Indigo Paints: Improvement In Result Despite Headwinds & Other Updates

“For Indigo Paints, you may have noticed that Q4 of every year is traditionally our strongest quarter in terms of sales volumes, in terms of absolute profits and also in terms of profit margins. We expect this to continue in this fiscal. The company has witnessed good sales growth in January ’23 in continuation with the good growth it experienced in the preceding 2 months in November and December. Having consistently maintained industry-leading gross margins, we will continue to be aggressive in trade discounts to further accelerate growth while improving product mix and profitability in our seasonally strong Q4 quarters.”
-Hemant Jalan, Chairman & MD

Stock Data

Ticker	INDIGOPNTS
Exchange	NSE & BSE
Industry	Paints

Price Performance

Last 1 Month	0.7%
Last 6 Months	-33.6%
Last 12 Months	-34%

Indigo Paints Business Basics

Indigo Paints Limited is a major player in the Indian paint industry, offering a wide range of decorative and industrial paints. The company has a customer-centric approach and has developed products that cater to the specific needs of Indian consumers, such as weather-resistant exterior paints that can withstand the extreme climatic conditions in the country. One of the company’s key strengths is its strong focus on research and development. Indigo Paints has a state-of-the-art R&D center in Pune, where it develops new products and tests them in real-world conditions. The company has also invested in automation and technology to ensure consistent quality across all its products. Indigo Paints has a robust distribution network, with over 40 depots and 13,000 dealers across India. The company has also expanded its operations internationally, with exports to countries such as Nepal, Bangladesh, and the United Arab Emirates.

Indigo Paints Register Growth Despite Headwinds

Indigo Paints Limited reported a Revenue from Operations for Q3 FY23 of ₹281.26 Crores, a boost of 6% growth from the previous year. The Revenue was improved despite low sales in October due to early Diwali and prolonged festive holidays along with delayed monsoon. The Gross margins for the quarter improved to 43.82% compared to the margins of 41.72% in the same quarter previous year. The Consolidated Net Profit for the business increased by 8% year over year, to ₹26.26 Crore from ₹24.30 Crore. The Net Profit margin is at 9.2%, expanded by 13 basis points year on year. This expansion resulted from raw material prices that have largely stabilized. As a result, the business was able to offer trade discounts while still maintaining a healthy margin. Earnings per Share is ₹5.50 for this quarter. EBITDA for the quarter rose to 40.56 crores, up 5% from the same period last year. The EBITDA margins, at 14.42%, have, however, largely remained unchanged. Even though there were no price increases implemented in the previous quarter, EBITDA increased.

Indigo Paints Network Expansion

The company has maintained its focus on network expansion, with 16,785 active dealers at the end of the quarter. Indigo Paints has a total of 7,978 tinting machines and 47 depots in the same time period. Approximately 35% of the new tinting machines were installed in the targeted 750 large cities during the entire 9-month period of this fiscal. The management has seen an increase in momentum since April as a result of focusing on these large cities. Furthermore, in the last 4 to 6 months, more than 50% of Tinting machines have been installed in major cities. Therefore, the management’s emphasis on boosting sales in these larger cities has undoubtedly begun to show results.
The management further added by saying, “We note that the sales growth in these 750 cities 1s almost double the rate of sales growth observed in other upcountry areas.”

Value and Volume Growth Across Business

The last price increase done by Indigo Paints was in the third quarter of the fiscal year 2022. This price increase has resulted in the value growth in almost all the categories. Moreover, the value growth is higher than the volume growth. Furthermore, value growth outpaces volume growth. The putty and cement paints segment has experienced significant volume and value growth for Q3 FY23 for the company. Value growth exceeded 42% while volume growth was close to 35%. Volume growth for the Emulsions segment has been slightly negative. The Emulsions segment, however, has experienced growth of 6% in volume and about 23% in value when compared to the previous nine months.

The value growth for the Enamels and Wood Coating category was close to 15%, and the volume growth was close to 5%. The value growth for this category was among the highest over the course of the previous nine months. The last category, Primers, Distempers & Others also shown a slight improvement in both value and volume growth for this quarter. The value growth and volume growth for the category was almost 6% and 1% respectively. For more details regarding the value growth and value growth, refer the table below.

Product Category	Value Growth (Q3 FY23)	Value Growth (9 M)	Volume Growth (Q3 FY23)	Volume Growth (9 M)
Cement Paints & Putty	42.3%	28.1%	34.8%	18.9%
Emulsions	3.3%	22.8%	-4.3%	6.2%
Enamels & Wood Coatings	14.6%	31.6%	4.7%	16%
Primers, Distempers & Others	5.5%	17.2%	1.3%	6.3%

Indigo Paints is likely to announce the launch of the full line of waterproofing and construction chemicals in the retail market as its new products. These are high-growth industries with good synergies with paint products, both in terms of product placement and distribution network. Furthermore, Indigo Paints’ strategy to increase its presence in Tier-1 and Tier-2 cities (750 large cities) is yielding positive results. Historically, Q4 has been the company’s strongest quarter in terms of both top and bottom line. Overall, we should expect the company’s Sales and profitability to improve in the final quarter of the current fiscal year.