Berger Paints India’s earnings estimates were downgraded after gross margin compression in the September quarter (Q2FY27) proved steeper than anticipated. Consolidated gross margin shrank 225 basis points (bps) year-on-year and 160 bps sequentially to 39.3%. Q2 saw the full impact of double-digit raw material inflation, liquidation of high-cost inventory and delayed price hikes in the industrial paint portfolio.
Cost efficiency initiatives helped curb Ebitda margin drop to 90 bps year-on-year, but it fell 530 bps sequentially to 11.6%, missing consensus estimate of 13%, dragged by additional spends in the Rang Bana Rahe campaign done to strengthen brand visibility and consumer engagement. Berger eyes 15-17% Ebitda margin in Q3FY27 and Q4FY27 driven by price hikes and operating leverage.
Decorative volume growth was modest at 3%, lagging Asian Paints’ 6%. Double-digit value growth was driven by an approximately 8% price hike across the decorative portfolio.
Volumes were hurt by festive demand shifting to Q3, rationalization of dealer rebates to cushion gross margins, extended rainfall in key eastern markets and a decline in sales of price-sensitive categories such as putty, textures and enamel. Berger expects robust demand growth in Q3 and said October’s decorative sales growth was the highest in the past 25-30 months.
To mend margins, Berger plans more calibrated price hikes. How volumes respond amid elevated competition should be monitored.