Paint companies have recorded their profit and loss accounts in bright green and a healthy impact has travelled down to their stock prices.

In Pakistan, Berger is in competition with AkzoNobel — the world’s two largest paint companies. While Akzo Nobel Pakistan was created by ICI Limited, which spun off its paints business into a separate stock market listed entity, Berger started operations in the country in 1950.

A quarter of a century later in 1974, Pakistani investors acquired 49.38pc shares of the local subsidiary of Berger, while the remaining 50.62pc were held by the UK parent, Jenson and Nicholson Limited. Then in 1991 Slotrapid Limited, a UK based company, stepped in to seek control of Berger Paints Pakistan through the purchase of 50.62pc shares.

According to the last available figures, Slotrapid now retains 9.5m (52.0pc) of the company stock while the general public, with 6.6m shares (36.1pc), claim second largest ownership.

Paid-up capital of the company amounts to Rs181.9m, while reserves are healthy at Rs444.7bn. Total assets on June 30, 2015 stood at Rs3.55bn.

The company operates in the areas of decorative paints, industrial paints, powder coating, automotive paints and construction chemicals. In recent years it has been investing into high-growth areas.

The company has entered into a number of technical collaboration arrangements with recognised international manufacturers. These include the largest paint company in Japan, which enables Berger to develop automotive, vehicle refinishes and industrial paints.

“Positive signs of improvement in the law and order situation and the power supply position are healthy factors to predict a better future”, company CEO Dr Mahmood Ahmad said, but cautioned, “Any adverse change will directly affect our performance”

It has also acquired distribution rights of DuPont for Pakistan’s vehicle refinish paint segment. In addition to all this, the company is also operating a resin manufacturing facility at Lahore, which has enabled it to meet its entire resin needs for the manufacturing of a wide range of paints.

Last week, Berger Paints Pakistan announced FY16 consolidated earnings at Rs185m compared to earnings of Rs110m last year. The detailed accounts and directors’ report will take a while to arrive.

During 1HFY16, revenue of the company clocked in at Rs2.5bn, up by an impressive 23pc over the same period last year. “These results became possible primarily for two reasons; the decrease in the prices of raw materials, including petroleum products, and a timely increase in the prices of our products”, said the company CEO Dr Mahmood Ahmad.

Expounding on future prospects, he stated in his report that as a result of a general slowdown in the global economy, the prices of commodities and petroleum products had declined over the previous six months, while on the other hand, the rupee lost almost five per cent against the dollar, tending to an increase in the cost of imported raw material.

“Positive signs of improvement in the law and order situation and the power supply position are healthy factors to predict a better future”, the company chief said, but cautioned, “Any adverse change will directly affect our performance”. Although the company CEO did not complain, smuggled and illicit paints have forever remained the biggest threat to the local industry.

In FY15, the company had produced 28.4m litres of paint. The management was optimistic about achieving the highest level of volumetric sales by the end of FY16. The annual report for FY16, when released, would show if the company managed to accomplish the feat.

Saqib Hussain analyst at Sherman Securities observed that with the recent boom in construction activities, along with infrastructure and China Pakistan Economic Corridor (CPEC) related projects, cement, steel and allied products have been in demand.

The market price of the company’s share was quoted at the Pakistan Stock Exchange (PSX) on Wednesday last at Rs205.67. Analyst Sadiq Samin who compared the PSX stock price of Berger with its Indian counterpart, argued that Berger Pakistan was trading at a lower price-to-earnings (PE) of 20.8 times compared to Berger India’s PE of 51.7 times.

Although Berger India is relatively bigger in terms of size and operations, the rising infrastructure development and construction activity, along with stellar automobile demand was expected to provide impetus for growth to Pakistan paint industry”.

Another analyst chipped in that the Berger Pakistan was also trading at discount to Berger Bangladesh despite higher growth in earnings. “Once the Pakistani market is upgraded to MSCI Emerging markets and opens for big investors (in June next year), this huge discount will hopefully narrow down,” suggested the analyst.

For a continuing brighter bottom line, the company banks upon economic activity that will drive the demand for infrastructure, housing and construction.

A market watcher handed down the August 2016 issue of ‘The Asia Pacific Coatings Journal’ (APCJ) which noted: “China is by far the largest national market for paints and coating in the Asia Pacific region, followed at some considerable distance by India and Japan”. This should be music to the ears of local paint companies who could make a first foray into China’s export markets, as the economic relationship between the two countries are set to grow, particularly in the areas of construction.

Published in Dawn, Business & Finance weekly, September 26th, 2016