Indigo Paints Q3 Results Review - Sustained Outperformance- Continues To Demonstrate Strength: Motilal Oswal

Motilal Oswal Report

Indigo Paints Ltd. delivered a sales growth of 25.8% YoY, and continued to surpass the industry growth (three times -four times of industry growth in Q3). Sales growth in tier 1/2 cities continue to outpace the tier 3/4 cities and rural areas. Volume growth stood strong in double-digits across all segments.

Gross margin expanded 440 basis points YoY to 48.2%, driven by benign raw material prices and mix. Reinvestment in team building, marketing, and distribution expenses has led to higher other operating expenses, which was up 30% YoY. Ebitda margin was up 320 bp YoY to 17.6%; Ebitda grew 53.5% YoY (estimate 42%).

Given the relatively small scale of Indigo Paints (Rs 11 billion revenue in FY23) in the large Paints industry, the company has been able to grow much faster than the industry. Consumers’ rising acceptance of the brand and distribution expansion have been driving the outperformance.

With the entry into the water proofing segment through Apple Chemie India Pvt. Ltd., the company has expanded its growth prospects. We forecast a 20% revenue compound annual growth rate during FY24-26, with Ebitda margins of 18-19% FY24-26 versus 17% in FY23.

We reiterate our 'Buy' rating on the stock at a target price of Rs 1,800 (40 times price/earning on December- 25 earning per share).

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