Indigo Paints Q2 Results Review - Profitability Missed Estimate; Maintain 'Reduce': Dolat Capital

Dolat Capital Report

Indigo Paints Ltd.’s Q2 FY25 profitability came below our estimates. Although, revenue growth of 6.7% led by sluggish consumer demand was still better compared to peers like Berger Paints India Ltd. (+0.3%), and Kansai Nerolac Ltd. (-0.3%).

Management is optimistic that rebound in demand could propel growth rate back to double digit.

Gross margin contracted 160 basis points to 44.1% due to raw material inflation and price reductions taken in H2 FY24. Additionally, Ebitdam contracted 70 bps which was inferior compared to Berger Paints (-150 bps).

We believe that Indigo Paints will continue to outpace peers given its low base and penetration opportunities. However, we have reduced our FY25/26E EPS estimates by 6.5/6.4% at Rs 31.8/40.9 to factor in Q2 performance and introduced FY27E EPS at Rs 50.5.

Valuing the stock at 33 times FY27E EPS, we arrive at target price of Rs 1,664 (Rs 1,530 earlier). Maintain ‘Reduce’ rating.

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