leader has also lost market share. It has gone mostly to Birla,” Abhijit Roy, the managing director and chief executive of Berger Paints, said in a post-earnings interaction with analysts.

Asian Paints Ltd is the market leader, while Aditya Birla Group’s Opus is a new entrant.

“We are still holding on fairly decently. We did not lose any market share last year at all. This year, there is a marginal decrease, but we are still there, doing fairly okay, I would say, given the current situation,” Roy added.

Various multinational paintmakers have entered the Indian market at different times, including Hempel, Jotun, and Sherwin-Williams. But they never managed to take away a significant share of the market, he said, adding domestic player Opus, which spent ₹10,000 crore to set up six manufacturing plants across the country, a wide distribution network, and invested in a marketing blitz, has turned out to be a different beast.

“The bigger impact is coming from that one player, which is stabilizing. The other players there are not very disruptive or coming from a zero base. They have been there for quite some time. The incremental gains that they are making are not substantial enough to disturb the equilibrium in the system,” Roy said.

Monsoon impact

The paintmaker’s Ebitda fell marginally 0.16% year-on-year to ₹470.97 crore. Ebitda stands for earnings before interest, tax, depreciation and amortization—a measure of operating income. Berger reported a 0.29% on-year increase in consolidated revenue to ₹2,983.97 crore.

“The extended monsoons into October and the shortened festive season led to a negative October,” Roy said in a statement, adding that after October, they saw progressive demand improvement over the rest of the quarter, helping a good volume growth.

“There was an expectation that once the rain stopped, the demand would pick up. It did pick up, but not to the extent that we would have loved to see,” Roy said.

There was also a build-up of stock at dealers' ends during the prolonged rainy season, which got cleared between November and January, he said. He expects demand to stabilise in February as the inventory pile-up clears.

Roy explained that the demand recovery has been far more gradual than what the industry has seen in the past. Historically, disruptions in paint demand, whether caused by prolonged monsoons, the covid-19 pandemic, or other shocks, were followed by a sharp rebound as pent-up demand returned strongly.

This time, although demand has recovered, the pace has been noticeably slower, he added, attributing it partly to the fact that demand was never fully disrupted, as sales continued, but at a lower growth rate, limiting the build-up of pent-up demand. Additionally, the entry of new players has continued to weigh on growth, further muting the recovery.

Berger, in the statement, said gradual improvement in domestic demand indicators across segments and a sequential monthly uptick in demand are positive indicators going forward. “Results in the months ahead are expected to reflect these improvements,” Roy said.

Volume and value growth gap

For the December quarter, the company reported a standalone volume growth of 8.5% and value growth of 0.4%, according to the investor presentation. This led to an 8% volume-value growth. In Berger Paints’ context, volume growth meant more paint was sold, while value growth lagged because sales were skewed towards lower-priced products, past price cuts were still affecting sales, and competitive spending was higher.

Roy said the roughly 8% gap between volume growth and value growth is mainly due to three factors. First, about 3-3.5% of the gap came from a shift in product mix, as demand was stronger for lower-priced, high-volume products in the economy segment than for premium offerings. Second, around 2-2.5% was due to price cuts taken last year in low-end emulsion products, which continued to impact revenues until January and will taper off from February. Finally, about 1.5% of the gap was due to the company increasing promotional and incentive spending to respond to competition.

“The gradual improvement in domestic demand indicators across segments and the sequential monthly uptick in demand are positive indicators going forward. Results in the months ahead are expected to reflect these improvements,” he said in the statement.

Berger Paints has also recognized a one-time exceptional charge of ₹53.31 crore during the quarter, arising from increased employee obligations following the implementation of labour codes.