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The investments thesis is (nearly) intact

Indigo’s 4QFY21 & FY2021 was in-line with our estimates (it’s early days to have (published) consensus expectations). That said, some investors may interpret the 4Q revenue growth print of 41% (versus APNT at 44%) as a tad underwhelming. In our view, the long-term (growth) story of Indigo is intact, as of now - (1) it has increased dealer count by ~2,000 to 13,200 in FY21 (tinting machines to 5,500 (from 4,300 in FY20)), (2) revenue share of differentiated products has increased to ~30% in FY21 from ~29% in FY20, (3) revenue share of non-Kerala states increased to yoy ~70% in FY21 from ~65% (though it raises some questions on growth in Kerala). Retain ADD; TP Rs2,750

* Q4FY21 results:

Indigo reported revenue growth of 40.8% YoY, however, EBITDA and PAT declined 7.9% and 8.9%, respectively due to higher raw material prices. It had raised prices of some SKUs during Dec’20-Feb’21. It has again raised prices of some SKUs in May’21. Gross and EBITDA margins declined 570bps and 890bps, respectively, YoY.

* Segment-wise volume growth rates in FY21:

Cement Paints & Putty 19.6%, Emulsions 8.7%, Enamels & Wood coating 15.4% and Primers, Distempers & Others 20.3%. Note that Emulsions have higher revenue saliency in Apr-Jun quarter. Lockdown in Q1FY21 impacted volume growth of Emulsions. Key state Kerala reported low single digit revenue growth and its contribution declined to ~30% in FY21 from ~35% in FY20.

* Strengthening of competitive advantages:

Indigo has increased dealer count by 18% to 13,200 while its tinting machine count increased to 5,500 in FY21 from 4,300 in FY20. Though the advertisement and sales promotion spends declined 2.5% in FY21, media spends increased 3% YoY. The revenue share of differentiated products increased to 29.5% in FY21 from 28.6% in FY20.

* Retain ADD:

We model sales and earnings CAGR of 30.4% and 59.1% respectively, for FY21-FY23E. Maintain ADD with a DCF-based TP of Rs2,750. Key business risk is potentially higher competitive intensity in Kerala and key stock risk is potentially lower trading multiples due to entry of Aditya Birla Group in paints sector.

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