Indigo Paints Limited Q3 FY23 Earnings Conference Call Insights

Key highlights from Indigo Paints Limited (INDIGOPNTS) Q3 FY23 Earnings Concall

Management Update:

• [00:09:29] INDIGOPNTS said it will soon be launching a range of waterproofing and construction chemicals in the retail space.

• [00:10:13] INDIGOPNTS said it experienced good growth in January 2023, and plans to be aggressive in trade discounts to further accelerate growth while improving product mix and profitability.

Q&A Highlights:

• [00:11:45] Abneesh Roy from Nuvama asked how INDIGOPNTS will manage the cost inflation while keeping a healthy EBITDA and GM going forward. Hemant Jalan MD said INDIGOPNTS wants to maintain its current GM, but due to cooling RM prices and increasing competition, it has had to increase trade discounts. Advertising spends have increased in absolute terms, but the A&P expenses as a percentage of the top-line has decreased due to higher sales growth than A&P growth. This trend is expected to continue.

• [00:14:38] Abneesh Roy from Nuvama also enquired about the strategy of new launches as most of the other players are in that space already. Hemant Jalan MD replied that INDIGOPNTS was late to enter the market for its type of new products, but trials have been successful and it will be launching the entire range in 1Q24. This range contributes to high growth for other paint companies and since the sales channels are the same, it is a synergy that INDIGOPNTS should take advantage of.

• [00:15:59] Abneesh Roy from Nuvama queried that if the company expects high-single-digit to double-digit volume growth in Q4. Hemant Jalan MD said that INDIGOPNTS expects that it will grow faster than its larger peers in the industry, having a large exposure to the decorative paint segment. INDIGOPNTS expects to improve upon its growth moving forward.

• [00:18:17] Shrenik Bhandari from Invest Yadnya asked about the company’s opinion on the slowdown in dealer additions over the past quarter, compared to the previous nine months. T. S. Suresh Babu COO replied that INDIGOPNTS is focusing on increasing its network by targeting 750 bigger towns and putting more emphasis on quality of dealers than numbers. Throughput per dealer is higher in the last nine months than it was previously.

• [00:19:34] Tejas Shah at Spark Capital asked how the company perceives consumer sentiment in the current and upcoming quarters. T. S. Suresh Babu COO said the wedding season is in full swing during 4Q, mainly in Jan. and Feb. This gives a boost to paint consumption as weddings take place heavily in Northern India during this time. Wedding season also continues throughout much of Feb. in South India.

• [00:20:53] Tejas Shah at Spark Capital enquired about the distribution infrastructure, such as depots, required to support the new Tamil Nadu plant. Hemant Jalan MD said INDIGOPNTS is not planning to increase the number of depots due to the construction of a new plant. The company is instead basing the decision on anticipated demand and depot expansion will occur gradually over time. The new plant will be more modern and automated and production is expected to start in March.

• [00:29:23] Hiral Desai from Anived PMS asked if the company’s planned A&P spend will be enough to effectively promote INDIGOPNTS products and gain market share. Hemant Jalan MD replied that INDIGOPNTS tracks its competitors’ A&P spends and has done brand tracking studies in India, resulting in a high brand recall. However, added that it’s important to focus on other factors that drive sales instead of merely increasing advertising spends to increase market share.

• [00:33:33] Rohan Bhukne asked about the revenue guidance in terms of the revenue growth for the next 3-5 years. Hemant Jalan MD answered that it’s not able to provide specific guidance on percentage growth for the next 3-5 years, but the goal is to outperform larger peers and deliver 1.5 to 2 times higher growth rate by focusing on larger cities.

• [00:42:01] Manoj Menon from ICICI Securities asked about NPD products launched in the last 6-12 months and its pipeline. Hemant Jalan MD clarified that there have not been any major new product launches from the company in recent years. However, INDIGOPNTS has added several sub-variants to its existing products, such as extra sheen variants, dust-free variants, etc. INDIGOPNTS added it’s also planning to launch a full range of waterproofing and construction chemicals in 1Q24.