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Indigo has been investing in strategy 2.0 (focus on 750 non-metro towns and higher investments in distribution and influencers) since Q1FY23. Benefits are visible now with >3x industry growth in Q1FY24 and likely market share gains across segments. We continue to model benefits of strategy 2.0 in FY23-25 and also believe (1) integration of Apple Chemie with Indigo’s supply chain and synergies in sourcing and distribution and (2) correction in commodity prices provide margin tailwinds. It continues to strengthen distribution with addition of 2 depots, 197 dealers and 384 tinting machines in Q1FY24. While we are enthused by strong performance of Indigo, we believe likely increase in competitive intensity post Grasim’s entry to impact industry profit pool. Maintain REDUCE.

Q1FY24 results

Indigo reported revenue, EBITDA and PAT growth of 28.8%, 39.2% and 58.3%, respectively YoY. Gross and EBITDA margins expanded 210bps and 128bps, respectively YoY due to correction in commodity prices. Standalone revenues were up 23.7% YoY.

All segments reported strong volume growth

Segment-wise volume growth rates (YoY): Cement Paints and Putty: 64.6%, Emulsions 13.1%, Enamels and Wood coatings: 35.2% and Primer, Distempers and Others: 52.4%. Realisations of all segments (except Primer, Distempers and Others) were higher YoY in-spite of higher trade discounts due to carry- over of price hikes and likely superior revenue mix.

Benefits of strategy 2.0

Indigo had initiated strategy 2.0 in FY23 to focus on 750 towns (non-metros). It stepped up investments in distribution and influencers. We believe the benefits of these efforts are visible now with 3-3.5x industry revenue growth in Q1FY24. In our view, Indigo has gained market shares across segments.

Distribution expansion

Indigo has expanded dealer count to 16,692 at end-Q1FY24 from 16,526 at end-Q1FY23. The penetration of tinting machines was 51.9% in Q1FY24 compared to 45% in Q1FY23. We also believe the integration of Apple Chemie will help to strengthen distribution and improve throughput per store.

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