Indigo Paints Gets 'Buy' From Philip Capital As Stock Expected To Rise

Philip Capital India Pvt. initiated a 'buy' coverage for Indigo Paints Ltd., as it projected a potential upside of over 30% in the paint manufacturer's stock.

In a note dated Sept. 24, the brokerage set a target price of Rs 1,937 per share for Indigo Paints, which is 30.8% higher than the company's current market price.

With "strong industry tailwinds and multiple growth levers", the company's revenue is projected to increase by 19.9% between fiscals 2024 and 2027, it said.

In the same period, the company's earnings before interest, taxes, depreciation and amortisation is projected to grow 19.9% and the net profit is expected to climb by 23.26%, the brokerage added.

Indigo Paints has entered the tier 3 and 4 markets "easily", which gives them a "first mover advantage and pricing power", it further noted.

Philip Capital expects Indigo Paints' revenue to grow by 20% year-on-year, "aided by multiple growth levers." As the company increases its topline by the projected 20%, "we expect operating leverage to kick in and margins to improve,"  it added.

The operating margins are likely to expand to 18.5% in fiscal 2025 and 19.2% in fiscal 2026, the brokerage said.

Indigo Paints has "historically had the highest percentage of revenue spent towards advertising" compared to industry peers. This is expected to come down, aiding in margin expansion, it further noted.

The strong forecast is also driven by the optimistic sectoral trends, as the paint and coatings industry is projected to grow at around 9.5% in value terms over the next five years, Philip Capital said. This growth will be driven by a pickup in real estate demand, affordable housing schemes, and a rise in public infrastructure projects, it added.

Shares of Indigo Paints closed 0.4% higher at Rs 1,480.25 apiece on NSE, compared to a 0.81% climb in the benchmark Nifty 50.

Year-to-date, the stock has declined by 0.69%, whereas the plunge has been sharper at 2.34% over the past 12 months. The stock's relative strength index stood at 51.

Out of eight analysts tracking the company, three have a 'buy' rating on the stock, three suggest a 'hold', and two recommend a 'sell', according to Bloomberg data. The average of 12-month analysts' price targets implies a potential upside of 5.7%.