Good evening, everyone. This is Mohit Dudeja from Emkay Global. I would like to welcome all to the Berger Paints India Limited Q2 FY 2027 result conference call. I thank Berger Paints management for allowing us to host. We have with us today Mr. Abhijit Roy, Managing Director and CEO, Mr. Kaushik Ghosh, CFO, and Mr. Sayantan Sarkar, GM Finance and Accounts. I shall now hand over the call to the management for the opening remarks, post which we will proceed with the Q&A session. Over to you, sir.
Thank you. Good evening to all of you. We will start with the quick look at Q2 and half-year performance.
Sir, I think you are on mute.
Can you hear me now?
Yes, sir.
Revenue growth of 11.9% on a standalone and 13.2% for the consolidated. Half-year growth of 12.3% and 12.5% respectively for standalone and console. The PBDIT consolidated growth was 5.2%, backed by strong performance by subsidiaries. Decorative business, double-digit value growth driven by price growth of about 8%. Industrial business, robust volume and value growth across business lines. Gross margin was lower on year-on-year basis. The gross margins were impacted by double-digit raw material inflation, as has happened with the entire industry, liquidation of high-cost inventory, and delayed price increases in the industrial segment, with pressure further intensifying during the quarter. The operating margin compression remained relatively contained in spite of additional investment of INR 22 crore in the Rang Bana Rahe campaign, impacting quarterly margins. Excluding this, PBDIT growth would have been about 3%. Cash position, company continues to remain cash positive on a consolidated basis.
This is as is the condition for year-on-year growth. Volume growth 3%, and on the half-yearly basis, if you look at it is 5.6%. This is standalone. Value growth 11.9% and half-yearly basis 12.3%. And on operating profit, minus 4.4% and plus 6.1%. On a half-yearly basis, as we stand today, the EBITDA to sales ratio stands at 14.4% for both standalone and consolidated. On a standalone basis, if you look at the results, 11.9%, largely driven by gross margin compression. PBDIT minus 4.4%, and PAT is minus 7.3%. In terms of the half-year result, it stands at 12.3% revenue growth, operating profit growth at 6.1%, and PAT growth at 13.2%. The decorative performance, 10% value growth driven by price increases. Eastern markets impacted due to extended rain.
Volume growth moderated as later Diwali shifted festive demand to quarter three, alongside a conscious mix improvement, with price-sensitive categories such as putty, textures, and enamel, which de-grew for us. Differentiated products outperformed. The Home Solutions segment continued to outperform, with Roof Kool & Seal and DampShield emerging as key growth drivers. Wood coatings registered strong double-digit value growth. Strategic investments in advertisement and promotion to support the new Rang Bana Rahe campaign, strengthening brand visibility and consumer engagement during the quarter. We added a large number of stores as well. Retail store network is at 2,000 plus as on half-year FY 2027. In tinting machines, we added 4,800 machines as of first six months, and during the quarter, we added 2,700 machines. In industrial performance, we delivered robust high double-digit volume and value growth despite steep price increases.
However, margins remained under pressure as price hikes could not be fully passed on in a timely manner. Value growth across segments further aided by pricing, partially offsetting RM price inflation impact. Automotive coatings outperformed, supported by buoyant demand in the two-wheeler segment. Though it is a small segment for us, about 5%-6%, the growth rate was at about 31%. So, I presume all automotive players would have done very well on this particular account. Protective coatings volumes also remained strong. In fact, all the industrial divisions, as mentioned earlier, had strong double-digit growth. General industrial segment registered double-digit volume within the category. If you look at the gross margin, Q2 FY 2027 and half-year FY 2027 for standalone and for consolidated. On a standalone basis, Q2 was 36.6%, but on a half-yearly basis, it stands at 38.1%.
We normally operate in the range of 38%-41% as far as gross margin is concerned, so it is well within that range. In Q2, the EBITDA dropped to 10.8% versus 14.4% for the half-yearly position. Our guided range is 15%-17%, so at the end of half year, we are at 14.4%, which is close to that. The quarter results were a little lower, as we explained. We had an extraordinary spend on the Rang Bana Rahe campaign, which was introduced in this quarter. Therefore, it pulled down a little bit in terms of the operating margin. Consolidated, if you look at the figures, we are at that range which we normally operate in. Even in this quarter, we were at 39.3% against 40.1% on a half-yearly basis. As far as EBITDA margin is concerned, we were at 11.6% versus 14.4%. Largely scale impact.
This quarter is also a soft quarter for us normally every year. Last year also, this was a soft quarter. This year also, it is a softer quarter. It normally, Q1 is very big, and Q3, we do well, and Q4 as well. But this particular quarter normally tends to be soft, and therefore, the operating margin was weak comparatively. But things are looking better. Hopefully, it will be much better in Q3. As far as Rang Bana Rahe, our new brand campaign is concerned, "Deewaron ka bhi, zindagi ka bhi, rang bana rahe. " Color for walls and for life. It is a new brand platform built on the joy of color in homes and in everyday life. Story-led creative and backed by stepped-up A&P to build brand visibility and consumer engagement.
We think that this investment is well worth it and will maintain our good presence as far as branding is concerned in the consumer's mind as a result of this advertisement spend. Rang Bana Rahe, color in every moment of life, beyond surfaces into lives. "Aaj ka bhi, kal ka bhi, rang bana rahe. Deewaron pe bhi, chehron pe bhi, rang bana rahe." And stay colorful in every situation. Rang Bana Rahe. Consolidated results, as we look at it, total income from operations, 13.2% was the revenue growth, operating profit growth at 5.2%, and PAT growth also at 5.2%. Half-yearly basis, total income from operations, 12.5%, operating profit growth at 11.1%, and PAT growth at 19.3%. As far as consolidated results were concerned, almost every subsidiary and JV did well. Bolix SA had a strong growth in revenue and operating profit, both in constant currency and in rupee terms.
BJN Nepal, robust revenue and profitability growth driven by price increases and margin expansion. STP, we had a weak quarter last year. This quarter has been very strong. Revenue and operating profit grew well. Margins moderated due to raw material cost pressures. SBL, which is Saboo Coatings, revenue growth driven by pricing actions, profitability impacted by steep inflation in solvent-based RMs, as has happened in all industrial accounts. Berger Rock sustained healthy double-digit growth supported by buoyant automotive demand. Berger Becker joint venture, this other two, Berger Becker and the BNPA joint venture, the sales don't get added to our kitty. Only the 49% profit comes in. So the robust growth in revenue and profitability was observed in Berger Becker Coil Coatings. Very, very strong growth driven by higher volumes in industrial coatings. BNPA also did very well. The revenue growth was over 40%.
Profitability and margins compressed as higher RM costs are yet to be fully offset by the impact of price increases. Some interesting new products which we introduced in this period. One is the waterproof tile adhesive. It's a unique tile adhesive introduced by us for the first time in India, which is waterproof by nature. The second is decorative panel, which we sell in good quantities in Poland, France, U.K. These are technology imported from Bolix, and which we are now selling in India. We just initiated this primarily through the architects and interior decorator community. Very interesting product. Looks like wood exactly, but is actually made out of cementitious material. It's flexible as well, so it's a different type of a product. Long-life parapet coat. This is another interesting product which we have just introduced in the second quarter.
DampShield, this is a damp-blocking primer for exterior masonry with a three-year waterproofing warranty. How does the outlook look like. The task is to restore margin and to sustain growth. How will we go about doing margin recovery. Calibrated price increases across business lines, sustained cost-saving initiatives while driving further efficiencies and cost optimization. Continued discipline on operating costs. We are quite confident that we will be quite close to that 15%-17% band that we have indicated in the third quarter, and possibly also in the fourth quarter as well, given the type of initiatives that we are taking and the price increases both in decorative and industrial, which are coming up now. Many raw materials are crude-linked. Thankfully, the crude prices have softened a bit, so that might also help in improving the profitability.
The growth momentum, we capture festive season demand in quarter three. October was the month when we had the highest sales growth in the last possibly 25, 30 months. Therefore, festive season looks good. We should be able to carry on growing in this quarter. We are hopeful that this quarter, the revenue growth will be quite robust. Build on automotive and industrial coatings, waterproofing, construction chemical, and wood coatings. On the brand and the reach, we will continue to invest in brand-building efforts. We will also do the retail activation and store expansion, and the tinting and point-of-sale capability will continue. As far as capital allocation is concerned, normalize working capital as input costs stabilize. Disciplined capacity investment. We just completed the expansion in our Hindupur plant. Today, the West Bengal government has announced a new industrial incentive policy.
We will take a look at it and then decide the scale of investment that we want to make in Panagarh, which is in West Bengal. Maintain a net cash balance sheet as well. This is what we want to do. A net cash balance should be maintained by us. That's it from my side. Over to you for the questions, please.
Thank you, Abhijit sir. We will start with the Q&A session now. Those of you who have questions can raise your hand now. We will announce your name and unmute your line. Please highlight your full name and the organization you are representing. The first question is from the line of Rishi Modi. Please go ahead.
Yeah. Hi, sir. Can you hear me?
Yes, I can.
I have a bunch of questions. I was just looking at the cash flow statement, and we have seen a build-up in receivables and inventory in the half year. Just wanted to understand what is driving the receivables build-up, and secondly, the inventory build-up. Would it be at the elevated costs which are there in Q2, and hence our gross margin recovery will take some time?
I think that is left to Kaushik Ghosh to answer.
Can you just come once again? I mean, you were not very clear actually.
I am seeing an inventory build-up and a build-up in your cash flow statements.
Correct.
I just wanted to understand what led to the receivables build-up, and secondly, the inventory build-up that we have had, is it at the elevated costs that we have seen in Q2?
Oh, so I get your point. If you see, October is a very big month because of pre-Diwali, this sales.
Right.
This inventory was at its peak at the RM prices. So both coupled effect took this inventory build-up. If you see, our inventory build-up was higher by around INR 400 crore.
Right.
This is true for all companies because October was a very big month for everybody. We had a very good sale, and this inventory build-up was on account of this. This was a planned inventory build-up.
Right. When you sell this inventory in Q3, and the price hikes that we have taken, Q3 versus Q2, my inference is the gross margin should be similar, and Q4 is when probably we will see an improvement in gross margin. Is that—
I mean, it is difficult to say. The prices are so volatile, it is difficult to say that, I mean, how they will fluctuate month on month. Of course, we have a lag between the consumption and it converting into the COGS, cost of goods sold.
Understood. Receivables
It is still at an elevated level.
And receivables we would have recovered in this October sale? I'm assuming it's the—
Yeah, absolutely. I mean, it's in the normal course of business.
Okay, got it. Second, some more on a longer-term question to Mr. Roy.
Yeah.
Asian Paints has started their VAM plant, and now with the VAE plant, they're saying that they will see some INR 300 crore of savings through this backward integration, which they will decide whether to use it for pricing or to retain it. But say they use it for pricing, what measures are we taking to handle this upcoming maybe price competitiveness?
No, first of all, we have our own plans of adjusting or improving the efficiency in terms of cost, right? There are many ways of playing this, which we will do on our own. There will be some savings brought through that exercise from our side. In terms of spending, if there is, we will see when it comes, whether there is a 3% saving or a 2% saving or a 4% saving, we don't know what is the quantum of saving that is actually turning up and where will it be spent, right? We have to await that. We have to see where it goes, what happens to it, and then we will react accordingly. But we are taking our own measures in becoming far more cost-efficient.
That's something which I can tell you that you will get to see in terms of our improving gross margin and as well as the EBITDA margin.
Okay. I'm sure that you are taking steps, and you might not want to reveal them at this point. I'll leave it to you on that piece. Finally, just on the marketing piece, right? I understand we're building a consumer brand, we are investing in it, and this quarter we've invested excess amounts to start off a new campaign. But if I recollect correctly, in the past also, we had done some marketing campaigns which didn't fire for us in that one quarter, and you said that these were pre-planned. I'm just trying to understand, is that, can we have less variability, or are we seeing instant results on any of our marketing spends, or it's more of a period of animated marketing spends followed by more maintenance marketing going forward?
Normally, marketing is not like you switch it on, switch it off type. You have to have sustained advertisement over a period of time to build up brands. Brand building doesn't happen overnight. And initially, when you launch for the first time, in fact, we are introducing after a long number of years, a corporate campaign, you have to sustain it. You have to initiate it with some spends. Unfortunately for all of us, the raw material prices went up in this quarter only, which was not known to anyone. Therefore, our planning, we stuck to it. We decided to go ahead with the advertisement spend in this quarter. And it will obviously, when you introduce something, you spend a little bit more in that and then slowly taper it down. And again, maybe we give a burst after seven, eight months.
Again, one more burst will come in, where we will spend again in that manner. That's how typically everyone does it, and that's something which we will also continue to do.
Okay, got it. Not taking up more time, just one last bit I wanted to ask is that, I was looking at our FY 2026 numbers versus FY 2025. Our sales return as a percentage of gross sales has gone up by about 200 basis points in FY 2026 over FY 2025, which I assume is more of dealer support that we would have given in the last year of more preparation for the new entrant. Is there a scope of us recovering some of that 200 basis points that we would have spent extra in the channel last year and this year, and hence we can offset some of our expenses against that?
I don't know what you're talking about because I can't understand what you're saying.
I'm saying last year we had INR 2,500 crore of sales returns. FY 2025, we had INR 2,100 crore of sales returns in my numbers.
Sales return?
Sales returns. Okay, maybe I will take it up with the IR later on.
I cannot understand what you are talking about. Yeah.
All right, that is it from my end. Thank you, sir.
Right. Thank you.
Thank you. The next question is from the line of Aniruddha Joshi. Please go ahead.
Yeah, thanks for the opportunity. Sir, two questions from my side. One, Berger was earlier focusing on driving the urban penetration and was focusing a lot on adding people, dealers, in the urban markets. If you can share, where are we in that stage and how is the update, any further market shares, the gains that we would have done in, especially in the urban markets? How do you see the project going in rest of FY 2027 or FY 2028 too? That is question number one. Question number two is, any thought on the way the market leader is going in terms of moving from share of walls to share of space?
Because obviously the free cash flow generation is very strong, if there is no plan to get into any backward integration of VAM or VAE, is there any plan to get into additional segments or any inorganic plans, et cetera? Or the company will be looking at, in a way, dividends as the only option to returning it to the shareholders? How do you see on these lines? Yeah, thanks.
Got it, Aniruddha. Thank you. To answer your first question, the urban thing. We have this strategy which we call MEGA, which is maintenance, experiment, and grow and accelerate. Whatever experiments work, we tend to double down on that and then take it for further growth and acceleration of that particular activity. This is an urban, which is an experiment which we are conducting. As of now, what we can say is that it is yielding good results, positive results. We are fine-tuning it still as an experiment. We now know what is to be done exactly in these markets. It has started yielding tangible positive benefits for us. Now we need to fine-tune it further in terms of the execution modalities, so that by end of March, we will be through with whatever experiment that we are conducting and how to execute it.
From April of next year onwards, we will accelerate this particular initiative because now we are quite confident that it is working and will work. As far as the second question is concerned, which is share of wall to share of space, which the leader is doing, I have always maintained that we will be only in paints and coatings and construction chemical and waterproofing area. We have no desire to diversify into other areas. The corollary to that you said is that we have cash flow. What are we going to do with this? We are going to invest in two factories which are going to come up. One is in West Bengal in Panagarh. The other one will be coming up in Odisha. We need these two factories to meet the demand that is building up already and will build up in the future as well.
That entire money initially that we have as surplus cash now will get used up in this way so that we do not have to borrow. We will use our own funds to set up these two factories. Short-term borrowing might be there, but otherwise, we will use this fund to set up these two factories. Essentially, we will be consuming in those two factory buildups, which will happen at a later date.
Okay. Sure, sir. That is very helpful. Just last question on the competitive intensity. We see the new entrant has raised prices higher than most of the peers. Do you see, is there any further mellowing down of competitive intensity even in this quarter, which is September quarter also? In a way, Berger was earlier gaining market share. How do you see the trends emerging for H1 and any further market share target for, let us say, 2027 or 2028 also? That is last question from my side. Many thanks.
Right. As far as the new entrant is concerned, you are right that they have increased the prices. They were operating at 5% lower prices. Now they are matched to the industry overall as far as DPL is concerned. But they are rebating a little bit more. Having raised this 5%, they are putting it back, a large part of it to the dealers through increased rebating. So that intensity of competition remains to that extent. As far as the market share is concerned, we are at the end of half one, we are more or less at the same level at which we were earlier. At that, we were earlier at 20.3. We are still at about 20.2 at the end of half year.
Of all the listed companies who have already declared results, so far, all of them have declared, and based on that, top six companies, I think, which we take, this is where we stand as far as the market share is concerned. Relatively stable as far as market share is concerned. No loss, no gain so far in the half year. What will happen going forward? I cannot say that we will gain heavily. It is a tough fight. It is intense competition. We are hoping that we should be able to maintain comfortably where we are at the current moment.
Okay. Sure, sir. Many thanks.
Thank you. The next question is from the line of Pratik Gothi. Please go ahead.
Hello?
Yes.
Am I audible?
Yes, Pratik, you are audible.
Yes. Thank you for the opportunity. This is Pratik Gothi from HSBC. So my first question is on the deco business, or rather on the gross margins. Can you please throw some more light on the interplay between the pricing you guys had, the existing raw material inventories, and you also mentioned that mix sort of improved for you in Q2. So can you please throw some light on how these interplay with each other for the gross margin number that you have reported?
So, if you look at how the gross margin has dropped a little bit, in deco, actually, the drop was lesser. In industrial, it was even higher. On the average between the two, if you look at it, we have dropped by about 2.5%-3%, I think, somewhere around that number, right? Now, of this, the raw material price increase is the major component which created the issue. We did take up prices to some extent to neutralize the raw material price increase. We also pulled back on little bit of rebates on certain product categories, where we suffered a bit on sales. The top line, therefore, did not grow as much as we would have loved to grow. And as a result of that, we were able to maintain the gross margin at a certain level in spite of the headwinds being there.
The raw material prices really went up substantially more than what we could get by the price increases. That came in because the first quarter prices were much higher. There was a small drop in the second quarter in the raw material prices, marginal drop, which will carry forward in quarter three. But the highest level was in quarter one, which carried into quarter two, which impacted us in the quarter two area.
Understood. Very good. On the industrial business, what kind of price hikes have you pushed through so far? Any light on how the gross margin projected there looks like into Q3 and Q4?
There was a gross margin drop of about 5% in the industrial business, 5.5% almost. But the value sales growth was robust, therefore operating margin was, to some extent, it was not as bad as the gross margin reduction that was there. The other part is that we have been able to pass on partially the price increase, and some more price increases we have got in the month of October. Some we are planning to get in November as well, hoping that we will be recovering almost 90% of the increase that we want at the end of November. We will have to push through till December to get the balanced 10% that will be left over.
This 90%, I mean, crude oil prices are all over the place, I understand-
Yeah, it's very difficult. If it stays at this lower level, then we would have recovered almost everything.
Understood.
But if it again starts climbing to back to where it was, then obviously 90% would have been recovered, sort of.
Understood. I'll get back in the queue. Thank you.
Right.
Just a reminder, if anyone would like to ask a question, please raise your hand. The next question is from the line of Sushil Chavan. Please go ahead.
Hello? Am I audible?
Yeah.
Yes, you are.
As per my own research that I am seeing, there is a drastic shift that has been observed in tier 1, where families are focusing more on wall decorations, which consists not only paint, but also wall decoratives, panels. As management tried to push in tier 1 by its MEGA initiative that it mentioned earlier, and raised expenses from last two years, will it be able to generate that much amount of results or future growth which has management estimated?
Sushil, for us, the market, we are a very small player in the urban markets, in most of these weak urban market or low market share areas in the urban markets. For example, in Bangalore, we may have only 7, 8% market, right? In Pune or Mumbai, we may have even lower market share. For us, it is a huge opportunity that is there to improve our market share, because overall on an all-India basis, we may be around 20%, but in these markets, we are less than half of that, right? There is an opportunity for us in this market. Number 2 is that what you talked about in panels, et cetera, is primarily relevant for interiors of houses, right? We are focused on the exteriors, which is a much larger segment anyway, because exteriors get painted.
Even today, they are getting painted, whether if they apply texture and then they apply finished coats of emulsion, and then primer as well. Then the roof coating happens. Then there is waterproofing, which is happening all the time in these major urban centers. There are enough and more opportunities as far as the market size is concerned. In some of the interiors, the high-end houses, the interiors are having different types of finishes. It can be wood, it can be panels, it can be some other types. That is not a segment which we are targeting anyway in these urban markets. For us, it is a safe domain. There is enough and more opportunities, and we will get a part of that share.
Okay. Thank you for my question. Have a great quarter ahead.
Thank you.
Just a reminder, those who want to ask questions can raise your hand now. The next question is from the line of Shivakumar Marlingappar. Please go ahead.
Hello. Can you hear me?
Yeah.
Yes.
Sir, I just want to say on the share price, the share price of Berger Paints and even other paint companies are in the low for a long time. What does the future hold for the price market capitalization?
Okay. This is a strange question, I must say. What the future will hold will be visible to you when whatever happens will happen. So our job is to just ensure that we perform well, we grow our sales, and we grow our bottom line. The rest is left for people like you in the market to decide. Thank you.
Thank you. As there are no further questions, we consider that as the last question for the day. I hand over the call to the management for their closing remarks.
Thank you all for being here and attending to this meeting, and have a good weekend. Thank you.
Thank you.
Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you all for joining us.