Berger Paints Pakistan Ltd. (PSX: BERG), one of the leading paint and associated products manufacturer, reported its earnings for the financial year 2016. The earnings per share (EPS) of the company clocked in at Rs10.13, up a massive 68 percent compared to the previous year. The earnings were accompanied by a healthy dividend of Rs4.5 per share.
The reaction of investors after the announcement of the result was also very positive. The stock hit its upper circuit during the course of the trading session, while settling down at 4.3 percent up at the end. Bergers stock has had a remarkable run over the past 12 months. The stocks 52-week low is at Rs85.65, while today it made its high of Rs215. In short, the stock has gone up an astounding 150 percent in one year.
The surge in the stock price has been well justified as the company reported a 19 percent increase in revenues. Berger has eleven lines of business ranging from decorative paints to printing inks. The company benefited from Pakistan's growing economy. Its business segments related to construction material and auto sector took full advantage of the on-going boom in these sectors.
The earnings of the company were also aided by the decline in prices of petroleum products, which are its main raw material. As a result, the gross margin went up by 3.4 percent compared to FY15. Investors in this company usually watch the price of crude oil very closely. Any significant change in the price of crude oil has an effect on the stock price very next day.
On the cost side, the distribution expense of the company went up 34 percent compared to previous year. The company understands that there is a direct relationship between the amount spent on building its brand image and its top line. Hence, every year a new advertising campaign is launched so that customer recall is maintained.
The finance cost of the company also went down considerably. There was difference of 39 percent compared to FY15 because of lower interest rates and overall deleveraging.
Looking forward, Berger is set to continue its march forward as it occupies a strong position in two of the fastest growing sectors of the economy i.e. construction and automobile. The only issue is the volatile nature of international oil prices. If the price of crude oil stays south of 60 dollars, then Berger would be able to maintain its high profitability.
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