Everything You Need to Know About Indigo Paints Ltd.(NSE :INDIGOPNTS)

A few more new product lines have been recently added, one being a budget range of exterior emulsion and another being a high sheen variant of an existing premium exterior emulsion. We sincerely hope that we will be able to report a much higher growth trajectory on behalf of Indigo Paints in the forthcoming quarters.

• MR. HEMANT JALAN – CHAIRMAN & MANAGING DIRECTOR, INDIGO PAINTS

Stock Data :

Ticker (NSE) : INDIGOPNTS

Exchange : BSE & NSE

Industry : Paints

Price Performance :

Last 5 Days = – 3.31%

YTD = – 51.90%

Last 12 months = -51.90%

*As per 10th Jan 2023

Company Description:

Indigo Paints Ltd. (NSE :INDIGOPNTS) is the fifth largest decorative paint company in India. Manufactures decorative paints including emulsions, enamels, wood coatings, sealants, primers, sealants and cement paints. Over the years, the company has introduced unique paint products that have helped it expand the reach of its dealers into domestic markets otherwise dominated by the top four players. The premium product category contributes 28.6% to the top line, while the rest comes from other paint product categories. The company has pan-India reach with its 11,230 dealer network and is growing at 10% annually.

Key Estimates regarding the Future of the Company:

To meet the growing demand for waterborne paints, the company plans to expand its production capacity at its plant in Pudukkottai, Tamil Nadu by adding capacity to produce these paints. The proposed installed production capacity of the expansion unit is 50,000 KLPA and is expected to be operational during FY23. The company is also in the process of implementing capacity expansion plans at its existing Jodhpur facility. Company.

The Company intended to continue to expand its portfolio of differentiated products as these products have expanded the end-user base they serve and typically have a higher margin profile than other decorative paint products. In particular, they will continue to identify potential product opportunities in the market and focus on product development for category builders to meet the distinct requirements of the Indian decorative paint industry.

Indigos strategy to grow at twice the industry growth rate with a focus on tier 1 and tier 2 cities is now working well. In 2QFY23, the company reported higher growth than its peers, which will boost its revenue, which is up 9% year-over-year. The real benefits will be visible in FY24. Indigo increased its dealer count by 14% year-on-year to 16,758. Tinting machines increased by 21% year-on-year to 7,716. Tinting machine penetration is 46% as of September 22.

Indigo posted 23.7%, 44.5% and 53.2% year-on-year growth in revenue, EBITDA and PAT, respectively. Sales growth was driven almost equally by volume growth and price increases across segments (table:2). While gross margin was flat year-on-year, EBITDA margin increased by 200 bps year-on-year due to lower other expenses (primarily lower advertising expenses). Incessant and long-lasting rains affected the collection of exterior paints. Steep inflation in input prices as well as high raw material inventory prices impacted margins, partially offset by price increases. A lower revenue mix also impacted margins.

Analytical Insights:

The decorative paint segment accounts for approximately 74% of the total paint market in India and includes interior and exterior wall finishes, enamels, wood finishes and ancillary products such as primers and sealants. Over the past five years, the share of decorative colors has increased from 67% to 74%. The decorative segment grew at a CAGR of 11.5% during FY14-19, driven by an increase in paint consumption in small towns. Multiple metro and tier 1 cities have been affected by COVID-19, with most regions under complete lockdown. 

As a result, demand recovery outside metros has been faster. In the paint industry, rural areas and small towns account for almost half of the total sales. Accordingly, the pandemic drop in demand has least affected paint players that have a good presence in tier 2-4 cities (such as Berger Paints, Kansai Nerolac and Indigo Paints). India’s decorative paints market is expected to grow at a CAGR of ~13% in terms of value led at a CAGR of ~10% by FY24, driven by higher disposable income, market share gains from unorganized players and various government housing schemes.

Further, with planned expansion, debt reduction and other cost control measures, we expect the company to maintain its level of growth. To create demand for its differentiated products, Indigo Paints initially tapped into Tier 3, Tier 4 Cities and Rural Areas where brand penetration is easier and retailers have greater ability to influence the purchasing decisions of customers. They then leveraged this network to work with dealers in Tier 1 and Tier 2 cities and metros.

Management has identified 750 cities in Tier I and II cities as potential cities, excluding metro cities. The company has expanded its dealer networks in these cities in recent years. However, the performance per seller in these 750 cities is relatively lower. It will now focus on strengthening its influencer presence (painting community) and leveraging and expanding its own brand equity. Management expects good results from these initiatives over the next six months.

Given these and the growth prospects, investors may consider investing with a long-term perspective.