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Product cover image for Berger Paints India Limited: Discovering the Optimal Capital Structure

Berger Paints India Limited: Discovering the Optimal Capital Structure

Chetan G K

Product #:W38431
Supplier:Ivey
Discipline:Finance
Setting:India, 2024
Details:Case (PDF) • 14 pages • 2024-11-01

Subjects:

Finance and investing

Industries:

Fabrication and manufacturing

Geography:

AsiaIndia
Your Price:$9.71

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In August 2024, Harsha Desai, an equity research analyst based in Mumbai, India, found himself deeply engaged with the financial statements of Berger Paints India Limited (Berger), a Kolkata, West Bengal–based firm in India’s paint and varnish industry. Among the various financial metrics, the company's low debt-to-equity ratio of 0.021 drew his attention, indicative of prudent fiscal management. This observation spurred him to employ a discounted-cash-flow (DCF) valuation to determine Berger's intrinsic value. Nevertheless, a crucial element of the analysis was missing: the company's prospective debt strategy. Thus, Desai aimed to identify the optimal debt level for Berger and then pinpoint great investment opportunities for the firm.

Learning Objectives

The case provides students with an opportunity to understand the crux of a financing decision and construct the optimal capital structure by following the cost-of-capital approach. Detailed calculations are provided in accompanying Excel spreadsheets. After reading this case, students should be able to achieve the following objectives:
  • Learn about the paint and varnish industry and how it is classified for analysis of capital-structure decisions.
  • Identify the ratios that credit-rating agencies use to determine a company's credit rating.
  • Understand the mechanics of the capital-structure decision for Berger and determine the optimal capital structure by using the cost-of-capital approach.
  • Apply the DCF technique to Berger’s scenario to assess whether the company's value has increased.
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Case Study: Berger Paints India Limited: Discovering the Optimal Capital Structure (English version) | Ivey Publishing