Berger Paints Pakistan Limited (KSE: BERG) one of the largest paints manufacturers in the world, started its commercial operations in Pakistan in 1950. First, the company was an import based business, offering premium products through import from the United Kingdom. The company established its first manufacturing plant in Karachi in 1955. Keeping in view the growing demand of paints in the country, Berger established another manufacturing facility in Lahore in 2006.
Berger, headed by Dr Mahmood Ahmad as CEO, has an extensive presence in the country-via regional offices in Karachi, Lahore, and Islamabad and through territorial offices in Gujranwala, Multan, Faisalabad, Peshawar and Hyderabad. Recently, Berger acquired distribution rights of DuPont for Pakistan's vehicle refinish paint segment. Berger is not just a paint company; it offers one stop solution across different paint product categories in order to meet the demands of its customers. Its line of business includes: Decorative Business, Automotive Business, General Industrial Finishes, Powder Coatings, Protective Coatings, Vehicle Refinishes, Road Safety, Government and Marine, Construction Chemicals, Printing Inks, and Adhesives.
PERFORMANCE FOR 9M FY14 Company's top line witnesses an upward movement over the years except for a plunge experienced by the company in FY12 owing to unabated power crisis, worsening law-and-order backdrop especially in the central and northern regions of the country and continued political uncertainty which hampered the construction and real estate business on which Berger's business greatly depends on.
During the period under review, Berger's top line grew by 4.7 percent year on year to Rs 3,163 million. In 9M FY14, BERG attained a gross margin of 23.6 percent, similar to the level reached in FY09, as cost of sales witnessed a dip of 0.4 percent year on year.
However, operating expenses grew about 167.2 percent year on year, owing to galloping inflation that took its toll on company's operating margin. To add to ado, other income, which lent significant sustenance to company's bottom line in previous years, shaved off to 3.5 percent year on year in 9M FY14.
Profit after tax clocked in at Rs 37,174 million as against Rs 20,179 million of the previous accounting period due to drop in cost of goods sales. However, BERG distribution costs have been climbing up incessantly throughout the year and grew by 26 percent year-on-year. These costs include advertisement and sales promotion expense. Despite a trivial cut in financial cost in 9M FY14 of 1.9 percent year on year, the company's bottom line couldn't reach the profit territory it left in FY09.
BERG current ratio lingers around one in the period under consideration. Moreover, company's quick ratio is almost half the size of its current ratio, bearing out the fact that company maintains a sizeable portion of inventory in all the years. This might be company's strategy to shield itself from erratic movements in the prices of its raw materials and also to defend itself from exchange losses.
Berger hasn't enhanced share capital since 2010, hence constant share capital. Furthermore, continuous losses are gobbling up company's reserves, resulting in shrinking equity. The increased reliance on debt financing is deteriorating company's liquidity position. The EPS of the company was Rs 2.04 as compared to Rs 1.11 that was recorded last year.
FUTURE OUTLOOK Macro-economic and security challenges continued to weigh on the country's economy. The future of paint industry is highly correlated with the activity in real estate and construction business.
Owing to the pro-business policies by the current government, widespread infrastructure development activities are taking place in the country which is indirectly leading to growth in the sales volume of paint products.
BERG is ensuring production of excellent quality products and services to the customers through vigorous technological development and innovative efforts. However, lingering power crisis still remains a concerning factor for the company and might result in shrinking margins.
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1HFY12 1HFY13 1HFY14
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Profitability
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Gross profit margin 20.0% 21.1% 25.0%
Operating profit margin 3.0% 4.0% 5.0%
Net profit margin -2.3% 0.7% 1.2%
ROE - 4.8% 7.6%
ROA - 0.7% 1.1%
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Liquidity
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Current ratio - 0.94 1.02
Quick ratio - 0.55 0.65
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Turnover
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Total asset turnover - 0.99 0.95
Fixed asset turnover - 5.03 5.47
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Market
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EPS - Rs (3.57) 1.11 2.04
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Source: Company accounts
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